The large increase in costs earlier in the year, following the rise in the energy cap from 1 April 2022, with further jumps expected from 1 October 2022, is a concern for private households, businesses and schools alike.
Everyone hopes the current high prices do not last for long, but with there being seemingly no imminent end to the crisis in Ukraine, which has exaggerated the problem, there doesn’t appear to be a quick fix. It’s also funny that prices never seem to come down as quickly as they go up, so the high costs may be here to stay for a while.
From an academy school perspective some academies will be in the fortunate position of being locked into contracts. If you’re locked in for the next couple of years, or longer, then you may be protected from the worst of the price rises.
But what do you do if your contract is expiring shortly, or in the coming year? Academies will be left with a difficult decision over how long to fix it for, as it is impossible to predict the best approach.
Academies also need to budget for rising costs, and the wide fluctuations which could arise under different scenarios will make it difficult to budget accurately. We have heard some horrendous examples of individual academies facing energy cost increases of £200k+ a year, which is a huge hit to their budgets.
Two specific issues
‘Church’ academies
Trusts with solely, or predominantly ‘church’ academies, which usually do not recognise the value of land and buildings on their balance sheet, face a particular problem. The absence of these fixed assets on the balance sheet means there is often nothing to counter the LGPS deficit, which in turns results in the balance sheet showing a net liability position.
Trusts affected in this way have accepted this. Accounts can include disclosures to explain why this is not a problem, why this does not affect the going concern status of the trust, as well as reconciliations to show the position excluding the pension movements and balances.
Unfortunately, credit agencies are often very black and white, they will pick up headline figures from the accounts, with the net liabilities and often in-year ‘loss’ if there has been a large increase in the LGPS deficit, resulting in a poor credit score. They simply will not read the detail, nor attempt to understand the underlying factors.
We have seen some trusts immediately turned down by energy companies as a result of these issues. The only way around this is to try and speak to someone at the energy company, or broker, who understands the education sector, to attempt to bypass their standard systems.
Trusts with low levels of reserves
Some trusts with low levels of reserves may find that the rising energy prices push the trust into a deficit position.
Remember that if you are going into a cumulative deficit position it is a requirement of the ATH to inform the ESFA.
Support
If you have an energy contract coming up for renewal is it worth reading the DfE energy procurement guidance.
We have a feeling some trusts may begin to explore more sustainable options, such as solar panels and other sources of renewal energy. Schools are actually a fairly obvious choice for solar panels, given the large expanse of roof, and in some ways it is perhaps surprising more schools have not already gone down this route. The upfront capital cost is probably the main barrier to entry here, but for trust’s in a fortunate position with sufficient reserves and cash, it could well be worth them exploring this option to bring long term savings at the same time as doing something positive for the environment, an excellent education piece for the pupils.
The next step
If you need any guidance, then please contact your local UHY academy expert.
