Esos and the slow death of energy management


wreathSix months on from the original Esos deadline, what has the scheme achieved? If nothing else, it has shone a light on glaring gaps in basic energy management as even large corporates struggle with elementary energy data. 

The majority of companies required to undertake an Esos energy audit have done so. But how many have taken action as a result?

Utilitywise undertook 275 audits, equating to roughly 5% of those firms that met the 31 January deadline.

Of those 275, Tim Hipperson, the firm’s head of special projects, believes as few as 5% are fully acting upon recommendations.

Utilitywise eyes SME market
Utilitywise’s Tim Hipperson

“What came out of it loud and clear was that Esos was seen as a cost to the business, with very little upside. There was no mandatory requirement to act upon the recommendations,” he says.

For those that do not implement recommendations, the cost exercise becomes a self-fulfilling prophecy.

All pain, no gain?

“In many cases, it was an unbudgeted cost – and it was seen as a pain because there was no mandatory return on investment,” says Hipperson. “So there hasn’t been a great deal of uptake on the recommendations.”

That equates to a lot of wasted energy.

“Out of those 275 organisations, we found just shy of 2,900 energy saving opportunities that would deliver almost half a billion kilowatt hour savings – 461, 335,434 kWh to be precise,” Hipperson says. “That represents nearly 2.5m tonnes of CO2 savings, with an average payback of just under four years.”

Even in terms of simple actions, such as metering controls and behavioural change, those 275 organisations could save £11.2 million averaging under a two-year payback, claims Hipperson.

But businesses have other priorities.

“There are various other business pressures that they would rather invest in,” he says. “If you are a bus company, you measure it against buying new buses. Energy is not key at board level in a lot of businesses.”

Positive signs

The Carbon Trust energy consultant David Tobin

David Tobin, energy consultant at the Carbon Trust, suggests that may be because dedicated energy management resource is scarce in all but the largest organisations. Without that expertise, he says, boards are unlikely to be presented with sound business cases.

The Carbon Trust was involved in about 200 Esos assessments, “some doing all the work, some just providing the lead assessor”, says Tobin. Around half provided feedback.

“Pretty much all of them have taken forward the evidence pack to form the basis of discussions regarding investment strategies going forward in terms of engaging the board and stakeholders,” he says.

In terms of implementation, Tobin says, “about 80% have already acted upon the recommendations”. However, he says the majority of those actions were low-cost measures that were already part of existing budgets or projects.

For longer payback measures, “of two to three years plus”, which will require new capex budgets, Tobin says feedback suggests that “around 25% of participants will consider those measures in the near-term”.

That may be higher than the levels seen by Utilitywise and other third parties, “but is by no means a really high number,” says Tobin. “Very few businesses – perhaps 5% – have been interested in embedding energy management best practice in their organisations and considered ISO50001.”

Tobin though thinks that the Esos has brought energy “into sharper focus” for many.

“Leveraging finance for investment beyond what was in initial budgets does take time, which is possibly why we haven’t seen an awful lot [of investment] to date,” he says. “But now, when the investment is made, it is likely to be much more focused in areas of actual benefit to the business – and Esos has been a success in highlighting that.”

Knowledge gaps

Esos also shone a spotlight on the need for better energy management.

“Every organisation has gaps in energy management and what we perceive to be best practice. There wasn’t a single business that we have audited that couldn’t have made improvements,” says Tobin.

“It was clear from our audits that a lot of standard maintenance contracts don’t really have energy efficiency as an agenda item. On a number of occasions we highlighted very quick wins that people were able to make through simple changes.”

Despite Esos being targeted at large organisations, very few had dedicated energy managers, says Tobin.

“There is a real gap in the provision of energy management in large businesses – and that might be a reason why [energy] investment is not at the front of the financial director’s mind,” says Tobin. “[The FD] hasn’t got an energy manager presenting a decent business case for these improvements.”

According to Environment Agency data, 40% of early qualifiers had to make estimates of their energy consumption. Was Tobin surprised?

More surprising, he says, was the lack of dedicated resource.

“I did about 30 [audits] as lead assessor and of those 30, I worked with one dedicated energy manager,” says Tobin.

“Predominantly I was working with health and safety or environmental managers. They have other priorities that draw their attention away from pure energy management. So it is not that surprising there were gaps in the energy information, because the resource and time to manage it effectively is not there.

“I think if the resource was there – and the skill was there essentially – then I don’t think we would have been estimating as much as we needed to.”

Prepare for impact

Tobin agrees with the suggestion that many large firms might be in for a shock over the next few years, given predictions of steeply rising non-commodity components of energy bills and the impact of more businesses moving to half-hourly settlement. Half-hourly prices are also expected to become more volatile due to policy and regulatory changes now coming into play. Meanwhile, although wholesale prices are currently low, a falling pound may drive up commodity prices.

“With recent events there is a lot of uncertainty about what is going to hit everybody – even those that are in the know,” says Tobin. “It would be fair to say that a lot of people don’t know what is around the corner.”

Utilitywise’s Hipperson agrees. He thinks the move to bring more businesses into half-hourly metering and settlement under P272 legislation could have a dramatic impact.

“P272 will expose more businesses to red band distribution network charges,” he says. “Once you start showing people that they are using 6% of their energy in the red band but it is accounting for 40% of their energy costs, it hits home that some kind of management strategy is the first line of defence.

“Shifting demand, managing your energy, upgrading your assets and engaging your staff all starts with energy management, which is a key identifier from the Esos projects.”

Related stories:

2016: The year P272 will hit your power bill

Energy consultants warn of spikier prices

Brokers warn early capacity market could add 5% to bills

Triad, capacity market, CfD, RO: Prepare for energy bill hikes, warns SmartestEnergy

Environment Agency working out if 3,000 firms actually qualify for scheme

Government should subsidise energy efficiency over renewables and give Esos teeth

Esos firing blanks on board level buy-in to energy efficiency

Green Investment Bank: Energy managers must build better business cases to finance energy efficiency

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  1. A requirement of ESOS should be an Energy Policy adopted at Board level and reviewed every four years. This would bring it more into line with ISO50001.Then real commitment can be measured aside from those that talk.
    My worry is the ending of CRC and transfer of costs from bottom line to supplier invoice will actually reduce the visible case to employ an energy manager. Many companies employed an energy manager because of CRC.

  2. The article makes many very valid and wide-ranging points. For me there has been a longer term macro issue about the order of priority given to the key energy issues. Surely, at Government level, it would have been sensible to prioritise a robust metering system and data gathering period followed by a focussed energy efficiency drive nationally followed by a focus on renewable/low carbon generation once a more accurate picture/projection of national demand has been developed. In doing so the “incentives” scene would have looked very different and who knows the debates around Hinkley Point and wider infrastructure for generation and distribution of energy in the UK and beyond may also have looked very different. (This does assume a coherent long-term energy policy, missing for many years, is in place!).
    Interesting to see how key issues raised change when the oil price recovers and if/when we have the coherent energy policy.

  3. The only policy that I can perceive would immediately change this mental block is re-regulating the utilities – especially at retail level but also evidently for industrial and commercial suppliers – and requiring them to invest in least-cost planning, including many measures on consumers’ premises. Done in California and some other US states, although many of them de-regulated temporarily or permanently, having had ~100 years’ of regulation of investor owned utilities. Once regulated utilities are told to do something differently, they have to. There are enough £ bn to save that the profits to shareholders would be an incentive to contonue with the policy.

    Under ‘deregulation’ (UK post 2002) this will not happen.


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