Phase 2 of the Energy Efficiency Directive’s (EED) Article 8 energy audit obligation is just ahead of us, and will affect 100,000+ businesses across Europe. Organizations that qualify under EED or ESOS (the UK acronym) obligation must carry out energy audits every four years, many of which are now entering the second cycle of mandatory audits.
In this blog we collected the most common questions and pitfalls on the energy audit requirements we have heard recently from our customers. Discover our top 8 pitfalls and how to avoid them. And if you’re responsible for EED compliance at your company, it’s time to ask yourself: Are we prepared to answer these questions correctly for our organization?
Pitfall #1: Assuming old rules and regulations still apply
Since 2015, regulations on audit requirements have changed significantly with updates in 18 out of 28 EU countries. For example, Germany’s new guidance, published in February 2019, introduces several changes including a minimum threshold to release small branches of multinational companies from the audit burden. Moreover, Serbia now has introduced regulation on energy audits connected to EU EED, and several regulators have confirmed their plans to amend existing regulations in the future. The best strategy is to keep monitoring regulations and make sure you build the response to compliance requirements based on the latest available information.
Pitfall #2: Not completing an audit because your company is ‘too small’
Some countries do require audits from smaller companies. In France, qualification status is assessed for each legal entity independently. However, many member states qualify on group level, so you must take into account consolidated data either from all EU countries where you have presence or even a worldwide consolidation. There are also few member states, where small-and-medium companies (SME) meeting certain energy criteria still have to do audits. We suggest looking into those country-specific qualification rules and assess your qualification status again.
Pitfall #3: Using ISO 50001 certification instead of EED
Take care, as there are couple of countries where ISO 50001 alone cannot serve as an exemption from the audit requirements. In Austria, for example, a certified energy management system should be supplemented by energy audits in line with local requirements. In some countries, ISO 50001 provides only partial exemption if it does not include certain share of total energy consumption, when it should cover 100% of scope.
Pitfall #4: Expecting Phase 1 exemptions to be valid in Phase 2
This is not necessarily true in all cases. There were a couple of derogations abolished since Phase 1. One example is EU Emission Trading System (ETS) permits that used to serve as an exemption in Ireland and do not anymore. The good news: minimum energy thresholds have been introduced in some countries allowing exemption from the audit obligation, so there might be additional relief for some organizations.
Pitfall #5: Not auditing rented space
Again, rules will vary across member states. In some instances, it is mandatory to conduct audits even if you pay a fixed rent which covers energy expenses. The rationale behind is that you are still responsible for certain energy usage and may improve performance by looking into energy saving opportunities, e.g. in user behavior. The same logic applies to leased company car fleets or on energy associated with business travel. We suggest having a more detailed view on energy perimeter in line with local regulations.
Pitfall #6: Assuming lack of enforcement in Phase 1 translates to lax penalties for non-participation in Phase 2
Enforcement actions from Phase 1 in 2015 are still taking place in certain member states. Moreover, stricter enforcement is foreseen in the next cycle and administrative structures have been established during the past months to accommodate this. Penalties can be quite significant (up to 5% of turnover in some instances) and do not release from the actual requirement: you will still have to organize audits after paying the penalty.
Pitfall #7: Delaying the audit process
Actually, if you haven’t started by now you may already be too late—If you performed your audits early in 2015 (as you have to renew it in 4 years from the audit date) or even if the fixed deadline of 5 December, applies for your organization, you might still find it difficult to meet the deadline if you do not start soon. Looking back to 2015, the late rush in demand for EED audits impacted the availability of external support, not only causing price peaks, but leaving a substantial share of companies in non-compliance. By starting now, you will have the time to prepare resources and budgets. Try to start on the energy efficiency recommendations uncovered by the EED audits to save you money well into the future.
Pitfall #8: Misunderstanding audit timelines
In general, you must carry out audits within 4 years from the date of the last audit. However, in some countries, like in Hungary or UK the deadline is strict – 5 December 2019. This is the latest date to submit your new audit reports, even if you used the provided extension in Phase 1 and carried out audits after December 2015. Again, varying timelines across Europe add an additional layer of challenge and you need to explore the actual date per country regulation.
Stay ahead of regulation
EED regulation remains complex across Europe: There are even more specific subjects, addressed in different ways by the member states and regulators: qualification reference period, sampling requirements, the requirements for the actual audits and auditors, energy related to cross-border transportation, exposure of the venture capitalist companies to the regulations, etc.
To avoid common pitfalls, make sure you stay up-to-date on the recent developments in the regulations, manage your compliance in centralized approach to achieve efficiencies and ensure timely and efficient implementation of your compliance program.
Contributed by Irina Gilfanova, Senior Sustainability Consultant, Schneider Electric Energy & Sustainability Services
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