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Could Including SMEs Within ESOS Bring Big Benefits?

A groundswell of opinion is growing. If done correctly, it asks, could bringing SMEs within the rules of ESOS build real improvements in energy efficiency practice?

Recently, The Institute of Environmental Management and Assessment (IEMA) told its members felt Government carbon reduction policies focus a little too much on larger firms.

63% of IEMA members think Government should rationalise energy and carbon schemes affecting big business. 53% recognise the case for financially supporting smaller business.

IEMA, itself sensing the need for such financial support, has urged the Chancellor to offer tax breaks or loans to SMEs implementing energy savings measures. These could really help deliver energy savings in that sector.

It all suggests that broadening ESOS, so it affects SMEs, might offer useful benefits, as part of a new conversation on overall SME energy behaviour.

IEMA does not stand alone

According to Government figures, SMEs account for over 99% of all businesses in the UK. The vast majority are not affected by the ESOS scheme, which applies to companies with 250 employees or more.

While all businesses can benefit from greater energy efficiency, it’s difficult to suggest that very small businesses would manage mandatory energy audits. However, there is growing opinion that medium-sized companies, particularly within the energy-intensive industrial/manufacturing sectors, could reap rewards from the insight into energy reduction that ESOS brings. As one commentator told the ESOS Hub; “It is these companies that often don’t have the same knowledge of their energy use and what could be done to reduce it.”

Wider opinion supports any new focus on SME efficiency. Mervyn Bowden, who speaks elsewhere in the ESOS hub, has hinted there are many potential wins from catalysing SMEs to interrogate their energy usage. Bowden developed Marks & Spencer’s Plan A initiatives, lending his words some weight.

For such firms, ESOS could really help identify savings; impacting positively on business and the environment.

Federation of Small Businesses (FSB) agrees

The FSB shares the view that energy efficiency opportunities could be better exploited by SMEs.

‘The Department of Energy and Climate Change estimates that the average SME could reduce its energy bill by 18-25 per cent by installing energy efficiency measures, with an average payback of less than 1.5 years.’ its research concludes.

Revealed in the FSB’s February 2015 Survey on Energy Efficiency, the numbers further accelerate the argument.

John Allan, National Chairman of the FSB said: “Small businesses are really enthusiastic about energy efficiency and this desire should be capitalised on for the good of their business and the environment.

“However, what our research does tell us is a simple ‘one-size fits all’ approach will not work, as different businesses are driven by a diverse range of factors.”

It seems the Government is listening; in March 2015, it published the SME Guide to Energy Efficiency. But is more concrete, legislative encouragement required to push home the opportunities, either through ESOS or alternative rules?

What might motivate SMEs?

FSB data finds many small businesses do not feel empowered to make savings, because of a lack of information, available cash, or suitable motivation.

‘It has been difficult to persuade small businesses to invest in significant energy performance improvements.’ the survey explains.

It adds; ‘The vast majority of surveyed businesses (90%) wanted to be energy efficient and said they saw the direct benefits of energy efficiency (86%).’

All the evidence points to SME desire to save energy. But day to day concerns often prioritise strategy.

A widening of ESOS, perhaps as part of forthcoming DECC consultations on energy taxation, might be the incentive they need. However the SME sector is also reticent on extra red tape, and administrative burdens driven by environmental regulation.

Certainly, for firms renting their premises, burdens imposed by ESOS might be unfair. It is only reasonable to force business to pay for efficiency if the investment has time to payback. Most small businesses the FSB surveyed (55%) require a return on their investment within two years.

Equally, financing and capital are tough for SMEs. Thus, any regulation would need to consider how it might catalyse the necessary cash.

Contracts for efficiency?

The FSB finds one option for incentivising small businesses is to include energy efficiency measures and advice as part of energy contracts.

ESOS could in theory legislate on this; building a requirement for efficiency into SME energy procurement.

Today, most SMEs are unconvinced by their energy bills; regularly failing to interrogate them. Many don’t understand them at all. So there is a potential double win available; forcing compliance on efficiency could spark a new generation of billing awareness among small businesses.

This territory is certainly complex, but one thing is clear. SMEs are missing many tricks on efficiency. ESOS seeks to solve exactly this dilemma, but right now misses this crucial slice of UK business.