Public sports and leisure facilities are struggling to cope with spiralling energy bills and risk closure due to increasing policy costs, a representative of 220 sports and leisure trusts has warned The Energyst.
Sean Midgley, energy and environment manager at SIV, the operational arm of Sheffield City Trust, looks after 17 of the city’s sports and leisure venues. At least for now. He says there is a real risk that facilities will soon close due to rising energy bills that are being driven up sharply by policy costs. The incoming capacity market charge, he warns, may be the final straw.
Midgley also works with Sporta, the national association that represents charitable social enterprises within the cultural and leisure sector. He says all of the association’s 220 members are in the same boat, without a pump, let alone a paddle.
Poor get poorer
“Our energy spend is now 11% of our gross annual turnover. If we were a household, we would be classified as living in fuel poverty,” Midgley points out.
Total utility costs for SIV are currently £3.5m, with electricity, some 22GWh per annum, accounting for £2.5m. Around half of that bill is for power itself. The other half pays to subsidise renewables, cover environmental levies and for use of the electricity networks.
The nature of leisure centres means many sites are severely limited in their ability to avoid consumption during evening winter peaks, where the bulk of network costs and the capacity market charges are applied.
“Between 4-7pm is our busiest period because it’s when people finish work and want to go to the gym,” says Midgley.
According to analyst’s predictions, that could leave SIV with a six figure additional cost from the capacity market charge next year, on top of a projected 20% increase in the cost of the Renewables Obligation. A similar increase is projected for FiT CFD from 2018. Meanwhile, the cost of small-scale renewables (FiTs) is also set for a double-digit rise.
“If that happens, it will kills us,” warns Midgley. “Venues are already shutting.”
Forced to close
While councils are under severe budgetary pressure, and energy costs are not the sole contributor, “energy is our second largest cost after salaries,” says Midgley.
“So we’re really struggling at present because the council can’t afford to keep [venues] open. But they’re under pressure from central government to provide local health outcomes. One way to deliver that is through local sports and leisure centres. But now they’re having to streamline, so you will see, certainly within local towns and cities, that your smaller health clubs, and your smaller swimming pools, will start to close.”
He says it is already happening.
“Grimsby ice rink has just closed because it’s uneconomical to carry on running, and there’s number of leisure centres within the Kirklees area that are due to close as a result of operating costs. We’ve recently had two of our venues close for the same reason.”
It’s a dire situation and one that Midgley says will have a knock-on effect given the importance of sports and fitness to national health and wellbeing.
Meanwhile, even securing competitive energy contracts is becoming increasingly difficult.
Because suppliers are carrying non-commodity costs before passing them through to customers, they are demanding guarantees or collateral before renewing supply contracts as those costs increase.
While leisure trusts are effectively arm’s length council vehicles, they are charitable trusts and the council will not underwrite energy bills. The trust therefore cannot give parent company guarantees. Neither can it provide £700,000 surety to suppliers.
“So we’re very limited with the amount of suppliers we can go to,” says Midgley. “We’re finding it increasingly difficult to actually secure energy contracts and to get the best prices. We’re starting to be squeezed out of the marketplace because we’re seen as a risk.
“Our current supplier – we’ll have been with them for three years by the time renewal comes up – recently informed us that its accounts department views us as a risk and wants a parent company guarantee.
“But we can’t provide one because Sheffield City Council will only give us a letter of competence in terms of leases. It won’t underwrite our energy bills. So that supplier will not be getting a renewal if that remains the case.”
Where does that leave SIV?
“Probably with the only supplier that will touch us [that is, the UK’s largest]. And that supplier, as everybody knows, is phenomenally expensive.”
Midgley says he has worked to reduce consumption across the estate over the last four years, and by doing so, effectively secured a £500,000 energy efficiency budget for the year ahead, which would help reduce energy costs by around £180,000 per annum.
But he says it has “never really materialised because it was absorbed by other energy bill costs”.
He says ESCOs and other firms have beaten a path to his door offering finance arrangements so that energy bill savings repay capital investment. But SIV is reluctant to look at those types of models because it would compound credit risk, which, as supply contract renegotiations prove, is already an issue.
Similarly, Midgley says the council could not rightly take money being offered by firms touting over-sized CHP units in order to game the balancing markets and subsidy programmes.
“We’ve had a number of ‘investors’, shall we say, offering to put in a 1.5MWe scheme where we only need 500kWe. When I’ve told them we couldn’t use all of the heat even if we could use the power, they say ‘we’ll just blow it away’.
“We’re a charitable trust, we’re accountable and we have a social and corporate responsibility,” says Midgley.
“The Local Authority’s objective is to be the greenest city in the country. If we were to turn around and tell them we are blatantly dumping heat because it saves on our energy bill, that doesn’t fit with our CSR nor does it fit with the LA’s.”
But if those types of games are being played within the energy sector, would it not be better to join in than close public facilities and deprive communities?
“I come across it time and again with CHP, but I couldn’t put my name to a project that was being deliberately dismissive of other factors.”
While government appears to be refocusing on energy cost control, Midgley says there are some straightforward policy interventions that could make an immediate difference to trusts.
Not-for-profits cannot access Enhanced Capital Allowances. But if government reduced VAT on certain proven technologies to 5% “that could really help as a lever to get things across the line”, says Midgley.
Alternatively, revisiting rules around the government’s interest-free Salix loan scheme might help.
“Salix funding is open to the NHS and local authorities – but it’s not open to trusts that have been set up by the LAs,” says Midgley, even though they are “effectively arms-length councils set up to operate the buildings”.
Councils want those trusts to operate independently, thereby depriving them of access to the Salix loans. While councils themselves could technically solve that issue, Midgley believes it should be implied within Salix rules that council trusts should qualify for finance.
“If government could revisit that,” he says, “then yes, absolutely it would make a difference.”