Rising energy prices are forcing schools to take “worrying gambles” on their gas and electricity deals - with some warning that jobs could be at risk as a result.

Energy market data shown to Tes reveals that the cost of the typical deals available to schools has more than doubled in the past 12 months, and the prices are even higher if schools don’t want to commit to long-term tariffs lasting three to five years - which are typically the cheapest on the market.

Education secretary Nadhim Zahawi said this morning that his department is monitoring the increasing costs of energy for schools - but he did not commit to providing more funding.

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In the current energy crisis, prices across tariffs have shot up as the basic wholesale component costs have risen, meaning that the cost of a three-year fixed deal is now nearly 200 per cent higher for gas and 150 per cent higher for electricity than 12 months ago, according to data from Zenergi - an energy procurement company used by around 3,000 schools.

School business leaders have admitted that the decisions they are having to make do ultimately amount to a “gamble” and warn that the “eye-watering” sums involved mean that staff could be at risk if things don’t go as planned.

Schools hit by rocketing energy costs

The record-high prices mean that some school leaders are reluctant to sign up to long-term deals now, because doing so would tie them to the high prices for several years, meaning that they could end up overpaying by tens of thousands if the market improves in the future.

But delaying committing to a long-term deal means they could end up paying even more in the short term under shorter fixed deals and “variable” deals - where the price isn’t guaranteed and can move around at short notice.

However, the government appears to have ruled out any additional help, with the Department for Education claiming that price inflation “would have a relatively small impact on a school’s budget overall” - a statement school leaders said they were “astonished” to hear.

Appearing on an #Asktheeducationsecretary event on Sky News today, Mr Zahawi said that the government had given a good settlement to schools in the recent spending review because it knew energy costs would be going up.

He was responding to a question from presenter Kay Burley, who highlighted a Tes investigation that revealed that a school was facing energy costs rising by more than £54,000 a month more than it had budgeted for.

The issue of energy costs came up as the pair discussed how schools were keeping classrooms ventilated to mitigate the spread of Covid.

Ms Burley said schools were achieving this by opening the windows, adding: “But I mean we are looking at the Times Educational Supplement magazine talking about one particular school with £50,000 for one month’s electricity use and £13,000 for gas.  £54,000 higher than the amount would normally have to fork out.”

‘We are keeping an eye on the energy costs and the pressure’

Mr Zahawi replied:  “One thing that I am doing at the moment is making sure we in the department keep our eye on the cost of energy in the education estate.

“The good news is that the new schools we are building - and we are building 500 new schools - they are all net-zero operation. They are really unbelievably energy efficient but we still have 24,300-plus schools where we are trying to mitigate for those schools where we can.

“But we are keeping an eye on the energy costs and the pressure.”

However, he did not commit to provide funding when asked if he would reimburse schools.

In response, Mr Zahawi referred to the Workforce Fund that the department has created to help schools facing staff shortages through Covid

He then added: “But we made sure in the spending review we made sure we got a good settlement. We knew that the cost of things like energy was going to go up.”

The energy deals available to schools at the moment are significantly more expensive now than they have been at any time since the market was deregulated in 1989, according to Zenergi.

The firm says a three-year fixed deal’s whole component - the part that makes up the vast majority of a school’s bill - has risen by 191 per cent for gas and 150 per cent for electricity since February 2021.

But shorter-term deals are more expensive still, as Zenergi says a three-year fix is 32 per cent cheaper for gasn and 26 per cent cheaper for electricity, compared with a one-year fix.

The other option is variable deals. These don’t guarantee a price per unit of energy used, and - as the name suggests - vary with the market.

And there could be a further risk if schools take variable or shorter-term options and prices increase further, as those on short-term fixed deals will then be faced with a worse selection of prices when their contract runs out, and those on variable deals could see their prices rise steeply and with little notice as schools aren’t protected by a price cap that puts a ceiling on the amount they have to pay, unlike domestic customers.

The risk of job cuts

School leaders appear to be taking different approaches in trying to manage the situation, with some looking at getting the cheapest long-term fixes available, and others choosing to opt for shorter deals while they wait for the market to improve.

Tina Button, school business manager at The Wyvern School in Ashford, Kent, said her school’s current energy deal expires in mid-September this year, and that it is projecting a bill increase of between 50 and 150 per cent on what she currently pays.

She says her school is considering locking into a three- to five-year deal - as these are amongst the cheapest on the market at the moment - but admits it is a “very hard” decision to make, and that she is “hugely worried about the upcoming rise”.

