U.S. hospitals spend nearly $5 billion annually on energy and related costs. Most main hospital buildings in the U.S. are more than 20 years old so it’s not too hard to realize that a significant portion of that spending could be curbed through improvements in energy use. By upgrading energy nationwide, about $100 million could be saved each year in power costs, according to the Department of Energy (DOE).
Energy Dependent
The healthcare sector has grown more dependent upon electricity as digital medical records and equipment become increasingly essential to patient care. Energy consumption in healthcare facilities is the second largest expense behind staff compensation. This consumption and energy reliability is a top concern for healthcare facility management especially since critical hospital energy systems must be online and available 24 hours a day, even when the power grid is compromised.
By reducing dependence on the electrical grid or oil, a hospital lessens its exposure to volatile energy commodity prices. Additionally, when a hospital is able to remain functioning during an emergency such as Hurricane Sandy or winter storms that knock out power for days, the hospital becomes an even more vital community resource to the citizens it serves.
Unfortunately, the 2011 Hospital Energy Management survey, conducted by Health Facilities Management magazine and the American Society of Healthcare Engineers, showed that the majority of hospitals have not yet undertaken key steps necessary to achieve grid independence. These steps include conducting regular energy audits, developing a strategic master energy plan, monitoring baseline energy performance, and implementing on-site power systems as suggested in here.
Facility Challenges
Upgrading aging facility infrastructures and equipment that inefficiently consume energy are historically not prioritized because of competing clinical needs and limited capital dollars. This lack of access to sufficient capital restricts the ability of these institutions to achieve efficient operations.
According to JP Morgan’s, “Energy Performance Contract Financing as a Strategy: Transforming Healthcare Facilities Maintenance” both public and private hospitals have worked hard to control their operating costs in the face of thinning margins, an uncertain economy and a challenging regulatory environment. As a result, many have deferred or are deferring facilities’ maintenance projects based on budget constraints and the need to place quality patient care ahead of infrastructure improvements.
Moving Away From Electricity Grid Dependency
Recent electrical grid failures related to storms, overloads, and security breaches have brought renewed attention to electricity system reliability, particularly for critical safety and medical infrastructure. According to a Pew Charitable Trust research report, “Combined Heat and Power Provides Energy Resiliency to Medical Facilities” facilities equipped with combined heat and power (CHP) systems have an established record of providing reliable off-grid power during major disruptions and are important components of hospitals’ resiliency plans that also lower utility costs. CHP systems are also superior to installing additional diesel generators (beyond those required to serve life safety and critical care loads) as these systems are not able to provide energy cost savings, they don't create greater efficiency or savings and they are dependent on the availability of diesel fuel. During prolonged outages such as what occurred with Hurricane Sandy, diesel supplies were depleted while natural gas supplies still flowed.
CHP technologies offer a dependable source of power and increase a facility’s resiliency by boosting off-grid operation capabilities, ensuring that hospital services are uninterrupted. These highly efficient systems also allow hospitals to run at greater capacity during grid failures when they might otherwise be reliant on emergency generators that are generally designed to serve solely life safety and critical care loads, as noted in the same 2014 Pew Charitable Trust report.
Because of the ability of CHP to help save lives, reduce costs and pollution, withstand extreme weather, and operate during blackouts, the Pew Charitable Trust recommends that its adoption should be encouraged at all medical facilities and other buildings that provide critical services to communities.
Fortunately, creative funding solutions, federal tax programs and many state and local incentives are available to help healthcare organizations improve their aging energy infrastructure and develop an energy system not dependent on the electric grid or back-up generators.
Infrastructure Funding Opportunity
While healthcare facilities face financial barriers to investing in these systems, forward-thinking institutions are taking advantage of Power Purchase Agreements (PPAs) to fund infrastructure improvements with little-to-no upfront costs. A PPA also allows the institution to purchase electricity and/or thermal power from the PPA provider and through these payments, the hospital is also paying off a portion of the cost of a new system. In this situation, the PPA provider is the equity investor/owner of the system and, as a for-profit entity, is able to bring federal and state tax benefits into the project economics. The PPA provider also helps the hospital reduce its project risk as it provides performance guarantees to the hospital and becomes the primary source of power for that institution, with excess power needs delivered by the grid or other systems.
PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution. This funding option leverages the benefits of on-site energy generation through third-party ownership.
Incentives
There are currently a range of generous incentives available to healthcare facilities interested in installing CHP technologies. Given these available incentives, and an interest by hospitals in both improving their environmental footprint and increasing facility resilience, CHP is becoming an attractive option for health care facilities of all types and sizes.
The DOE is playing a significant role in the effort to reduce costs and increase the use of renewable energy technologies. Likewise, the federal investment tax credit (ITC) for industrial energy efficiency projects can lower investment paybacks. The Environmental Protection Agency also has an online CHP policies and incentives database that allows users to search for CHP policies and incentives by state or at the federal level. This database has two primary purposes:
Policy makers and policy advocates can find useful information on significant state/federal policies and financial incentives affecting CHP; and
CHP project developers and others can easily find information about financial incentives and state/federal policies that influence project development.
The University of Maryland Upper Chesapeake Medical Center
Bel Air, Maryland
The University of Maryland Upper Chesapeake Medical Center (UM UCMC) in Bel Air, Maryland wanted to fortify emergency backup power to three load centers that serve health care occupants at the 44-acre campus. Like all hospitals, UM UCMC had a required diesel backup generator, but it could only handle about 40 percent of healthcare-specific loads during an emergency, and that precluded the ability to bring on air conditioning when the utility feed went down.
"As we've seen with Hurricane Katrina and more recently Hurricane Sandy, that is not a good position for hospitals to be in with no cooling during a summertime utility emergency," said Don Allik, director of facilities at UM UCMC.
UM UCMC partnered with Baltimore Gas and Electric (BGE), Clark Financial Services Group, TMR Engineering, and Clark Construction Group for a new system that increases efficiency, provides electricity for UM UCMC's base load, and supplies a thermal base load for both steam and chilled water, making it significantly more efficient than the conventional method of electricity generation. The system also provides backup power to ensure operations during an emergency or natural disaster.
UM UCMC is the first hospital Maryland to qualify for the BGE EmPower Maryland Incentive, receiving close to $2 million for the system's construction. UM UCMC chose the Combined Heat and Power (CHP) system because of its ability to provide cleaner more efficient primary power as well as serve as a significant backup power source during a prolonged grid outage. The existing diesel generators at the hospital only served the critical care loads but the new system powers more than 60 percent of the hospital's electrical load.
Infrastructure Funding Opportunity
The $8.5 million project started with a capital funding request to the medical center board. But in healthcare, competition for funds is always steep, and typically the clinical side wins out over infrastructure needs. The facility director looked for alternative ways to provide power to the campus, ultimately signing a Power Purchasing Agreement (PPA).
UM UCMC’s PPA structure will save the hospital a projected $9 million over the 20-year contract due to the contractual price of electricity and the waste heat utilization, which avoids the need to purchase more electricity or natural gas to power conventional systems.
PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution. This funding option leverages the benefits of on-site energy generation through third-party ownership.
Conclusion
By being proactive about their energy independence and taking the initiative to upgrade their facility infrastructure, UM UCMC management and hospital administration are improving the overall footprint of healthcare. The use of PPAs to fund these projects, like CHP systems, makes this a win for UM UCMC, the environment, and the communities and patients they serve.
