The Energy Savings Opportunity Scheme ("ESOS") Regulations (SI 2014/1634), which came into force on July 17, 2014, requires large undertakings in the UK to carry out an energy audit and notify the Environment Agency ("EA") of compliance by December 5, 2015. Participants must carry out an assessment in each subsequent four-year compliance period ending on December 5, 2019, 2023, etc. While there is no obligation to follow any recommendations, the assumption is that having carried out such an assessment, participants are then likely to take action to reduce their energy use. ESOS is the UK's method of transposing its obligations under Article 8(4) of Energy Efficiency Directive 2012 to promote energy efficiency.

In the first four-year period, an undertaking must participate if, as of December 31, 2014, it either: (i) employed at least 250 people; or (ii) employed less than 250 people but had an annual turnover in excess of €50 million and an annual balance sheet in excess of €43 million; or (iii) was part of a corporate group that included an undertaking that meets the criteria at (i) or (ii) above.

In group situations, compliance responsibility rests with the highest UK parent unless all group companies agree otherwise in writing. Global parents and overseas undertakings not carrying on a UK business are not subject to ESOS. An "undertaking" is determined by reference to section 1161(1) of the Companies Act 2006, i.e.: limited or public companies, trusts or partnerships, unincorporated associations, not-for-profit bodies engaged in a trade or business (which could include some charities), and some universities.

Public bodies and companies in insolvency are excluded. For these purposes, a "public body" (in England, Wales, and Northern Ireland) is a contracting authority as defined in Regulation 3 of the Public Contracts Regulations 2006 (SI 2006/5). This includes government departments, local authorities, police, and fire authorities. Global parents and overseas group undertakings are not required to participate.

In carrying out the assessment, participants must ensure that at least 90 percent of their total energy consumed in the UK in buildings, transport, and industrial processes is covered over a 12-month reference period. The compliance package in respect of the audit has to be signed off by a qualified lead assessor that meets special competency requirements.

The EA has indicated it will take a light-touch approach to ensuring compliance, although failure to comply can lead to civil fines. Financial penalties vary according to breach but range from a fine of up to £5,000 for failure to maintain records to up to £50,000 for failing to carry out an audit. Penalties may also include additional fines of £500 per day for noncompliance, together with the costs of the compliance body in carrying out additional auditing activity to check ESOS compliance. The EA can also publish a penalty notice setting out the breach on its website.

Undertakings should therefore assess whether they are caught by the qualification criteria as of December 31, 2014 and take steps to ensure compliance by December 5, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.