Posts

ESOS Phase 2 compliance: Have you got a plan in place?

With the compliance deadline for ESOS Phase 2 just a year away – 5 December 2019 – proactive organisations have started to prepare by planning and carrying out energy audits as part of the compliance process.

With only a few exemptions for public bodies, your organisation qualifies if on the 31st December 2018, it meets the ESOS definition of a large undertaking:

  • You employ 250 staff or more
  • You have an annual turnover exceeding €50m and a balance sheet exceeding €43m

Qualifying organisations that fail to undertake an ESOS assessment will be liable for a penalty of up to £50,000 and details of non-compliance would be published.


To avoid this action, organisations are required to complete the following compliance procedures;

  1. Measure and report energy use for a continuous 12-month period (overlapping the qualification date of 31 December 2018), to include energy consumed by buildings, industrial processes and transportation activities
  2. Identify your areas of significant energy consumption. ESOS assessments must be completed to cover at least 90% of an organisation’s total energy consumption
  3. Appoint a Lead Assessor to carry out, oversee or review your energy audits and overall ESOS assessment
  4. Undertake energy assessments for your areas of significant energy consumption using one or more of the following approved routes:
    • ESOS Energy audits
    • Display energy certificates
    • An ISO 50001 Energy Management System
  5. Report compliance to the National Scheme administrator – the environmental agency in England, SEPA in Scotland, NIEA in Northern Ireland and NRW in Wales and store your records of assessment.

Don’t forget to take advantage of the energy saving opportunities identified – EVORA identified £2.8M of energy savings in Phase 1 of ESOS.

With our expertise and data management solution SIERA, we can implement energy efficiency programmes, leading to substantial reductions in energy usage and associated costs. Our energy management team typically find quick win energy savings with payback in less than a year. Read more here on how ESOS can be a long-term investment to your business.


EVORA employs qualified Lead assessors and can support you to develop a practical compliance strategy that is appropriate for your organisation.  To ensure you fully comply with ESOS Phase 2, we offer a range of practical solutions. Find out more in our ESOS Compliance Guide .

Energy Savings Opportunity Scheme (ESOS) – a burden or an opportunity?

Regulatory reporting can often feel a burden, and in areas which are more specialist, such as energy and carbon reporting, it can be a daunting experience.

Energy and carbon reporting regulations have principally been introduced to highlight the materiality of the impacts and provide visibility of the opportunities to deliver both energy and cost savings.

The reality is that many organisations only want to be compliant and it is only the few who see the opportunity to push forward opportunities and create a competitive advantage.

A good example of this is the Energy Savings Opportunity Scheme (ESOS).


ESOS (Article 8 in Europe) is upon us again in the guise of Phase 2 and will impact large undertakings both in the UK and Europe, requiring them, in simple terms, to measure 12 months of energy across their organisation and identify energy efficiency initiatives through energy audits. For more information on meeting compliance read our ESOS compliance guide.

ESOS has been developed to help organisations understand their total energy use and identify opportunities to deliver energy and cost savings, which is presented to senior management. It is hoped by the government that ‘low hanging fruit’ with pay backs of less than a year will be a no brainer to organisations to implement.

Although the deadline is the 5thDecember 2019, there are advantages in kicking off early with the energy audits, firstly to have a project plan in place to ensure you meet the deadline and secondly to identify cost-effective energy efficiency opportunities, which could provide immediate benefit to the financial bottom line. In Phase One, EVORA identified £2.8M of low cost energy savings for its clients.

Do you see ESOS as a cost to your business or an investment?

ESOS only requires you to identify the opportunities and ironically many organisations did not implement the initiatives found in Phase One. This turns ESOS regulation into a cost rather than an investment – a significant missed opportunity.

An example of the quick win opportunities is highlighted by work EVORA delivered in collaboration with a property management company to deliver an energy efficiency programme utilising EVORA’s energy management software, SIERA. The graph below displays the weekly energy profile at the office building (110 Queen Street in Glasgow) before (light blue line) and after interventions (dark blue line) were brought about by the improvement programme.

Significant improvements in the energy profile can be seen, especially at the weekend, which has delivered savings of 30% (greater than £30,000 actual savings in the year) without any capital expenditure. This was achieved despite increased occupancy at the property throughout the year and payback was less than three months.

For more information on how we delivered these savings read the full case study here.

This is certainly not the exception and we have worked with an array of sectors including power generation, real estate, retail and hotel & leisure to optimise energy efficiency, often achieving surprising results.

If you’d to learn more about how we can support you with your ESOS regulation and turn a compliance cost into a long term investment, contact us.

