Budget for energy

Getting the right energy deal for your school is crucial. As schools grapple with inflated bills, energy consultant Tim Warneford looks at what's gone wrong and how to fix it

As if school budgets weren't tight enough already, April's energy price hikes added even more pressure. Many schools within local authority procurement frameworks were shocked at their new energy rates. Academies weren't immune either, particularly if they had used unregulated brokers working on commission from suppliers.

An NAHT survey of school leaders found that 15 per cent were reducing the number of teachers, or teaching hours, to deal with rising prices. More than half were reducing investment in equipment, maintenance and capital spending.

The DfE is belatedly looking at how it might support schools, having previously stated that the impact of rising energy prices would be 'minimal'. Try telling that to schools which have seen energy costs more than double, with the average bill now close to 3.5% of the total budget.

Running a webinar with School Business Services in February, I heard from many schools facing difficulties because they had not procured new energy contracts last year when prices were lower. The director of finance at the Inspiring Primaries Academies Trust in Leicestershire, Chris Hall, talked about the 'Hobsons’s choice' facing schools. He had been quoted a 24-month contract at a rate increase of 126%, or a 12-month contract at a staggering 170%.

The problem is that since schools operate within commercial spaces, they have to buy from an energy market that is unregulated. This puts them at risk from brokers who 'cold call', particularly if no due diligence is undertaken before a provider is appointed. Neither can local authority frameworks guarantee Best Value, since they lack a transparent competitive tender process. At best, such frameworks can act as a tracker, but rates are not disclosed in advance and there is very little protection for schools from large spikes in cost.

Future options

According to the chief executive of Centrica, Chris O'Shea, high energy rates could be the norm for another two years. Schools must therefore elevate energy procurement to a priority which warrants significant time and consideration. In my view, they should opt out of the LA framework and consult brokers approved by sector bodies such as the ISBL, or by a body that has undertaken due diligence to ascertain the broker is trustworthy.

We further advise school business managers to check references and speak to one another about which broker has provided them with a good service. The ISBL-approved broker Powerful Allies, for example, provides schools with strategic advice on energy procurement, management and funding for renewable installations, thus helping achieve both cost and carbon savings.

Schools that moved to secure new fixed-rate contracts last year, or early in 2021, have already made considerable savings. The Clevedon Learning Trust, a 13-school MAT in the South West of England, took advice from Powerful Allies to set up future energy contracts when market rates were low in early 2021. The Trust has benefited from 100% renewable source electricity rates fixed until late 2023, and gas rates fixed until 2025. Its director of finance and operations, Wendy Farrier, says it's important to think strategically to protect budgets for the future. 'The Trust is now seeing the significant cost benefit of that forward vision, allowing us to maintain our investment in education and facilities without compromise. I encourage all schools to take the best advice from recommended partners, and to plan well in advance when it comes to energy procurement strategies.'

The DfE is looking into how schools are being affected by energy price increases so it can consider what 'additional support' to provide. I would suggest that schools with energy contracts ending in October work only with an approved broker to undertake a full competitive tender for a new contract over the summer months, when their usage is lower. One option is to take out an 18-month contract which could be reviewed in the summer of 2023.

Schools could also consider entering a longer-term contract, which provides cost certainty. There are new products coming on to the market that offer schools an opportunity to set a three to five-year term contract but also exercise a 'break clause'. Such clauses allow them to opt out of the higher rate contract, as long as they take a new contract out for the same duration once rates drop. For instance, Regent Gas has provided a contract with a mid-term option to secure a lower rate if the market has fallen, with no upward risk.

Energy-saving measures

If you are an academy trust, check if you are required to undertake a Streamlined Energy Carbon Report (SECR) as part of your annual accounts return. This audit will provide a baseline from which to evidence year-on-year energy efficiency measures. Alternatively, consider commissioning an energy audit. Finally, look at implementing the energy efficiency recommendations within your Energy Display Certificate.

Check that your building's energy controls are set to meet your current needs and are not still on factory settings. If your heating system is new, ensure that the controls in the boiler room and on the emitters are working correctly. Install a culture of energy awareness across the school and consider appointing an energy champion to support these endeavours.

When replacing building fabric or components, look at the most sustainable options. For instance, if you're replacing old lighting for LED, weigh up the cost and carbon benefits of accelerating the programme. As part of your capital renewal programme, look to specify the most energy efficient systems.

Paying a little more for an integrated system may yield dividends in the future. For example, installing solar PV panels when you replace a roof covering could save on preliminaries such as scaffolding and allow you to align the life expectancy of the new roof with that of the solar PV (at least 25 years). Funding via the Public Sector Decarbonisation Scheme may be forthcoming in future rounds. There are also DfE-compliant operating lease and Power Purchase Agreement (PPA) options available.

 

See also:

A guide to developing an energy strategy within Rethink your energy strategy