What’s more, in order to get the best deal, she says the school will have to commit to a fix several months before September as it is part of a collective purchase from many different schools, giving her less time to make the decision.

‘I’m hugely worried about the effect of the energy price situation on my budget’

“I’m hugely worried about the effect of the energy price situation on my budget. If it does go up by the amount it could, that’s the cost of a teacher,” she said.

“Any decision feels like a gamble, as the price may go down after we lock in. It is a risk. Any school business leader will tell you they want to make the right decision, but you’re making a best guesstimate. It’s going to be very, very hard to make a decision.”

Other school leaders are looking at biding their time on more expensive short-term deals in the hope that the situation improves and they are then able to lock into cheaper deals.

Rob McDonough, chief executive of the East Midlands Education Trust (EMET), said his trust was taking this approach.

As reported by Tes last month, a school in the EMET saw prices come in at a staggering £54,000 higher than the amount the school budgeted for energy each month, as it had joined the trust and was outside of the tariff that other schools within it were on. The deal meant the school was paying more than 5 per cent of its budget towards energy costs.

Mr McDonough said the trust has now opted for a short-term, one-year deal for the school instead of a longer deal that could be cheaper for now, because it hopes to be able to secure a better offer if the market improves.

He said it would even have been interested in a six-month deal, if it could have found one on offer, as he sees the approach as an “interim” measure.

“We did this as an interim measure to get over what we hope will be a peak in the energy prices. We did look at a 24-month deal, which was slightly cheaper, but on balance we want to take stock of where the world is in 12 months. We hope these very high prices will have come down,” he said.

“We thought entering a longer deal at a time when energy prices were at a record high would not be the wisest decision to make. Of course, if I could predict the future, I don’t think I’d be working in this role, but everything I read at the moment is telling me that energy prices are at a record high.”

Mr McDonough added that someone trained in education and teaching should not be having to make such huge financial decisions with big consequences as a result of the current situation.

“Ultimately, though, my training is in teaching, but here I am finding myself having to read the Financial Times to look at what they think the odds and chances are of the market in terms of energy costs, just to make sure my school can survive going forwards,” he said.

“Unlike private industry, we can’t just raise the prices of our products, we have to reduce our costs. Sadly, the main cost we have is our staffing prices.”

No ‘correct’ response to the price rises

The answer to the situation for those in charge of schools is not clear. Stephen Morales, chief executive of the Institute for School Business Leadership, said there was no “correct answer” but that he would likely err on the side of a short-term deal, rather than committing to a long-term fix.

“You either go for certainty - and you end up on the wrong or right side of that, but you can plan your budget around it - or you hedge your bets,” he said.

“The real gamble is, are we at the peak of the problem? We might see a more stable position in the next 18 months to two years.”

Asked what decision he would make if faced with the problem, Mr Morales said: “My sense is you’re probably best not to lock in now for long. The wisdom is hold your nerve because you’ll be going for a very expensive deal [if you fix now].

“When we can see more certainty ahead, then might be the time to lock in a three- or five-year deal. If you need to lock in at all, do it for even a year. Ride it out if you can.”

When asked earlier this week by Tes if it would commit to offering extra financial support to schools struggling due to the price rises, the DfE said that the government recognised that schools were facing “cost pressures”. But a spokesperson added: “Academy trusts spent an average of 1.4 per cent of their spending on energy costs in 2019-20, while maintained schools spent an average of 1.3 per cent, which means even while costs are rising, inflation in this area would have a relatively small impact on a school’s budget overall.”

The spokesperson also added that in 2022-23, core schools funding would increase by £4 billion compared with 2021-22, and that schools could access “a range of tools” to help them get the best value deals for energy costs and associated services.

‘Schools do not have spare cash lying about in budgets to pay for the huge energy price rises’

But school leaders reacted with incredulity to the claims, with Geoff Barton, general secretary of the Association of School and College Leaders, saying that his organisation was “astonished” by the “cavalier attitude” of the DfE, and called on the government to offer financial support.

“Schools and colleges need to balance their books like everyone else and do not have spare cash lying about in budgets to pay for the huge energy price rises affecting the whole of society. To simply write this off as having a relatively small impact on overall budgets shows how out of touch the DfE is on this important issue,” he added. 

“Most schools and colleges will endeavour to protect themselves from energy price hikes by agreeing fixed-term supply deals that guarantee their costs, also allowing themselves plenty of time for research and renegotiation when deals are due to expire.

“The rapidly changing market and alarming forecasts from industry experts of inflated prices for a lengthy period to come effectively renders this longer-term protection worthless.”