Do your buildings meet the Minimum Energy Efficiency Standards (MEES)?

Are your assets at risk as a result of the Minimum Energy Efficiency Standards (MEES) regulations which came into force on the 1st of April 2018?

In a previous blog post titled “MEES regulations: How they will impact flexible workspace from April 2018” written by my colleague Russ Avery, he gave a 10-point strategy on how you can manage MEES risks.


The regulation means that landlords cannot let, extend or renew a lease for F and G rated properties unless an exemption applies. One such (temporary) exemption is that the EPC rating cannot be improved through measures that pay for themselves within a 7-year period.

E rated properties may still be at risk from MEES regulations!

Landlords and their professional advisors should also be aware that there was a fundamental change to the EPC calculation methodology effective April 2011.

This means that assets which had their EPCs prepared prior to this date could be at risk even if they were E ratedClick To Tweet

This means that assets which had their EPCs prepared prior to this date could be at risk even if they were E rated. We can identify these assets after reviewing your existing EPC’s and help establish improvement programmes to improve your rating.


What implications will this regulation have on your assets?

MEES regulations will need to be factored into the day-to-day asset management of commercial real estate. We consider below some implications of the regulations.

Transactional value: We have first-hand evidence as a company that poor EPC ratings affect transactional values. We know of transactions where hundreds of thousands of pounds have been ‘chipped’ off the agreed purchase price once the due diligence processes established incorrect EPC certificates were in place.

Valuation: Both yields estimated rental values (ERVs) are ‘at risk’ because of MEES. Research indicates that the effect of disregards at a rent review and under a 1954 Act lease renewal on ERVs could impact capital values by more than the cost of relevant improvements.

There is an assumption by some professionals in the market that MEES will hit secondary and tertiary assets more than prime real estate. This may be incorrect due to the way in which commercial property is typically valued. In its simplest form, capital values are determined largely by the rental value of the premises, either actual or potential. A valuer looks at this income and applies an appropriate ‘all risks yield’ to reflect the security and term of income, and any potential for future growth. This is represented by the simple formula: NI x YP = CV, where NI in net income, YP is years purchase, and CV is capital value.

The cost of the installation (or disregard) of building services is reasonably uniform subject to locational adjustment factors. Technologically speaking, a heat pump installed in London will be the same as a heat pump installed in Hull, and cost is affected by labour rather than the technology itself. A prime yield might be 5%, where as a secondary yield might be 10%. A £1.00 reduction in rental value as a result of MEES will therefore affect capital values by £20.00 on the prime investment (100/5 = 20 YP) and by £10.00 on the secondary investment (100/10 = 10 YP).

Dilapidations: The effect of Section 18 Valuations and supersession generally have the potential to render tenant repairs useless because of MEES. If precedent is established for this, then the dilapidations market could be significantly impacted by MEES. We see this as a potentially market disruptive issue for property. Read more about dilapidations here.


How to manage MEES (our previous 10 step guide)

  1. Review how you store your data
  2. Identify any gaps in the data and any assets at risk
  3. Consider the use of software, such as SIERA
  4. Use CIBSE accredited assessors
  5. Ask your assessor to review the existing EPC for accuracy
  6. If you need a new EPC, ask for an indicative certificate
  7. Review point 6 in the context of the lease
  8. Consider ways to recapture capital costs through energy savings
  9. Retain future access to the energy model used to prepare the EPC
  10. Review how operational performance can be monitored – and even linked to the EPC model

EVORA EDGE can support you in all cases as we employ competent CIBSE qualified level 5 EPC assessors.


Our expertise

EVORA can identify and manage MEES derived risk by developing an asset management strategy at the fund and portfolio levels.

Our technical engineering division EVORA EDGE is experienced in using our revolutionary BIM:SAM– Building information modelling for Strategic asset management to manage MEES risks, engineering and energy efficiency, resource efficiency and capital cost planning.

Building Information modelling (BIM) can be used for high-level MEES risk assessments and act as a ‘digital passport’ for your building, recording data and information of the building and its services.

The BIM can be integrated into our SIERA software to create a powerful monitoring and targeting (M&T) toolset.

BIM: SAM merges real intelligence and innovation with strategic asset management.

“By using a dynamic BIM model, alongside monitoring and targeting through our SIERA software, we can bring real intelligence and innovation within the strategic asset management approach.”

Neil Dady, Director, EVORA EDGE


To ensure your buildings remain lettable after the 1st of April 2018. Please don’t hesitate to get in touch with our experts.

