Preparing for New Energy Legislation

Adam Pigott

Businesses and organisations need to be aware of upcoming changes to government energy legislation that will ultimately affect how they manage their energy consumption. Adam Pigott from Kinect Energy Group discusses these changes and his thoughts on how it will impact businesses in the long-term.

New government energy legislation to ensure businesses report on their carbon footprint and identify energy efficiencies requires rigorous recording of energy consumption, and eligible organisations and businesses that fail to comply could face large fines.

The new Streamlined Energy and Carbon Reporting (SECR) framework comes into effect in April 2019 to support efforts to reduce energy consumption and CO² emissions by 20% by 2030, replacing the current Carbon Reduction Commitment (CRC).

What is Streamlined Energy and Carbon Reporting (SECR) framework?

The purpose of the new Streamlined Energy and Carbon Reporting (SECR) framework is to simplify carbon and energy reporting requirements for businesses, while also ensuring they have the information they need to enable them to reduce emissions and energy costs.

It has been designed to build on existing, mandatory greenhouse gas emissions reporting requirements that apply to UK quoted companies under the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013, along with the ESOS regulations 2014.

The Government has now published guidance and the framework looks set to broaden the number of organisations that need to comply, from roughly 6,000 with the existing Carbon Reduction Commitment (CRC) reporting requirement to nearly 12,000.

SECR will impact all businesses that meet two or more of the following criteria:

  • Employ 250 people or more
  • Have an annual turnover ≥£36m
  • Have an annual balance sheet of ≥ £18m.

Qualifying companies will need to report in line with the SECR framework in their directors’ report or equivalent section in their annual report for financial years beginning on or after 1 April 2019.

While initiatives like SECR are broadly welcomed and will have a significant impact on the UK’s wider carbon footprint, in the short term the implementation of SECR may create more work for organisations, especially smaller ones. It requires businesses to report not just on their electricity and gas consumption, but also energy used by business-related transport, which will introduce a whole new set of challenges.

Many participants won’t currently have the necessary structures in place to capture and report the mandated information, so it will be a steep learning curve and interesting to see how the longer-term benefits stack up against the additional administrative requirements.

Don’t forget ESOS Phase Two

Businesses required to conform with Phase Two of the Energy Savings Opportunities Scheme (ESOS) must ensure they are compliant before 5th December 2019.

ESOS was first introduced in 2015 as mandatory UK legislation in response to the Energy Efficiency Directive (EED). Many of the organisations that were required to comply are now benefitting from the energy, carbon and cost reductions identified as a result.

Repeating every four years, businesses must ensure they are ESOS Phase 2 compliant before 5th December 2019, to avoid potential penalty. Businesses are advised to act now to avoid a potential shortage of accredited professionals that the sector experienced in Phase 1. Even those that complied four years ago will need to reassess the extent of their operations in the UK from top level down and ascertain whether they need to comply with Phase 2 – most will.

Businesses employing 250 people or more and/or which have a turnover in excess of €50m and a balance sheet of more than €43m must calculate their total energy consumption for a 12-month period, including transportation, and subject at least 90% of that energy consumption to representative energy audits.

The sum of the total energy consumption and the results of the audit need to be presented at board level within the organisation and compliance should be lodged with the Environment Agency by the deadline date.

Energy cost reductions go straight to the bottom line, while the associated reduction in CO² emissions brings with it significant reputational benefit. Given that forecasts for both commodity and non-commodity costs show continued increases, the most effective way to make savings is to reduce consumption and to mitigate exposure.

The Environment Agency is the UK’s ESOS Phase 2 administrator, and the regulators are as follows:

  • Environment Agency for organisations whose registered office is in England
  • Natural Resources Wales for organisations whose registered office is in Wales
  • Northern Ireland Environment Agency for organisations whose registered office is in Northern Ireland
  • Scottish Environment Protection Agency for organisations whose registered office is in Scotland
  • Secretary of State for Business, Energy and Industrial Strategy for organisations whose activities consist wholly or mainly of offshore activities

New legislation can often be perceived as costly and time-consuming administration but can actually deliver real value to businesses. By identifying and then implementing the energy saving opportunities, as a result, decision-makers and financial controllers can make sizeable savings on their gas and electricity, as well as benefit at a time of rising energy costs and increased external scrutiny around corporate sustainability.

Kinect Energy Group