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What happens to ESOS after Brexit?

The short answer is nothing. The Energy Savings Opportunity Scheme implements an EU Energy Efficiency Directive and is all set to continue after Brexit on the same basis as before. Draft regulations were published on Thursday 22 November 2018 to make some changes to the current ESOS Regulations once Brexit happens, but this is to address deficiencies in the ESOS Regulations that will be caused by Brexit, not to change their substance.

What’s going to change?

Whether or not an undertaking has to comply with ESOS depends on whether it is “large” (or in the same corporate group as a “large” undertaking). One of the tests for this is whether the undertaking meets financial thresholds that are set out in euros. After Brexit, these thresholds will be converted to pounds sterling.

Qualifying undertakings can comply with their obligations under the Regulations by having a certified Energy Management System. Post Brexit, certification will still be permitted by bodies accredited by the United Kingdom Accreditation Service (UKAS).

In other words?

It’s business as usual.

What do I need to do now?

Phase 2 of ESOS is now well underway; the compliance deadline is 5 December 2019, by which time the Phase 2 audits must have been carried out and compliance reports submitted by undertakings that are required to participate. An undertaking must participate if it is either (a) a UK company that (i) employs 250 or more people or (ii) has an annual turnover of more than €50m (£44m after Brexit) and an annual balance sheet total of more than €43m (£38m after Brexit) or (b) an overseas company with a UK registered establishment which has 250 or more UK employees paying income tax in the UK. A corporate group must participate as a whole if one or more of the companies in it is large enough to fall within ESOS. ESOS does not distinguish between property investors, developers, occupiers or funders, so any business that is large enough to meet the qualification criteria must participate in it.

A major problem in the run up to the Phase 1 deadline (5 December 2015) was the difficulty that participants had in finding lead assessors and auditors to carry out their audits. Participants are therefore strongly advised to get ahead of the crowd and start work on their audits straight away, and in particular to engage now with the auditors and lead assessors that they would like to instruct while they still have capacity to undertake the necessary work.

We fully anticipate a last minute rush in Q4 2019, just as we saw in Q4 2015, but participants that can get ahead of the curve should get better quality audits and will have plenty of time to ensure that they have complied in full, especially where careful analysis of complex corporate group and/or property ownership structures are required. There is always the possibility of implementing sooner something that may actually save energy and money, too!