Download our BIM: SAM brochure for all the information in a handy PDF and see our BIM:SAM approach in action.

£2.8m of energy savings identified by EVORA in ESOS Phase One

ESOS guidance was published by the government on 26th June 2014, with a deadline for ESOS Phase One of 5th December 2015 – 528 days for organisations to achieve compliance – simple, right?

Understandably, with the data for ESOS having to overlap the qualification date of 31st December 2014, a lot of organisations left it until 2015 to arrange compliance approaches. A large proportion of these left it late, with last minute requests rolling in, the last of these, very late requests was received in October 2017 (a mere 22 months after the original deadline)!

Managing large volumes of data for an array of clients is something EVORA is used to as part of our day job, but throw in the need for communication of ESOS findings to top management prior to notification and arranging multiple site visits across the UK at short notice, made for a busy end to 2015.

Read more about ESOS Phase Two here and here.


Our Approach to ESOS Phase One

Each company we worked with had an approach tailored to their requirements to ensure the ESOS assessment fit with their operations. We worked with a range of clients including a ‘Big Six’ energy provider, institutional real estate investors, a tyre manufacturer and a bacon packing firm. This resulted in a large breadth of energy saving opportunities identified across different industries.

Whilst many compliance routes were available to participants, after consideration of the options available, the completion of energy audits was the primary compliance route taken by EVORA. These provided tangible detailed savings across both utility and transport energy use.  However, we believe moving forwards, the uptake of ISO50001 (one of the compliance routes) may increase due to the additional benefits associated with operating a certified energy management system (in place of audits every four years).

Moving forwards, the uptake of ISO50001 may increase due to the additional benefits associated with operating a certified energy management systemClick To Tweet

In October 2017, EVORA was instructed to complete an ESOS assessment which required submission within ten days. Our client had received an enforcement notice from the Environment Agency (which had been passed around departments for over two months prior to our involvement). A tight turnaround to say the least and shows that the Environment Agency are following up with companies they believe to be non-compliant almost two years after the original deadline.


Key Outcomes

28 Companies were supported in total with over 400 assessments (site visits, desktop analysis, transport audits) completed. Over 27,200MWh of energy savings (electricity, gas and transport based) were identified through these ESOS assessments. This equated to potential cost savings of £2m in electricity, £0.2m in gas and £0.6m in transport energy spend. All notifications of ESOS compliance were made to the Environment Agency in line with the defined timescales of the scheme.

Over 27,200MWh of energy savings were identified through ESOS assessments. This equated to £2m in electricity, £0.2m in gas and £0.6m in transport energy spendClick To Tweet

The ESOS assessment request received in October 2017, was submitted to the Environment Agency, inside four days, a full six days in advance of the deadline. A very tight turnaround (which we do not recommend!), but with full data available and buy-in from top management meant it was achievable.

One of the main learning outcomes we found, was that the smaller companies gained more new information through the energy audit process than the larger organisations. The savings identified via the energy audits were the first time a lot of the smaller companies (i.e. those just exceeding the qualification criteria) had been presented energy saving opportunities with clear payback and life cycle costs included. However, the availability of capital to invest in these opportunities was more restricted for the smaller organisations.


Our structured approach supported our success in ESOS phase one and means we enter ESOS phase two confidence of our ability to deliver ESOS compliance to an even wider range of companies.

ESOS Phase 2 – time to start planning!

It is now just two years to the day until the ESOS Phase 2 compliance deadline of 5 December 2019. Don’t be complacent – two years might sound like a long time away, but you will save time, stress, and money if you start taking action now by carrying out energy audits. Read on!


The Environment Agency, Scottish Environment Protection Agency (SEPA), Northern Ireland Environment Agency (NIEA) and Natural Resources Wales (NRW) have jointly advised organisations that they should all start now carrying out energy audits as part of the compliance process for ESOS Phase 2.

With just two years to go until ESOS Phase 2 compliance deadline – start carrying out energy audits now!Click To Tweet

With only a few exemptions for public bodies, the regulations require all other large UK organisations to take three important steps before the compliance date of 5 December 2019 for ESOS Phase 2:

  1. measure their total energy consumption;
  2. conduct audits to identify cost-effective energy efficiency opportunities; and
  3. report compliance to their national scheme administrator – the Environment Agency in England, SEPA in Scotland, NIEA in Northern Ireland and NRW in Wales.

Consideration should also be given at this early stage as to whether adopting an approved energy management system such as ISO50001 may be a more suitable route to achieving compliance (ISO50001 is the internationally recognised standard for best practice in energy management).

