The cost of heating Salford council's buildings including schools and offices has soared by a whopping 371 per cent to £4m soon. City Mayor Paul Dennett has approved the award of a 12-month contract for the supply of gas to all the local authority's premises.
The new supplier is Corona Energy with the deal kicking in on July 1 for 12 months. Council documents state that the huge increase is "due to the current geopolitical situation that has driven energy markets to new record highs".
An option to take on a 24-month contract was rejected because the supplier was unwilling to commit to a longer duration because of "current market volatility". "Any such contract would attract a significant risk premium and therefore not offer best value," the report of the decision said.
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"A 12-month contract will allow for budget certainty in the short run and sufficient time to allow the market to settle with a view of securing a more competitive contract." The source of the funding will be the general revenue budget and schools budget.
The new deal replaces a two-year contract which was agreed in 2020 when "energy markets were significantly different", the report said. It went on: "The early phase of the Covid-19 pandemic and global lockdown resulted in the prices being at their lowest and therefore allowing for a very competitive contract being secured compared to the previous contract that has been in place and on average a 27per cent saving being achieved.
"However, with the global lockdowns ending last year and the world recovering to some degree of normality, this has resulted in a sustained and continued pressure on increasing global demand for energy and therefore a continuous increase in the wholesale energy markets."
As well as the increase in global demand, additional pressure was also placed on the markets due to reduced EU gas storage and limited Russian gas flows into Europe.
The overall impact was also felt on the domestic markets with approximately 30 energy suppliers having gone out of business since December 2021.
"With the recent geopolitical events involving Russia’s invasion of Ukraine, there has been continuous market volatility with prices reaching a new record high in March," the report said.
