Donald Trump’s decision to strike Iran may seem far removed from England’s colleges, but it could put a severe dent in their balance sheets. Russia’s invasion of Ukraine in February 2022 unleashed an energy crisis that sent college utility bills soaring by 59 per cent in a single year and left some institutions facing severe financial pressures.
The sector enjoyed a welcome reprieve in 2024-25, when energy costs fell by 16 per cent. Yet that recovery remains fragile.
While total college income has increased by 30 per cent in the past four years, energy costs have risen by 44 per cent, according to DfE’s latest data.
Colleges typically lock in energy prices years in advance, and renewed pressure in wholesale gas markets and electricity network charges could leave many facing sharply higher costs when contracts are renegotiated.
Julian Gravatt, deputy chief executive of the Association of Colleges, believes the “biggest immediate risk” is for colleges with fixed-price contracts expiring in autumn 2026.
“What happens in the coming months is impossible to predict, but I just think we need to expect the unexpected,” he says.
The sector’s response to the last energy crisis was a mixture of emergency measures, long-term investments in decarbonisation of their estates and a more collective approach to procurement.
While ministers expect expanding renewables and nuclear power to reduce the UK’s reliance on volatile gas markets over time, colleges remain exposed to short‑term energy price shocks because electricity costs are still strongly tied to gas‑fired generation.
Colleges are also facing rising costs beyond the wholesale energy market.
Industry analysts expect network and system charges to account for an increasingly large share of electricity bills, with some forecasts suggesting they could approach 60 per cent of total costs even if wholesale prices stabilise.
Unlike some industrial companies that can schedule their energy use to secure time-of-day-savings, education providers cannot shift timetables away from Monday-to-Friday, 9-to-6, term-time hours. One college leader who was facing high network charges several years ago recalled needing high “available capacity” to run a large number of industrial workshops at certain times of the year (November, and January to March) , but still having to fix the capacity for the full year at “exorbitant rates”.
Julian Gravatt, deputy CEO at AoC
Ukraine fallout
The outbreak of war in Ukraine left colleges suddenly facing eyewatering energy contract price rises.
Gravatt recalls receiving one call at the time from a principal whose college was facing a sevenfold increase in its energy bills.
The government introduced an £18 billion energy relief scheme in October 2022, which helped cap the problem, but it was replaced six months later by a less generous scheme. These initiatives provided “nowhere near enough” support, says Craven College deputy CEO Gareth Dixon.
From when Ukraine was invaded in 2022 to when Craven College’s £200,000-a-year energy deal was set to end in December 2023, Dixon was sent weekly emails by his energy broker with price projections that filled him with horror as the figures kept rising.
Their bills soared to almost half a million pounds in 2022-23, which meant the college was unable to offer as generous a pay award as Dixon would have liked.
“We were forced to enter some short-term contracts to try and get us over the hump, thinking that price volatility will calm down. It didn’t,” he says.
Energy has been part of a broader cost shock for FE, alongside pay inflation, construction price hikes and national insurance increases.
Colleges responded to the energy price hikes they faced by rationalising their estates, bidding for decarbonisation grants and collaborating in energy procurement with other organisations to lock in the lowest pricing.
West London College saw its energy costs double between 2021-22 and 2023-24, from £671,000 to £1,219,000, while the college was also lumbered with paying off a £13.7 million loan to the Education and Skills Funding Agency.
Chief executive Karen Redhead recalls how the three boilers serving its sprawling Hammersmith campus were “well beyond their shelf life”, while its heating system lacked even a thermostat to regulate temperatures.
The college struggled to access DfE capital funding and sustainability grants, which Redhead described as “drastically oversubscribed”. But more recently, it has obtained some DfE capital funding to replace its boilers.
Some colleges have taken radical steps since the Ukraine war broke out to reduce their energy costs.
South Essex Colleges Group saw its energy bills almost triple from about £1.2 million in 2021-22 to £3.16 million in 2022-23, leaving its cash reserves “in single digits”.
The group introduced a four-day week across its three campuses, partly as a response to these hikes. Its energy bills dropped to £1.87 million in 2024-25, although the group has flagged the replacement of its air handling units as a “key risk” costing more than £1 million.
Karen Redhead, CEO, West London College
Carbon capital
The government’s public sector decarbonisation scheme, run by Salix, launched in 2020, saw more than £120 million allocated to colleges to replace inefficient heating systems and reduce energy bills.
The fund, which quietly ended last year, helped some colleges reduce their long-term energy costs. As colleges have decarbonised, a marginally bigger share of their energy costs has gone on electricity rather than gas. In 2022-23, FE colleges spent 74 per cent on electricity, 25 per cent on gas and 1.4 per cent on other energy sources, but by 2024-25, this had shifted to 78 per cent spent on electricity, 21 per cent on gas and 1.4 per cent on other sources.
Colchester Institute, which received a £3.7 million decarbonisation grant, was paying £1.01 million for energy bills in 2024-25; its lowest level since 2021-22.
But not every project delivered as planned. Hopwood Hall College mothballed a £1.8 million project due to soaring costs and diverted the money instead into extending a building.
Middlesbrough College secured £4.9 million in 2024 to support low-carbon heating and renewable energy generation, with the college contributing a further £1.2 million.
