What is it?
The Energy Savings Opportunity Scheme requires qualifying UK undertakings, and corporate groups containing a qualifying UK undertaking, to carry out energy efficiency assessments and audits in four yearly 'phases' and recommend where energy savings can be made within their operations.
Qualifying organisations must then make various submissions to the Environment Agency (EA) to demonstrate compliance.
Determining whether an organisation or group falls within scope of the scheme for a particular phase can be considerably complex.
Below is a high-level overview of the scheme and its requirements. Please contact Emma Tait, or your usual Taylor Wessing contact, if you think your organisation may be affected.
Which organisations are within scope?
The scheme applies to UK undertakings which qualify as 'large' for the purposes of the scheme (see below). Examples of undertakings that can qualify include UK limited companies, LLPs, partnerships, joint ventures and trusts.
Broadly, a UK undertaking will be large for the purposes of the scheme if it meets one or both of the following criteria on the qualification date for the phase in question:
- it employs at least 250 employees or
- it has an annual turnover of over £44 million and an annual balance sheet total of over £38 million.
Note that if a corporate group contains just one large UK undertaking, that group's entire UK operations will be subject to the scheme. For example, a UK investment company or LLP which does not have any turnover and employs fewer than 250 employees will still fall within scope if at least one member of its group meets one of the above criteria.
Overseas undertakings are not required to participate in the scheme. However, a group which contains an overseas undertaking can still qualify where there is a UK undertaking which qualifies as large within the group.
Public bodies and companies in insolvency are excluded from the scheme.
What do qualifying organisations have to do?
Qualifying organisations must submit a notification to the EA confirming compliance with the scheme (ESOS Compliance Notification) by the deadline specified for the phase in question.
Those organisations must then submit to the EA an action plan setting out how they are taking forward any energy efficiency recommendations (ESOS Action Plan) as well as annual updates on progress (ESOS Progress Update). ESOS Action Plans and ESOS Progress Updates will be made public.
The UK undertaking which is the 'highest parent' (an undertaking which has no UK parent itself) usually will be the undertaking responsible for carrying out the scheme requirements and demonstrating compliance to the EA on a group's behalf.
An undertaking which qualifies for the scheme, but which has zero energy supplies, must still participate by submitting an ESOS Compliance Notification confirming that, although it qualifies for the scheme, it has no energy responsibility.
What are the consequences of non-compliance?
Failure to submit an ESOS Compliance Notification on time may result in enforcement action, financial penalties and/or publication of non-compliance.
Failure to submit an ESOS Action Plan or ESOS Progress Updates will not attract enforcement action or financial penalties, but the EA will publish that the organisation has failed to submit.
What should organisations be doing now?
Phase 3: 6 December 2019 to 5 December 2023
If your organisation was in scope for Phase 3 your first ESOS Progress Update is due by 5 December 2025 and your second by 5 December 2026.
Phase 4: 6 December 2023 to 5 December 2027
The qualification date for Phase 4 is 31 December 2026.
Phase 4 ESOS Compliance Notifications are due by 5 December 2027.
Your organisation should assess whether it is likely to meet the qualification criteria by 31 December 2026. Even if your organisation does not currently qualify for Phase 4, it will be subject to the scheme if it meets the criteria by that date and must submit an ESOS Compliance Notification by 5 December 2027.
Multi-national groups will need to assess their position carefully to determine whether they fall within scope and, if so, which entity will be responsible for compliance. UK organisations sitting close to the qualification thresholds will need to do the same, especially where planned mergers or disposals may alter their size or group structure.
Organisations likely to qualify would be well advised to begin preparations now to ensure compliance by the notification deadline.
We expect guidance on Phase 4 to be published in early 2027.
How can we help?
If you are unsure whether the scheme may apply to your organisation, or if you have received a communication from the EA that requires support, please contact Emma Tait or your usual Taylor Wessing contact. We can help you assess whether your organisation falls within scope of the scheme and advise on the best course of action.
