According to research, schools and colleges spend over £500 million annually on energy. This represents a significant portion of their budgets being directed towards energy costs.
Reducing energy consumption without compromising the educational experience is a challenge, as schools require heating, lighting, and electrical equipment to ensure a safe and productive environment for students.
Instead of focusing solely on reducing energy usage, CFOs and financial advisors within these institutions should prioritise energy procurement and purchasing strategies. In this guide, we’ll explore why proper energy procurement is essential for educational facilities and why it can be more cost-effective to seek expert assistance in this area.
Why Energy Procurement Matters for Educational Institutions
Schools and colleges typically operate on tight budgets while managing significant energy needs across multiple buildings. Strategic energy procurement can offer numerous benefits:
- Reduce Energy Costs: An effective energy procurement strategy can lower costs by securing favourable tariffs and terms from suppliers, resulting in long-term savings.
- Improve Budgeting Accuracy: A well-planned energy procurement strategy helps to make energy costs more predictable, which supports long-term budgeting by minimising concerns about price volatility.
- Support Sustainability Initiatives: A comprehensive energy procurement plan can also facilitate investment in renewable energy sources, such as solar panels, offering more financial flexibility to pursue sustainability goals.
- Reduce Administrative Burden: As the CFO of a school or college, you already have a heavy workload. A long-term energy procurement plan can help reduce this burden by providing a clear framework for future energy purchases and contract management, giving you more time to focus on other priorities.
Understanding Your Energy Usage
Energy consumption in schools and colleges is generally driven by the following factors:
- Heating and Cooling: This typically accounts for up to 60% of a school’s total energy usage. Heating and air conditioning are essential for maintaining a comfortable learning environment.
- Lighting: Lighting consumes around 8% of a school’s energy. This is crucial for creating a safe and productive environment for students.
- Kitchens: Kitchen facilities account for approximately 11% of energy consumption in schools.
- Labs and Equipment: Electrical equipment in labs and classrooms makes up around 21% of a school’s energy usage.
When managing energy costs, selecting the right procurement strategy is key. Energy procurement isn’t just about securing the lowest price—it's about choosing a strategy that aligns with your financial objectives, energy needs, and the prevailing market conditions. Below, we’ll outline three common energy procurement strategies and explain how an energy broker can help navigate these options.
1. Fixed Contracts: Stability in Uncertain Times
One of the simplest energy procurement strategies is a fixed contract. With a fixed contract, you lock in an energy rate for a specified period, usually between one and five years. This strategy is most beneficial when market prices are low, and you seek predictable costs over a longer term.
Pros:
- Budget Stability: Fixed contracts provide predictable costs, making budgeting and financial planning easier.
- Protection from Price Surges: A fixed contract shields you from unpredictable price increases in the energy market.
Cons:
- Missed Savings: If market prices drop after securing a fixed rate, you won’t benefit from those savings. While fixed contracts offer stability, they lack flexibility.
- Potential Overpayment: If market prices remain low or decrease further, you may end up paying more than necessary under a fixed contract.
When is it best? Fixed contracts are ideal when energy prices are low, and you prefer stability over potential market fluctuations. This is a safe option for institutions prioritising budget certainty.
2. Flexible contracts: capitalising on market trends
For institutions willing to accept a bit more risk, a flexible (or pass-through) contract may be an attractive choice. With this strategy, energy is purchased in tranches over a year, with prices adjusting based on market conditions.
Pros:
- Capitalise on Price Drops: A flexible contract allows you to benefit from lower prices when market conditions are favourable. If you have the expertise or work with a professional, this strategy can reduce energy costs.
- Alignment with Market Trends: Rather than being locked into a single price, your energy costs fluctuate with the market, which can lead to cost savings when prices drop.
Cons:
- Requires Market Expertise: This strategy requires a strong understanding of the energy market to effectively predict trends. Without in-house expertise, it may be difficult to make informed decisions.
- Risk of Price Increases: If prices spike unexpectedly, your energy costs may rise considerably, which could be higher than under a fixed contract.
When is it best? A flexible contract suits institutions that can manage risk and either have in-house market knowledge or can engage an expert to monitor energy trends.
3. Group purchasing: leveraging collective power
Sometimes, the best way to secure savings is to collaborate with other institutions. Group purchasing, or energy baskets, involves pooling together with schools, businesses, or local government entities to purchase energy in bulk. This collective approach increases purchasing power, allowing participants to secure better rates than they could individually.
Pros:
- Better Rates: Aggregating demand typically results in better pricing from suppliers due to the increased buying power of the group.
- Lower Administrative Costs: Group purchasing reduces the administrative burden for individual institutions by streamlining the procurement process.
- Shared Risk: Risks and rewards are distributed among all members of the group, which can lower individual exposure to market fluctuations.
Cons:
- Less Flexibility: As a member of a group, your institution may have limited influence over the terms of the contract. The collective decisions may not fully align with your specific needs.
- Coordination Challenges: Successful group purchasing requires effective coordination. Any delays or disagreements among members can impact the process and timelines.
When is it best? Group purchasing works well for institutions seeking lower energy costs and willing to cooperate with others. It is particularly effective for educational facilities or local governments that can pool their resources to secure more favourable deals.
How an Energy Broker Can Assist Your Educational Facility
Understanding energy procurement strategies is one thing, but effectively implementing them requires expertise. This is where energy brokers come in. Brokers act as intermediaries between your institution and energy suppliers, helping to secure the best deals while managing risks and reducing administrative tasks.
Here’s how an energy broker can support your energy procurement process:
1. Market Expertise
- Market Monitoring: Brokers keep track of energy price trends and fluctuations, ensuring you are always informed about the best times to buy.
- Strategic Advice: They provide tailored advice to help you make decisions based on your institution’s specific energy needs and the market environment.
2. Supplier Management
- Better Rates: Energy brokers have established relationships with suppliers, enabling them to negotiate competitive rates on your behalf.
- Tariff Comparisons: Brokers compare multiple suppliers’ tariffs to ensure you are getting the best deal available.
3. Risk Management
- Tailored Strategies: Brokers develop procurement strategies suited to your institution’s risk tolerance and energy usage patterns.
- Portfolio Management: For institutions with multiple campuses or sites, brokers can help manage energy use across locations, ensuring maximum efficiency.
4. Administrative Reduction
- Contract and Renewal Handling: Brokers manage the administrative side of energy procurement, ensuring timely contract signings and efficient renewals.
- Energy Reports: Brokers provide detailed reports on energy consumption, helping you track costs and identify potential savings.
Choosing the Right Energy Procurement Strategy
Selecting the right energy procurement strategy is crucial to managing energy costs effectively. Whether opting for a fixed, flexible, or group purchasing contract, it’s essential to consider both your financial goals and your institution’s ability to manage risk.
If needed, an energy broker can be an invaluable ally, offering market expertise, negotiating power, and reducing administrative burdens. By carefully assessing your options and working with the right professionals, you can navigate the complexities of energy procurement, ensuring cost-effective and sustainable energy solutions for your institution.
Energy procurement isn’t just about finding the cheapest deal—it’s about making smart, strategic decisions. With the right broker, schools and colleges can achieve clarity, control, and long-term savings in an increasingly complex energy market.
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