Flexible Energy Procurement for Schools and Academy Trusts

For Academies and Multi Academy Trusts, energy is a significant and often unpredictable budget commitment. So when considering a new energy procurement arrangement, one of the most understandable questions for a CFO to ask is: “What price will we pay?”

With a traditional fixed-price contract, a supplier can provide a price at the point of procurement. A professionally managed flexible procurement strategy works differently. Rather than purchasing all of an organisation’s future energy requirements at once, energy is purchased progressively, using an agreed procurement strategy designed to manage exposure to changing wholesale markets.

This means the final energy price cannot be known when an academy or Trust initially appoints its energy provider.

That can understandably make comparisons between providers more difficult. However, it does not mean that flexible procurement is without structure, governance or measurable performance.

Comparing the right things

When considering flexible procurement, it is important to distinguish between the price of energy that has already been purchased and the future price of energy that has not yet been purchased.

No provider can know with certainty what wholesale energy prices will be at future points in time. The difference is how that uncertainty is managed.

For a MAT CFO, therefore, the relevant questions extend beyond a headline unit price. They may include:

How is the procurement strategy designed and governed?
How and when is energy purchased?
How is market risk managed?
What fees and charges apply?
How has the strategy performed historically?
Do I get budget certainty?
What budget forecasting and reporting is provided?
How can I monitor my energy use?
What wider service does the provider deliver alongside procurement?

This provides a more meaningful basis for comparing professionally managed flexible procurement models.

Evidence matters

At West Mercia Energy (WME), we recognise that Trusts need evidence to support procurement decisions and, ultimately, the preparation of balanced and defensible budgets.

As part of the Department for Education's assessment of approved energy framework providers, WME's historic pricing and procurement performance were reviewed as part of the approval process. WME can also provide historic procurement performance information to prospective customers on request, helping Trusts understand how the strategy has performed over time rather than relying solely on a future price that cannot yet be known.

Historic performance should not, of course, be interpreted as a guarantee of future energy prices. Wholesale markets will continue to change. However, it can provide useful evidence when assessing the approach, governance and performance of a procurement strategy.

A different way to assess value

Flexible procurement requires a different approach to price comparison.

Rather than asking only “What is your price today?”, MATs should also ask “How will my energy be procured, how will risk be managed, and how will I know whether the strategy is delivering value?”

For Trusts considering their next energy procurement, understanding these differences is an important part of making an informed decision.

WME can provide further information on its flexible procurement strategy, including historic performance information, to help MATs assess the approach in more detail.