If you plan to implement ISO5001, then early action is definitely required. Alternatively organisations caught under the ESOS regulations should now start conducting audits to identify their cost-effective energy efficiency opportunities for ESOS Phase 2.

Organisations should now start conducting audits to identify their cost-effective energy efficiency opportunities for Phase 2Click To Tweet

Early action should avoid some of the issues and that occurred during the first phase of ESOS. According to Carbon Trust, around 2,800 organisations had to send notifications advising that they would be late in reporting compliance, and a number were ultimately fined.

Carbon Trust also reported that of the hundreds of compliance audits conducted for Phase 1, it was found that that just 16 percent of participants were fully compliant. A full three-quarters of audited participants needed to undertake remedial actions in order to become compliant.

A full three-quarters of audited participants needed to undertake remedial actions in order to become compliant.

The Environment Agency has also indicated that in England there were approximately 500 organisations that qualified for ESOS in the first phase but had not engaged with the scheme. There have been over 300 enforcement notifications sent out to date, more will be going out in the near future. Civil penalty proceedings have also been commenced against a number of non-compliant organisations.

During the first phase of ESOS, EVORA helped a number of organisations to comply with the regulation and we would concur with the Carbon trust’s reported findings that cost-effective measures could usually cut energy costs in buildings, transport fleets and industrial processes by about 20 percent.

ESOS reports have been proven to identify real energy saving opportunities. Good governance requires that Directors consider the report recommendations.

Further reading on ESOS:

ESOS Phase 2 Practical Hints and Tips


The EVORA team is ready to support you with ESOS Phase 2 compliance. Please don’t hesitate to get in touch to learn more.

ESOS Phase 2 Practical Hints and Tips

This post follows on from the article that my colleague, Neil Dady wrote, ‘ESOS Phase 2 – It’s time to start planning‘ which provides a clear overview of requirements and further detail is available online. I’m not going to go over old ground but instead, I set out a few ESOS Phase 2 practical hints and tips.


Don’t forget the purpose – identify energy saving opportunities

ESOS was developed to help businesses identify energy saving opportunities.  Legislation often gets a bad press, however, the principles here are laudable.  A strategy that identifies savings, then importantly, acts to implement them (something missing in the legislation and a step that is up to the participants) can only be a good thing.  Reducing energy consumption has many benefits:

  • Lowered costs
  • Reduced carbon footprint
  • Improved corporate responsibility
  • The ability to wrap up into tenant engagement programmes
A strategy that identifies savings, then importantly, acts to implement them (something missing in the legislation and a step that is up to the participants) can only be a good thing.Click To Tweet

ISO 50001 – a structured approach to understanding and improving energy performance

If you want to get ISO 50001 up and running, start now.

The international standard for energy management, provides a structured approach to understanding and improving energy performance, however, implementation cannot be rushed through. As Neil highlights in his recent blog, organisations that wish to use ISO 50001 as the compliance route should start work now.

As many will know, organisations with ISO 50001 do not have to complete audits, however, it is a mistake to think that this simplifies matters.  ISO 50001 is not an easy way forward.  It requires completion of a baseline assessment and the establishment of objectives for improvement.  As a result, organisations that operate ISO 50001 management system will have also completed audits in some format.

As many will know, organisations with ISO 50001 do not have to complete audits, however, it is a mistake to think that this simplifies matters.

Those in real estate should also note that ISO 50001 does not count towards GRESB points, whereas ISO 14001 certification does.  Although this is something we are lobbying GRESB on, I can understand the reasoning.  GRESB is a sustainability benchmarking scheme, ISO 14001 requires consideration of all significant environmental issues, whereas ISO 50001 is focused on energy only.


Audits for compliance – beware of changing portfolios

Obligated organisations must assess energy consumption over 12 months, which must include the qualification date of 31 December 2018.  90% of energy identified must then be assessed.  As a result, auditing assets now, solely to comply with ESOS, would be a waste of time if the assets were then sold before the qualification date.


Audit anyway – the savings start to add up

Despite the above point, audits will still identify improvement opportunities that reduce energy consumption.  Subject to wider asset management plans (redevelopment, sale etc), I would recommend that audits are completed on all assets with an energy spend of over £200,000 per year – irrespective of ESOS obligations. Our audit team typically find quick win savings of 5% and often more (5% on a £200,000 spend per year equates to £10,000 – with a typical payback of less than a year).  Apply these principles to a portfolio of 10 assets and the savings start to add up significantly.

