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News & opinion

5 DEC 2019

Are retailers missing out on energy savings by not complying with ESOS?

At least half of the retailers surveyed recently by energy consultancy Inenco have failed to act on the efficiency recommendations they received under the first phase of the government’s Energy Savings Opportunity Scheme (ESOS) – meaning they’re missing out on significant savings.

How it works

ESOS requires more than 10,000 businesses to complete energy efficiency audits across their organisation and submit data on energy consumption, as well as identified recommendations to reduce it, to the Environment Agency every four years. Any organisation with more than 250 employees, or an annual turnover of €50m and a balance sheet of €43m, must comply with the scheme or face financial penalties.

Undertaking an ESOS assessment requires eligible businesses to measure total energy consumption across buildings, transport and industrial activities. They must also conduct an energy audit across at least 90% of their total consumption and identify opportunities for cost-effective ways to save energy. Crucially, although ESOS identifies energy efficiency opportunities, there is no obligation on businesses to enact any of the measures that have been recommended.

Phase one of the scheme concluded in 2015, but with the phase two deadline just around the corner, businesses will once again receive a raft of recommendations to drive down cost and consumption across their savings.

The response from businesses so far

When surveyed, retailers cited a lack of support from their boards as the most significant reason for their inaction thus far, while 44% stated that they do not have the budget to implement the recommendations. Although more than 10% of them said energy efficiency is not a priority for their business, with the deadline for the second phase now only a few months away, retailers could face fines of up to £50,000 for non-compliance.

Many retailers will have complied with ESOS during the first phase of the scheme, which ended on 5 December 2015. Whether or not they complied on time is another matter, however, as around 2,800 organisations had to inform the Environment Agency that they would be late in reporting compliance in phase one.

In fact, just 16% of businesses were fully compliant on their first submission, so the majority of those who completed their reports on time were required to carry out remedial actions after the deadline. Businesses that were late to submit or required to carry out remedial actions ran the risk of incurring serious penalties, such as the £50,000 fine mentioned above.

Colleagues working together around computers
Any organisation with more than 250 employees must comply with ESOS

Enforcing compliance in phase two

The problems that businesses experienced during phase one prompted the Environment Agency to extend the deadline for a few weeks. But such leniency is highly unlikely to be repeated in phase two given that the scheme is now well established and businesses have had plenty of time to prepare for compliance. This means that all eligible businesses need to have been working already to comply by conducting energy audits across their organisation and having them signed off by a lead assessor in time to meet the phase two deadline on 5 December.

Even with this deadline, Inenco’s research has revealed that 80% of retailers have not yet begun their ESOS phase two audits. This is by far the largest proportion from any industry and almost 20% higher than the average across businesses from a range of other sectors. Their indifferent approach to compliance may be explained by the fact that 67% of the retailers surveyed said they don’t think ESOS phase one was worth it. For these firms, there may seem to be little point in investing any more resources in ESOS compliance than is strictly necessary the second time around.

The benefits to businesses

If retailers take a fresh approach to their ESOS obligations, however, they may think differently. Reporting schemes represent an opportunity for them to save money, thanks to the insight they can gain into their energy usage as they work towards compliance. By concentrating their efforts into deriving as much value from their ESOS obligations as possible, retailers can ensure it is much more of a boost than a burden.

Energy costs for businesses across all sectors have risen by up to 25% in the past four years, putting pressure on many retailers. As these increases are forecast to continue to rise substantially over the coming years, improving energy efficiency will increasingly become a priority for the retail sector. Therefore, the value of ESOS lies in the requirement for retailers to identify several energy efficiency measures that they could reasonably implement in their organisation – the only sure way to save costs as prices continue to rise.

They must assess the cost-effectiveness of adopting each measure by comparing the reduction in energy consumed or energy spend with the cost of implementation, which should simplify building the business case for improvements.

View from above of a shopping centre with escalators
Pressure is rising for retailers, as energy costs continue to rise

What are the recommendations?

Inenco analysed data from the customers it supported through ESOS phase one to identify the most common recommendations for retailers. Lighting emerged as top for savings among businesses across all sectors, including retail. Improvements such as retrofitting high-efficiency lighting or installing lighting controls, sensors and timers typically require relatively little upfront investment and take an average of three and a half years to provide a return on investment.

Energy management, which includes measures such as encouraging behavioural change among staff, monitoring energy usage and optimising procurement strategies, was another key area for savings among retailers: on average, investment in energy management is returned in just 18 months. While the third most common recommendation for retailers – installing or upgrading heating, ventilation and air conditioning systems – requires a slightly higher upfront investment, focusing on this can also reduce costs significantly in less than two and a half years.

Cutting costs and reducing carbon footprint

Retailers don’t need to adopt their efficiency recommendations to achieve compliance, but if they simply shelve their ESOS audits without acting on them then they could be missing out on an average 13% saving in energy use each year. The research found that, by implementing recommendations, many retailers could cut costs by 5% within just three months and see further significant savings over the financial year.

Savvy retailers will recognise that unless they act on their ESOS recommendations, they risk falling behind competitors that are benefitting from the scheme with savings and reduced carbon footprint. ESOS audits offer a chance to cut costs and increase their competitiveness.

  • David Oliver is a lead consultant at Inenco
  • This article originally appeared in the October - November 2019 Property Journal