Compliance and enforcement of the Energy Savings Opportunity Scheme

We are seeing a spike of enquiries related to compliance with the Energy Savings Opportunity Scheme (“ESOS”) Regulations 2014. The compliance period for Phase 3 of ESOS ended on 5 June 2024 and the Environment Agency (the “EA”) has taken a proactive approach to those who missed the deadline. The EA is seeking to impose significant civil penalties on those who they consider have not responded adequately to enforcement notices issued under the regulations.

If your business:

• employs at least 250 people; or
• has an annual turnover in excess of £44 million and an annual balance sheet in total in excess of £38 million; 

it is likely to have legal obligations under ESOS. Further guidance is available here. 

Enforcement and actions to reduce penalties

The EA has taken enforcement steps since June against those companies who failed to meet the deadline for compliance. The EA can impose civil penalties for breaches of the ESOS Regulations. 

The level of penalty will depend on the nature of the breach and can range from a fixed penalty of up to £5,000 for failing to maintain records, to a penalty of up to £50,000 for failing to conduct an energy audit plus a daily penalty of £500 per day of non-compliance to a maximum of 80 days (i.e. £40,000). This can mean a maximum fine of £90,000 for failing to complete an energy audit. 

The EA can also impose a “publication penalty” (whereby it can publish on its website the organisation’s non-compliance and the penalties imposed). In some instances, the penalty notice can specify the steps the organisation is required to take to remedy the breach.

The EA has the discretion to waive or reduce a civil penalty, but its Enforcement and Sanctions Policy makes clear that it normally takes the statutory maximum as the initial penalty amount. This is amended subject to the company size, the culpability and other mitigating or aggravating factors. 

There are things you can do to increase the chances that the penalty is either waived or substantially reduced.  In particular, it is vital to respond promptly and comprehensively to any Compliance Notice, Enforcement Notice, or Notice of Intent to Impose a Civil Penalty. The response to the Notice of Intent is an opportunity to explain what mitigating circumstances apply that mean the EA should reduce the fine. This is an exercise where legal arguments can make a significant difference in reducing penalties to the lowest possible level.