Claudia Meer is managing director Energy & Structured Finance, Clark Construction Group and may be reached at claudia.meer@c-fsg.com or 301- 272-8444. Using project-specific financing options, Energy & Structured Finance develops, designs, builds, owns, and operates and maintains, custom-designed, clean and renewable energy systems for clients. Implementing an array of alternative technologies, the group develops tailor-made solutions to help clients reach their energy goals, realize cost savings and capital expenditure outlays, and reduce implementation risk.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
U.S. hospitals spend nearly $5 billion annually on energy and related costs. Most main hospital buildings in the U.S. are more than 20 years old so it’s not too hard to realize that a significant portion of that spending could be curbed through improvements in energy use. By upgrading energy nationwide, about $100 million could be saved each year in power costs, according to the Department of Energy (DOE). Energy Dependent The healthcare sector has grown more dependent upon electricity as digital medical records and equipment become increasingly essential to patient care. Energy consumption in healthcare facilities is the second largest expense behind staff compensation. This consumption and energy reliability is a top concern for healthcare facility management especially since critical hospital energy systems must be online and available 24 hours a day, even when the power grid is compromised. By reducing dependence on the electrical grid or oil, a hospital lessens its exposure to volatile energy commodity prices. Additionally, when a hospital is able to remain functioning during an emergency such as Hurricane Sandy or winter storms that knock out power for days, the hospital becomes an even more vital community resource to the citizens it serves. Unfortunately, the 2011 Hospital Energy Management survey, conducted by Health Facilities Management magazine and the American Society of Healthcare Engineers, showed that the majority of hospitals have not yet undertaken key steps necessary to achieve grid independence. These steps include conducting regular energy audits, developing a strategic master energy plan, monitoring baseline energy performance, and implementing on-site power systems as suggested in http://facilitymanagement.com/articles/green-2012-10-04.html. Facility Challenges Upgrading aging facility infrastructures and equipment that inefficiently consume energy are historically not prioritized because of competing clinical needs and limited capital dollars. This lack of access to sufficient capital restricts the ability of these institutions to achieve efficient operations. According to JP Morgan’s, “Energy Performance Contract Financing as a Strategy: Transforming Healthcare Facilities Maintenance,” (https://www.jpmorgan.com/cm/BlobServer/JPM-Healthcare-EnergyPerformanceContracting.pdf) both public and private hospitals have worked hard to control their operating costs in the face of thinning margins, an uncertain economy and a challenging regulatory environment. As a result, many have deferred or are deferring facilities’ maintenance projects based on budget constraints and the need to place quality patient care ahead of infrastructure improvements. Moving Away From Electricity Grid Dependency Recent electrical grid failures related to storms, overloads, and security breaches have brought renewed attention to electricity system reliability, particularly for critical safety and medical infrastructure. According to a Pew Charitable Trust research report, “Combined Heat and Power Provides Energy Resiliency to Medical Facilities,” (http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2014/08/combined-heat-and-power-provides-energy-resiliency-to-medical-facilities) facilities equipped with combined heat and power (CHP) systems have an established record of providing reliable off-grid power during major disruptions and are important components of hospitals’ resiliency plans that also lower utility costs. CHP systems are also superior to installing additional diesel generators (beyond those required to serve life safety and critical care loads) as these systems are not able to provide energy cost savings, they don't create greater efficiency or savings and they are dependent on the availability of diesel fuel. During prolonged outages such as what occurred with Hurricane Sandy, diesel supplies were depleted while natural gas supplies still flowed. CHP technologies offer a dependable source of power and increase a facility’s resiliency by boosting off-grid operation capabilities, ensuring that hospital services are uninterrupted. These highly efficient systems also allow hospitals to run at greater capacity during grid failures when they might otherwise be reliant on emergency generators that are generally designed to serve solely life safety and critical care loads, as noted in the same 2014 Pew Charitable Trust report. Because of the ability of CHP to help save lives, reduce costs and pollution, withstand extreme weather, and operate during blackouts, the Pew Charitable Trust recommends that its adoption should be encouraged at all medical facilities and other buildings that provide critical services to communities. Fortunately, creative funding solutions, federal tax programs and many state and local incentives are available to help healthcare organizations improve their aging energy infrastructure and develop an energy system not dependent on the electric grid or back-up generators. Infrastructure Funding Opportunity While healthcare facilities face financial barriers to investing in these systems, forward-thinking institutions are taking advantage