Article 9 June 2015

A wake up call for private equity firms - the new energy efficiency act applies to you also

The new Energy Efficiency Act (1429/2014, "EEA") aiming at promoting energy efficiency and saving energy entered into force 1 January 2015. The primary objective of the EEA is the reduction of greenhouse gas emissions.

According to the 2030 framework for climate and energy policies, the aim is to reduce EU domestic greenhouse gas emissions by at least 40% below the 1990 level by 2030 and to increase energy efficiency by at least 27%.

In addition to fighting climate change, energy efficiency measures also serve other important goals such as securing energy supply, supporting the use of renewable energy and promotion of other environmental aspects.

Adoption of mandatory energy audits

The EEA implements the EU Energy Efficiency Directive (2012/27/EU). One of the most essential reforms in the EEA is the requirement for large enterprises to conduct a mandatory energy audit. An energy audit must be conducted every fourth year and the first audit must be done by 5 December 2015.

Energy audits are not a new concept in Finland, as they have been promoted by the Ministry of Employment and the Economy since the early 1990's. However, until now they have not been mandatory and they have not been regulated in national legislation.

After the enactment of the EEA, large enterprises for which the audits are now mandatory may not receive financial support for conducting the audits. For small and medium-sized enterprises the financial support from the Centres for Economic Development, Transport and Environment is still permitted.

Wide definition of 'a large enterprise'

The EEA provides that enterprises which (i) employ at least 250 persons, or (ii) which have an annual turnover exceeding EUR 50 million and an annual balance sheet total exceeding EUR 43 million are considered as large enterprises. The definition of large enterprises covers companies or groups registered in Finland, but it should be noted that when assessing the aforesaid thresholds also foreign subsidiaries of Finland-based groups are taken into account.

The obligation to conduct an energy audit is not dependent on the industry; the only defining criterion is whether the aforesaid thresholds are exceeded. Based on the generality of such criterion the Finnish Energy Authority has stated that private equity firms are assessed in a similar way as any other companies.

Therefore, according to the Energy Authority a private equity firm (or a fund) is regarded as a large enterprise, if the combined number of employees, or the consolidated annual turnover and the annual balance sheet totals in its portfolio companies exceed said thresholds. Foreign owners are not taken into account when assessing the thresholds.

If a Finnish private equity firm or a fund qualifies as a large enterprise, all the portfolio companies in Finland are then under the obligation to perform an energy audit in accordance with the EEA. A large enterprise may choose whether it conducts one audit covering all the companies or separate audits for each subsidiary.

Respectively, the foreign subsidiaries of a Finnish large enterprise are regulated under the corresponding foreign jurisdiction.

Energy audits in practice

The aim of an energy audit is to obtain comprehensive knowledge of the energy consumption profile of the company and to recognise the potential energy savings. This means charting all the operations consuming energy and types of energy used (electricity, natural gas, district heating etc.).

An energy audit must contain a sufficient number of site audits that give more detailed information on the energy consumption and appropriate energy efficiency measures of a particular site. Site audits can be performed of individual buildings, factories, plants etc. depending on the enterprise in question.

There are certain rules on the allocation and number of site audits needed, but basically they should be conducted concentrating on the sites with the highest energy consumption or with biggest improvements to be done.

Site audits intended to be included in an energy audit may not be conducted earlier than four years prior to the respective energy audit. An energy audit must also contain a plan of the site audits to be conducted for the following energy audit.

The information gathered from the auditing system must be submitted to the registry of the Finnish Energy Authority that is entitled to order penalty payments, if an enterprise violates the EEA. An enterprise must have an accredited energy auditor responsible for the compliance of the audits performed.

An undertaking is free from the obligation to perform an energy audit, if it has been certified with certain European or international environment or energy management systems that contain as comprehensive energy audits as the one regulated in the EEA. The most common certificates are ISO 50001 and ISO 14001.

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