ESOS Phase 3: Deadlines, Requirements and What UK Businesses Need to Do Now

If your business employs 250 or more people, or meets certain financial thresholds, you are almost certainly subject to the Energy Savings Opportunity Scheme — ESOS for short. With Phase 3’s compliance deadline now passed, some businesses are scrambling to understand where they stand, while others are still unclear whether ESOS applies to them at all. This guide covers everything UK organisations need to know: what ESOS requires, how Phase 3 differed from previous phases, what happens if you missed the deadline, and how to use the findings from Phase 3 to prepare for Phase 4.

What Is ESOS?

The Energy Savings Opportunity Scheme is a mandatory energy audit programme for large UK businesses, introduced under EU Directive 2012/27/EU and retained in UK law after Brexit. It is administered by the Environment Agency (EA), which serves as the scheme administrator for England. Historic Environment Scotland, Natural Resources Wales, and the Northern Ireland Environment Agency handle their respective territories.

The core purpose of ESOS is straightforward: large organisations must periodically undertake a comprehensive assessment of their energy consumption, identify energy efficiency opportunities, and notify the EA that they have done so. Crucially, ESOS does not require you to implement the energy-saving measures identified — but it does require you to find them and report that you have looked.

Audits must be conducted by, or signed off by, a qualified ESOS Lead Assessor. These are professionals accredited by bodies such as the Energy Institute or CIBSE (the Chartered Institution of Building Services Engineers). The audit must cover at least 90% of the organisation’s total energy consumption across buildings, transport, and industrial processes.

Who Qualifies for ESOS?

ESOS applies to organisations that qualify as “large undertakings” under the Companies Act 2006. You are in scope if your business meets at least one of the following criteria at the qualification date:

• 250 or more employees, OR
• Annual turnover exceeding £44 million AND a balance sheet total exceeding £38 million.

These thresholds apply to UK-based operations. If you are a subsidiary of a larger group, the group’s size is what matters — even if your UK subsidiary alone falls below the thresholds. Corporate groups must also consider whether any overseas parent or affiliate brings them into scope.

Public sector bodies are generally excluded from ESOS but are subject to separate energy reporting obligations (such as the Greening Government Commitments). If you are unsure whether your structure brings you into scope, take qualified advice — the consequences of wrongly concluding you are out of scope can be costly.

A Brief History of ESOS Phases

ESOS operates on four-year compliance cycles. Phase 1 had a compliance deadline of 5 December 2015. Phase 2 followed with a deadline of 5 December 2019, although the EA extended this to 29 January 2021 for organisations affected by the COVID-19 pandemic. Each phase requires a fresh audit — you cannot simply resubmit the work from a previous phase, because energy use patterns change and the scheme requires up-to-date data.

Phase 3 had a compliance deadline of 5 June 2024. All in-scope organisations were required to complete a qualifying audit and notify the EA via the ESOS notification system by that date.

What Phase 3 Required

The fundamental structure of ESOS remained consistent across all three phases, but Phase 3 came with important additions and a noticeably more assertive enforcement approach from the EA.

A compliant Phase 3 audit needed to cover total energy consumption across all three domains: buildings (including heating, cooling, lighting, and building services), transport (fleet vehicles, air travel, and any other transport under the organisation’s control), and industrial processes (manufacturing equipment, refrigeration, data centres, and so on). The 90% coverage rule applies to the combined total — if your buildings account for most of your energy use, auditing buildings thoroughly while giving transport a lighter treatment may still achieve 90%, provided you can demonstrate this numerically.

The audit must result in a report identifying energy efficiency recommendations, quantified where possible. The Lead Assessor must sign off the report and is professionally accountable for its quality.

Notification to the EA via the online ESOS notification system is a separate step from completing the audit — it is the act of telling the EA that compliance has been achieved. Many organisations complete a perfectly good audit but then miss or delay the notification, leaving them technically non-compliant even though the underlying work is done.

Key Changes in Phase 3

Several important developments distinguished Phase 3 from its predecessors.

Net zero pathway consideration. For the first time, Phase 3 required organisations to consider how their energy use aligns with a pathway to net zero. This does not mean you must have a net zero strategy in place, but the audit process should acknowledge the question and, where possible, identify how the efficiency measures identified might contribute to a longer-term decarbonisation journey. This brought ESOS into closer alignment with the government’s broader climate commitments.

Stronger enforcement. The Environment Agency made clear before the Phase 3 deadline that it intended to be a more active enforcer than in previous phases. In Phase 1 and Phase 2, enforcement was relatively light-touch, with many organisations receiving warnings rather than financial penalties. The EA has consistently signalled that this leniency would not be extended indefinitely.

Higher penalties. The maximum penalty for non-compliance with ESOS is £50,000. In addition, a continuing non-compliance penalty of £500 per day applies for each day the organisation remains in breach after a notice has been issued. For a large organisation, the direct financial cost is manageable — but the reputational damage of appearing on the EA’s public enforcement register is often a more powerful motivator.

Increased scrutiny of Lead Assessors. The EA has the power to audit auditors — checking that the individuals signing off ESOS reports genuinely hold the required accreditation and that their reports meet the required standard. There were reports during Phase 3 of the EA querying the credentials of some assessors and the quality of some submissions.

Common Mistakes Businesses Make

The most frequent ESOS compliance failures are not dramatic — they tend to be procedural or rooted in a misunderstanding of scope.

Auditing electricity while overlooking gas is a persistent problem, particularly for businesses whose gas consumption is handled by a different department or a facilities manager who was not brought into the ESOS process. Similarly, organisations with vehicle fleets sometimes treat transport energy as a separate matter and do not bring fleet fuel data into the ESOS audit at all. If these omissions cause total coverage to fall below 90%, the audit is non-compliant regardless of how thorough the buildings element was.

