Lessons From ESOS Energy Legislation In The UK

Originally Published on TechCrunch.com

The U.K. recently announced compliance guidelines for the government’s new Energy Savings Opportunity Scheme (ESOS), a mandatory energy assessment and energy-saving identification scheme in response to the requirement “for all Member States of the European Union to implement Article 8 of the Energy Efficiency Directive.”

The objective of ESOS is to reduce energy consumption, help address climate change, increase energy security and improve the competitiveness of U.K. businesses. The scheme, which came into force in July 2014, applies throughout the U.K. to enterprises of 250 or more employees and to enterprises under 250 employees, which have an annual turnover exceeding €50/$63.71 million and a balance sheet exceeding €43/$54.78 million.

The scheme calls for mandatory audits — required every four years and administered by the Environment Agency — intended to trim excessive energy use as a means to cut carbon and pave the way for increased business profitability, competitiveness and security, while mitigating organizational energy waste.

In short but not-so-simple terms, qualifying businesses are required to a) measure total energy consumption, accounting for 90 percent of usage across all buildings, transport and industrial activities; b) conduct energy audits to identify cost-effective, energy-efficient recommendations; c) ensure that the ESOS assessment has been conducted or reviewed by a board-level director and approved by a lead assessor; and d) report compliance to the Environment Agency by December 5, 2015.

While the ESOS audits are mandatory, certain caveats exist—as there is no obligation to implement these energy-saving measures internally identified in the audit, which is expected to cost somewhere in the neighborhood of £17,000/$27,200 on average in the first instance and £10,000/$16,000 for each subsequent audit.

Though the legislation’s notable feature appears spineless by failing to require businesses make any of these recommended changes to save energy, participants must demonstrate an authentic and rigorous attempt to examine opportunities for reducing energy use and have these findings reviewed at the board level. With this considerable investment of time and money, companies will likely be motivated to implement measures recommended in the audit which, according to the Department of Energy and Climate Change, could lead to on average a savings of £56,400/$90,240 per year, per business.

In order to encourage compliance as soon as possible, the government will impose penalties for various infractions, which could include fines of up to £50,000/$80,000 and/or an additional £500/$800 for each day an organization is out of compliance. Furthermore, the governing bodies also have the authority to publish (i.e. publicly shame) the names of non-compliant businesses.

The Challenge to Measure and the Burden of Proof

While companies may find motivation for implementing the recommended energy-saving measures of the audit solely for financial benefit, the ESOS directive is as much about enforcement as it is about the need for companies to understand power consumption. Uncovering pockets of energy waste requires appointing personnel familiar with the scheme; the only other option is to outsource, adding to the challenges for some companies to comply by deadline.

To comply with the new ESOS regulations, businesses will have to track their power usage to its source – the device actually employing the power.

When it comes to IT, the vast majority of businesses lack the technology to accurately track such energy consumption. Measuring the energy consumption of a Macbook Air compared to that of a Dell Desktop PC, for example, will prove to be difficult. While some organizations already have the Microsoft System Center Configuration Manager (SCCM) in place, allowing IT administrators to manage large groups of Windows-based computer systems, SCCM lacks the capability to provide the accuracy the ESOS audits will require.

Utilizing power-management solutions, with consistently updated content databases of makes and models currently in use, allows companies to reference the power consumption of each device, along with the actual power usage when on and off.

Though the U.K. has been relatively slow to implement PC power-management technology, mostly due to tax incentives, perhaps by example, U.S. rebates — which often cover the cost of implementation for this type of technology — will encourage something similar in the U.K. Of course, taking into consideration that the U.S. wastes an approximate $2.8 billion in PC energy every year, the U.K. may need to take a more effective approach to energy security.

Is Legislation the Answer and Will the U.S. Take Note?

There is little doubt that the ESOS regulations will be effective, considering the measures the government set in place to assuage potential resistance or roadblocks. Recognizing the additional administrative pressure placed on energy managers with ESOS — which will have many similarities to existing U.K. policies — the government is proposing that enterprises be allowed to utilize data from other schemes, such as the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

Of the 7,000-plus businesses required to participate, as many as 6,000 are already in the CRC scheme and have reported substantial savings from implementing measures as simple as installing motion-sensor lights in hallways and stairwells. The government estimates that the net benefit of the new ESOS policy will be around £1.9/$3.04 billion between 2015 and 2030, based on a conservative prediction that only 6 percent of potential energy-saving opportunities identified will be implemented. However, real benefits for businesses are likely to be two or three times greater than those estimates suggest.

Although energy efficiency in the U.S. has been a buzzword for years, when it comes down to it, the U.S. continues to rank lower than the U.K., Germany, Italy, Japan, France and Australia. According to the American Council for an Energy-Efficient Economy, even China and India have fared better on the list than the U.S. — as American energy regulations for power conservation have been particularly scarce in recent years.

In fact, Congress hasn’t passed a major measure since the 2007 legislation targeting ethanol; and in May 2014, Congress blocked yet another energy-efficiency bill that could positively impact the environment, create hundreds of thousands of jobs and save citizens billions of dollars a year by 2030.

Although the Obama administration and the now Republican-dominant Congress continue to be at odds over legislation that not only addresses energy efficiency but also regulates it, the U.S. has seen substantial progress at a state level toward more energy-efficient practices, particularly in the top-ranking states of Massachusetts and California.

Ideally, a partnership between U.S. government and industry is essential for an energy policy to have a significant impact on the future of businesses and the environment. However, this achievement won’t be cheap or easy. The state-by-state approach indicates great strides in U.S. energy efficiency and environmental stewardship, but at what cost to businesses?

As the U.S. continues to rank among the top three energy consumers in the world, mandatory legislation may be the only real solution — with the U.K.’s ESOS as the litmus test.