Our audit team typically find quick win savings of 5% and often more (5% on a £200,000 spend per year equates to £10,000 – with a typical payback of less than a year).Click To Tweet

EVORA employs a team of Energy Auditors and ESOS Lead Assessors.  For further information, do not hesitate to call or email.

Reflecting on ESOS: The Next Steps

Going forward, what are the prospects for ESOS? EVORA highlights the next steps for the scheme.

A Coordinated compliance and improvement approach?

EVORA recommend that clients should consider the establishment of a collective approach to address all regulatory risks and opportunities. It makes sense for example, for real estate businesses to develop a strategy addressing both ESOS and the Minimum Energy Efficiency Standards (MEES).

ESOS: a burden or an opportunity for businesses?

On the whole, we believe that businesses have found the compliance process more challenging than regulators anticipated. ESOS is new and businesses will certainly feel that they had a short period of time in which to prepare. Nevertheless, EVORA is already seeing evidence that assessment results are being incorporated into energy action plans. Overtime, ESOS has the ability to deliver the energy savings the UK industry needs. However, ESOS needs to form part of a structured and stable energy policy framework.

ESOS and ISO 50001

In the latest round of ESOS, only 0.9% of businesses chose ISO 50001 as a route to compliance. EVORA believes that, over time, an energy management system approach will help deliver the best results. However, the ISO 50001 approach is also the most time and resource intensive. Nevertheless we believe that, ISO 50001 will grow in popularity over time. The low level of initial uptake will have been restricted by the long time it takes to gain certification and the lack of available certification assessors.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay in tune for further updates on the energy efficiency taxation review budget to be announced soon!

Reflecting on ESOS: The EVORA Experience

Over the last six months, EVORA has supported a broad range of clients to meet ESOS requirements. Through our support programmes we have engaged with 27 companies from Real Estate to a Big Six energy provider.

Energy spend assessed equated to £55m and saving opportunities of £2.8m (5.2%)  where identified (this equated to 27,000 MWh per annum).

kd1

 

 

kd3

ESOS routes to compliance

It was also interesting to explore the ESOS routes to compliance. From an analysis of all ESOS participants and responses to the notification questions (excluding personal data) across the UK and a selection of industry sectors, 65% of the notifications were made during or after December 2015.

The breakdown by compliance routes was as follows:

  • ISO 50001 – 0.9%
  • DECs – 5.3%
  • Green Deal – 0.2%
  • Audits -90%
  • De Minimus – 3.6%

Audits formed the main route to compliance; although ISO 50001 could become a popular option in the future.

EVORA predicts an increase in the take-up of ISO 50001, although significant time investment is required. This reflects the opportunities that energy management system frameworks present for target-setting and monitoring for continual improvement in the long-term.

How about transport?

This is often neglected since traditionally businesses have focused on health & safety when considering travel. Many opportunities exist including training, installation of tracking-systems, promotion of alternatives to travel including video conferencing and introduction of site-specific green travel plans. Focusing on transport could present new ways to achieve significant energy and cost reductions.

Please check out our Reflecting on ESOS: The Next Steps article for more on our reflections on ESOS and the next steps going forward.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay tuned for further updates on the energy efficiency taxation review budget on the 16th of March.

 

 

70% of organisations on the road to ESOS compliance

Latest figures from the Environment Agency show 6000 organisations have ESOS compliance.

In the two days before 29 January deadline, the agency received a further 1,015 notifications of compliance. This last-minute action reflected earlier fears of a slow start to compliance by organisations covered by the scheme.

More information via The Environmentalist

Regulatory Energy Regime under Review

Last week, the UK Government announced plans to review the business energy tax landscape to consider approaches to simplify and improve the effectiveness of the regime.

This message was circulated to all CRC, Energy Savings Opportunity Scheme and Climate Change Agreement participants (who have been further advised to continue to participate in the various schemes until further notice).

This news is in part welcome but also worrying.  Current energy legislation is confused and uncoordinated – this must be addressed.

By way of example, last year, the Government issued consultation on plans to (amongst other options) scrap use of Display Energy Certificates.  At the same time the ESOS scheme was in process of being rolled out.  One of the core compliance approaches referenced in ESOS is … use of Display Energy Certificates!

The structure of regulatory requirements surrounding energy is confusing and a revised coordinated, and structured approach designed to help business understand energy and carbon emissions, whilst appropriately incentivising improvement, would be welcome from me.

However, over-simplification will ultimately make UK business less competitive. Furthermore, if the Government take a similar approach to that taken for Zero Carbon homes plans last week (i.e. scrapping everything) then we should be very worried indeed.

The Government has committed to launching a formal consultation in the autumn and I strongly encourage participation.