Using an assessor who is not properly accredited as an ESOS Lead Auditor is another significant risk. The title “energy consultant” or “sustainability manager” does not confer ESOS Lead Assessor status. Check that your assessor holds a current accreditation with the Energy Institute, CIBSE, or another body approved by the EA.

Failing to register or notify on the EA’s ESOS notification system is a surprisingly common error. Completing the audit is necessary but not sufficient — the notification is what tells the EA you are compliant, and without it you remain technically in breach.

Finally, some organisations conduct an ESOS audit that is excellent in substance but do not retain adequate evidence — the underlying data, calculations, and meeting notes that support the assessor’s findings. The EA can request evidence of compliance, and an inability to produce supporting documentation can undermine an otherwise sound submission.

What to Do If You Missed the Phase 3 Deadline

If your organisation was in scope for Phase 3 but did not notify the EA by 5 June 2024, you are currently in non-compliance. The EA’s stated approach to late compliance has generally been to prioritise obtaining compliance over pursuing maximum penalties, but this is not guaranteed and becomes less likely the longer the delay persists.

The recommended approach is to act promptly. Engage a qualified ESOS Lead Assessor and begin the audit as soon as possible. Once the audit is complete and the notification is submitted, you are in a much stronger position when engaging with the EA. A voluntary disclosure of late compliance, accompanied by a completed audit, is treated more favourably than a situation where the EA has to identify and chase a non-compliant organisation.

It is also worth preparing a short narrative explaining the reasons for the delay. Genuine administrative oversight, a change in corporate structure, or a mistaken belief that a group-level audit covered the UK entity are all circumstances the EA has encountered before. This is not an excuse, but context can inform the EA’s enforcement discretion.

If your organisation receives a formal compliance notice from the EA, take legal advice as well as specialist energy compliance advice. The notice will set out a deadline for compliance and warn of the daily penalty that will accrue if that deadline is missed.

Looking Ahead to Phase 4

Phase 4 is expected to have a compliance deadline of December 2027. That may sound distant, but the preparation work should begin well in advance — and, more importantly, the findings from Phase 3 provide a ready-made starting point.

A well-conducted Phase 3 audit will have identified a prioritised list of energy efficiency opportunities, quantified by estimated savings and, in many cases, by approximate implementation cost. Organisations that use these findings to build a multi-year energy investment plan — rather than filing the report and moving on — will be significantly better positioned when Phase 4 arrives. They will have real data on which measures were implemented, what the actual savings were, and what remains to be done.

Phase 4 is also expected to deepen the net zero alignment requirement introduced in Phase 3. Organisations that have done nothing between Phase 3 and Phase 4 to address the recommendations in their ESOS audit will find it harder to present a credible net zero narrative when Phase 4 auditors come to review their energy management.

How Telnergy Can Help

Telnergy is not an ESOS Lead Assessor, and we do not conduct the audits ourselves. What we do is prepare the energy data packs that Lead Assessors need to carry out their work efficiently and accurately. For multi-site businesses in particular, pulling together 12 months of verified consumption data — across gas, electricity, and transport — for every meter and every site is often the most time-consuming part of the whole process. We do that work, consolidating data from multiple suppliers and multiple meter types into a format that your Lead Assessor can use directly.

We can also recommend accredited ESOS Lead Auditors from our professional network, having worked alongside a number of qualified assessors on behalf of clients in hospitality, manufacturing, retail, and healthcare. And because we are involved in energy procurement for the same clients, we have a detailed view of their consumption that makes the data-gathering element considerably faster than starting from scratch.

If you are unsure whether your organisation is in scope, or if you missed the Phase 3 deadline and need to understand your options, we are happy to have that conversation without obligation.

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Frequently Asked Questions

Does ESOS apply to charities and not-for-profit organisations?

Yes, if they meet the size thresholds. ESOS applies to all “undertakings” regardless of legal form or sector. A large charity with 300 employees and significant energy consumption is in scope in the same way as a commercial business.

Can we use an ISO 50001 energy management system to comply with ESOS?

Yes. Holding a current, valid ISO 50001 certification that covers 90% or more of your total energy consumption is an automatic route to ESOS compliance, as long as the certification was carried out by an accredited certification body and covers the relevant compliance period. You still need to notify the EA.

What counts as “buildings” for ESOS purposes?

Any building or part of a building that your organisation owns, occupies, or controls, including leased premises where you are responsible for energy costs. This includes offices, warehouses, factories, retail units, hotels, and data centres.

How is transport energy measured?

For road transport, you use fuel consumption data (petrol, diesel, LPG) from your own records or from fuel card statements. For air travel, you use distance-based estimates or spend data converted to distance. Grey fleet (employees using their own vehicles for work travel, reimbursed by mileage) should also be included where data is available.

If our group headquarters undertook a group-wide ESOS audit, do our UK subsidiaries need to do anything separately?

UK-based entities within a group can be covered by a group-level ESOS audit, but only if the group audit covers the UK operations of each entity to the required 90% threshold. The responsible undertaking for the UK must still be identified, and notification must be made to the EA. Many groups assume a parent-level audit covers all subsidiaries automatically — this is not always the case, and it is worth verifying explicitly.

What is the ESOS notification system and where do I find it?

The ESOS notification system is an online portal managed by the Environment Agency. It is accessed via the GOV.UK website. Your ESOS Lead Assessor will typically guide you through the notification process, but responsibility for ensuring notification is made rests with the organisation, not the assessor.

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Telnergy is an independent commercial energy consultancy (Ofgem registered TPI, ADR Ref E3561). We’ve helped UK businesses reduce energy costs since 2002. Get in touch to discuss your energy strategy.