Middlesbrough’s vice principal for campus and digital services Sara Marshall, says reducing energy usage and using “more intelligent HVAC controls” (devices that control the operations of heating, ventilation and air conditioning equipment) are a “key priority, helping the college strengthen both our commitment to sustainability and our financial resilience”.
Combined with additional solar investment through the government’s GB energy solar partnership programme, these projects helped Middlesbrough reduce energy consumption by up to 8 per cent year on year despite growing student numbers.
DfE told FE Week that colleges are “proportionally overrepresented” in the programme, which aims to install solar panels on about 250 schools and colleges, mainly in deprived northern areas, by this summer.
Middlesbrough College Group’s solar panels
Solar-powered FE
No official national figure exists for the proportion of FE colleges with rooftop solar panels. However, sector evidence suggests solar is now common across larger college groups and land-based colleges and likely more widespread than in schools, where the government has said about one in five sites have solar panels.
In 2025-26, Inspire Education Group (IEG) installed additional solar panels and replaced all LED across its campuses, yielding a 40,000 KwH drop in electricity consumption.
The rooftops on Eastern Education Group’s buildings are now “chock-a-block” with solar panels, says its CEO, Nikos Savvas, while many of its boilers have been replaced with woodchip biomass boilers. “I have a team tasked with going through and trying to find grants for this kind of work,” he says. The energy costs for its West Suffolk College campus were lower in 2024-25 than in 2021-22 (£662,000 compared to £689,000).
Although Savvas believes there is widespread concern about the Iran War and its potential impact on energy bills, he is more concerned about the longer-term impact of climate change.
“We have a big team looking at becoming completely net zero, and how we can pretty much become self-sufficient,” he says.
But Martin Jenkins, director of training at the Textile Centre of Excellence, argues that many training providers lack the roofing infrastructure to accommodate the number of solar panels needed to make a sizeable difference to their energy bills.
Martin Jenkins, director of training at the Textile Centre of Excellence
Taxing tensions
Another threat facing colleges is a potential spike in VAT rates on their energy bills. Energy bought by colleges qualifies for a partial VAT exemption, where a college can show that the energy is being used for a non-business use.
However, colleges could lose this favourable 5 per cent VAT tax rate following a Court of Appeal ruling in favour of Colchester Institute in March. The decision enables colleges to reclaim VAT on pre-2010 building projects, but by doing so it also opens the door to new HMRC tax rules that could remove reliefs on energy bills, among other things.
“Reliefs might be removed, but there’s no information on when, how or what else might happen,” says Gravatt.
Economies of scale
Most colleges now get their energy via brokers such as SE First (Sustainable Energy First), TEC (The Energy Consortium), and Dukefield Energy.
The more organisations that join a procurement consortium, the more that costs potentially go down.
DfE advises colleges to aggregate their utility services where possible, and now strongly links energy procurement with net-zero and condition funding.
IEG uses SE First to procure its gas and electricity. Its chief operating officer, Ed Thomas, says that when either of the maximum or minimum price thresholds IEG have agreed to are met, the group then purchases energy for the year.
Using this model, the group secured gas at 69p per therm for the next five years when market prices were about 125p per therm.
“We purchase from future markets as opposed to the day ahead energy market,” Thomas says.
This model also allows IEG to sell energy if the price drops and repurchase at a lower rate from the future market. All IEG’s electricity is now procured from “wholly renewable sources” that cost less than it paid in 2024-25.
Those hit hardest
Land-based colleges have been among the most exposed to energy price shocks because of their large estates, animal centres and specialist facilities. Reaseheath, Askham Bryan and Myerscough colleges all saw energy costs more than double between 2021-22 and their post-Ukraine peaks before costs began to ease in 2024-25.
Myerscough College’s costs almost tripled between 2021-22 and 2023-24. Last year, it closed its Witton Park campus partly to lower costs.
Reaseheath College and University Centre installed air source heat pumps in several areas in 2024, reducing its gas consumption.
“As a specialist land-based college, we also see cost variations across our wider operational activity, including the running of a working farm,” its spokesperson said.
Given their access to woodland and forestry products, ample space for fuel storage silos and agricultural engineering expertise on campus, land-based colleges have adopted biomass heating systems more readily than other colleges, with Reaseheath, Askham Bryan, Myerscough and Easton (now part of Norwich City College) having all used them.
Gareth Dixon, deputy CEO, Craven College
Eyeing the horizon
If wholesale prices stay high, the government may provide further support to bring down energy bills, but the chancellor has indicated that this would only be for “those who need it most”.
When asked if more support was forthcoming for the sector, a DfE spokesperson said it recognised “the rising cost of energy is causing concern” and pointed to how its estates guidance “helps colleges reduce energy demand and carbon emissions when planning capital investment”.
Like many FE leaders, Dixon has learned the hard way to be well prepared and look out for any potential energy price shocks on the horizon.
Just before Trump’s attacks in the Middle East, seeing that tensions were rising, he locked in a £300,000-a-year deal in December over three years before prices began to escalate.
“We’re getting that longer-term price security, because global crises have an impact at our front doors now,” he says. “Who would have thought what’s happening in Iran would affect us? I think FE leaders are more aware of these issues now.”