of Power Purchase Agreements (PPAs) to fund infrastructure improvements with little-to-no upfront costs. A PPA also allows the institution to purchase electricity and/or thermal power from the PPA provider and through these payments, the hospital is also paying off a portion of the cost of a new system. In this situation, the PPA provider is the equity investor/owner of the system and, as a for-profit entity, is able to bring federal and state tax benefits into the project economics. The PPA provider also helps the hospital reduce its project risk as it provides performance guarantees to the hospital and becomes the primary source of power for that institution, with excess power needs delivered by the grid or other systems. PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution. This funding option leverages the benefits of on-site energy generation through third-party ownership. Incentives There are currently a range of generous incentives available to healthcare facilities interested in installing CHP technologies. Given these available incentives, and an interest by hospitals in both improving their environmental footprint and increasing facility resilience, CHP is becoming an attractive option for health care facilities of all types and sizes (http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2014/08/combined-heat-and-power-provides-energy-resiliency-to-medical-facilities). The DOE is playing a significant role in the effort to reduce costs and increase the use of renewable energy technologies. Likewise, the federal investment tax credit (ITC) for industrial energy efficiency projects can lower investment paybacks. The Environmental Protection Agency also has an online CHP policies and incentives database that allows users to search for CHP policies and incentives by state or at the federal level. This database has two primary purposes: Policy makers and policy advocates can find useful information on significant state/federal policies and financial incentives affecting CHP; and CHP project developers and others can easily find information about financial incentives and state/federal policies that influence project development (http://www.epa.gov/chp/policies/database.html). The University of Maryland Upper Chesapeake Medical CenterBel Air, MarylandThe University of Maryland Upper Chesapeake Medical Center (UM UCMC) in Bel Air, Maryland wanted to fortify emergency backup power to three load centers that serve health care occupants at the 44-acre campus. Like all hospitals, UM UCMC had a required diesel backup generator, but it could only handle about 40 percent of healthcare-specific loads during an emergency, and that precluded the ability to bring on air conditioning when the utility feed went down. "As we've seen with Hurricane Katrina and more recently Hurricane Sandy, that is not a good position for hospitals to be in with no cooling during a summertime utility emergency," said Don Allik, director of facilities at UM UCMC. UM UCMC partnered with Baltimore Gas and Electric (BGE), Clark Financial Services Group, TMR Engineering, and Clark Construction Group for a new system that increases efficiency, provides electricity for UM UCMC's base load, and supplies a thermal base load for both steam and chilled water, making it significantly more efficient than the conventional method of electricity generation. The system also provides backup power to ensure operations during an emergency or natural disaster. UM UCMC is the first hospital Maryland to qualify for the BGE EmPower Maryland Incentive, receiving close to $2 million for the system's construction. UM UCMC chose the Combined Heat and Power (CHP) system because of its ability to provide cleaner more efficient primary power as well as serve as a significant backup power source during a prolonged grid outage. The existing diesel generators at the hospital only served the critical care loads but the new system powers more than 60 percent of the hospital's electrical load. Infrastructure Funding OpportunityThe $8.5 million project started with a capital funding request to the medical center board. But in healthcare, competition for funds is always steep, and typically the clinical side wins out over infrastructure needs. The facility director looked for alternative ways to provide power to the campus, ultimately signing a Power Purchasing Agreement (PPA). UM UCMC’s PPA structure will save the hospital a projected $9 million over the 20-year contract due to the contractual price of electricity and the waste heat utilization, which avoids the need to purchase more electricity or natural gas to power conventional systems. PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution. This funding option leverages the benefits of on-site energy generation through third-party ownership. ConclusionBy being proactive about their energy independence and taking the initiative to upgrade their facility infrastructure, UM UCMC management and hospital administration are improving the overall footprint of healthcare. The use of PPAs to fund these projects, like CHP systems, makes this a win for UM UCMC, the environment, and the communities and patients they serve. Claudia Meer is managing director Energy & Structured Finance, Clark Construction Group and may be reached at claudia.meer@c-fsg.com or 301- 272-8444. Using project-specific financing options, Energy & Structured Finance develops, designs, builds, owns, and operates and maintains, custom-designed, clean and renewable energy systems for clients. Implementing an array of alternative technologies, the group develops tailor-made solutions to help clients reach their energy goals, realize cost savings and capital expenditure outlays, and reduce implementation risk.