Ask the Expert: How Can We Help Hospitals Upgrade Energy Systems Without Breaking the Bank?
Vincent Marfe, the Operations Manager of our West Business Unit has over 30 years’ experience helping hospitals increase energy efficiency, reduce energy spending and improve indoor environments for staff, patients and visitors. We sat down with him to discuss some of the challenges hospitals face – as well as some of the solutions that are available today.
Vince, I understand that hospitals are some of the biggest energy consumers in the country. Why is that?
“Hospitals are among the nation’s most complex, diverse, and energy intensive facilities. They run 24/7, and they use more energy-intensive equipment (MRIs, PET scans, etc.) than other businesses. They also have demanding mission-driven environmental requirements – patient care and comfort trump everything.”
“Energy represents almost half of a healthcare facility’s budget – second only to salaries. On average, hospitals in the U.S. spend approximately $3.00 on electricity per square foot. Depending on location/climate, lighting, heating, and hot water represent the largest energy drains. And there’s a lot of wasted energy – up to 30% — since so many systems have been repaired and replaced in a piecemeal fashion over the years. “
So what’s the solution?
“Energy efficiency! The business case for improving energy efficiency is truly compelling for hospitals – especially since energy costs represent one of the few cost centers over which hospitals have significant control.”
“Consider this: according to EnergyStar, every $1 a non-profit hospital saves on energy is equivalent to generating $20 in new revenue. For-profit hospitals, medical offices, and nursing homes can raise their earnings per share by one cent by reducing energy costs just 5%! Plus, upgrading energy systems can reduce greenhouse gas emissions by up to 85%”
“Beyond the financial savings that optimized energy systems provide, the improvements to indoor environment and comfort are proven to enhance patient health and recovery. It’s a win-win!”
So why aren’t more hospitals upgrading their energy systems?
“Again, patients always come first. For many hospitals, energy efficiency upgrades compete with other mission-critical budget demands. Cost-saving energy upgrades are being deferred due to limited capital dollars and the need to place quality patient care ahead of infrastructure improvements. Smaller and rural hospitals, in particular, can face significant financial and human capital issues when considering efficiency improvements.”
Surely there’s something that can be done?
“There is! While hospitals and other healthcare facilities face some pretty strict budget constraints – especially when it comes to capital expenditures – there are a variety of rebate, incentive and financing opportunities available that will fund infrastructure improvements with little-to-no upfront costs. It’s just a matter of finding the right financing opportunity for each hospital. We can help with that.”
What are the financing options available to hospitals?
“Many utilities and state governmental agencies have rebate and incentive programs that help fund both energy audits and energy efficiency upgrades. Since we’ve worked with utilities and state agencies all across the county, we’re up-to-date on all of the incentive programs that can benefit our customers.
One of the most popular financing options is SmartWatt’s Energy-as-a-Service program. This new program centers around a pay-for-performance, off-balance sheet financing option that allows our customers to use realized energy savings to pay for their energy efficiency upgrades. It’s a stress-free, risk-free way to increase a hospital’s energy efficiency and reduce energy spending – without any initial capital investment. Our Energy-as-a-Service program is the energy efficiency solution hospitals have been waiting for. Benefits include:
- No upfront capital investment
- Increased cash flow
- Improved indoor environment for patients and staff
- Reduced operating costs
- Reduced maintenance costs
- Improved operational efficiencies
- Reduced carbon emissions
Another option is Energy Service Performance Contracting. Energy Performance Contracting, or ESPC, leverages maintenance, operations, and utility savings achieved through the installation of energy efficiency and renewable energy upgrades, to finance the cost of the energy efficiency projects. That means there are no upfront costs. ESPC is best for hospitals considering a bundled energy project costing over $1 million, that are looking a third party to take on all project risks, provide guaranteed savings and are comfortable with a long-term contract.
And then there’s the PACE (Property Assessed Clean Energy) Program. PACE is a financing option that allows property owners to finance the cost of eligible energy upgrades and then pay the costs back over time – anywhere between 5 and 25 years – through a voluntary assessment. PACE works well for hospitals, looking for long-term financing at low-interest rates, who prefer to do pilot projects at a few locations. The interesting thing about PACE is that the assessment is attached to the property rather than an individual. So, PACE is a good option for healthcare facilities that aren’t planning to occupy their current facilities long term, that want to transfer financing obligations at the time of the sale. PACE is only offered in certain areas.” jurisdictions
So, once they’ve made the decision to improve their energy efficiency, what should they do to make it happen?
“What’s needed to optimize hospital energy systems is a thorough assessment of their current energy use, a well-thought-out action plan, and staff buy-in. Here’s what we generally recommend:
- Promote the benefits of energy efficiency.
Reducing energy use requires planning, persistence, and staff buy-in — everyone from C-suite executives and surgeons to maintenance and housekeeping personnel.
Employee behaviors have a big impact on a hospital’s energy costs. Ensuring that everyone understands the benefits increased efficiency will bring is an obvious first step. One of the best ways to increase employee engagement with energy efficiency and sustainability goals is to gather employee feedback and prioritize day-to-day efficiency practices and controls based on that feedback.
- Identify current energy costs
It’s critically important to understand current energy use in order to identify possible efficiency improvements and prioritize investment opportunities. Free online tools, such as the Energy Star Portfolio Manager, can help consolidate energy and water use data and costs.
It’s also a good idea to participate in available benchmarking studies – EPA’s Energy Star, G/BA’s Annual Energy and Water Benchmarking Survey, for example, to understand how the facility ranks against other hospitals.
- Define goals and objectives
Again, consensus and engagement are critical for success. We recommend organizing an Energy Efficiency/Sustainability team or Steering Committee.
- It’s best to include representation from all major hospital departments (finance, maintenance, and facilities, purchasing, quality assurance, government relations, clinical operations, medical personnel, PR, etc.).
- One of the first assignments should be to clearly define energy, financial and environmental goals – as well as determining KPIs for each goal.
- Find the right energy partner
Getting final approval for energy efficiency upgrades from management and/or board members requires presenting a plan that effectively communicates the opportunity, process, timeline, commitments, budget implications and estimated savings. Partnering with professional Energy Service Company/ESCO can help with that.
A reputable ESCO will conduct a thorough energy audit, evaluate financing and rebate options, and develop a workable action plan and budget that will achieve all the hospital’s goals.
What should hospitals be evaluating when selecting an energy partner?
To be successful, hospitals need to partner with an energy program developer that truly understands the critical operations of a hospital– one that can deliver a guaranteed, budget-neutral energy savings strategy that will have a positive impact on patients, staff and visitors. They should have a stellar safety record and be vendor independent. It’s also a good idea to check out their Net Promoter Score – which is a clear indicator of past customer satisfaction levels (SmartWatt’s is currently 81 – the industry average is just 12)
In short, hospitals should partner with an ESCO that and can provide all of the necessary financial, technological, construction, measurement, monitoring and reporting needed to ensure all goals and objectives are met.
That’s SmartWatt of course!