Energy bills: off with the overheads
Partnerships with energy suppliers could help trusts trim their bills – without risk. Randall Bowen of British Gas explains
The health sector is under immense pressure to cut its costs, while also being pushed to reduce carbon emissions to meet government targets. At a time when the public sector spends more than £2.5bn on energy every year, cutting overheads represents a huge opportunity.
This potential to cut costs is recognised by many in the health sector. According to British Gas research, 60 per cent of public sector organisations think better energy management is vital to meeting cost cutting targets – more than any other operational cost.
But making these savings a reality is a tough challenge for health estate managers. With complex estates to oversee, often with inefficient and outdated buildings, improving energy efficiency can seem like a daunting task. Tight budgets also hinder investment and modernisation, while overcoming red tape in the procurement process presents an additional headache. All of these things have to be considered in tandem with the most crucial aspect of all - ensuring patient care is not compromised.
A number of trusts are now working in new partnerships with energy service providers and are seeing savings of up to £1m per year as a result. Working together, the service provider can help the trust make large-scale energy efficiency upgrades to their estates, with the service provider covering the costs of any investments and recouping the investment as part of the energy bill. For the trust this approach is risk-free - if the investments don’t achieve these savings, the energy service provider picks up the cost.
These energy performance contracts allow the trust and the energy service provider to establish long term goals to cut consumption and costs over the course of 10-15 years. The service provider funds the installations and improvements up-front, so the trust doesn’t have to spend anything. The cost of these investments is then paid back out of the savings made to their energy bill over the course of the contract, in the same way a loan would be. But because the trust is now spending less on energy thanks to the efficiency measures, the annual cost is still less than the bill would have been originally.
At British Gas we are currently working with a health board in Wales to implement a series of upgrades. Following a comprehensive audit of its estate, we have guaranteed that it will save a minimum 27 per cent of their annual bill and reduce emissions by 5,429 tonnes of CO2 equivalent. The trust has not had to set aside any extra funding for the improvements, yet has a far more efficient estate which will deliver long-term savings.
The partnership activity consists of three stages:
- An initial audit and consultation is undertaken to identify potential areas of development. After this the supplier and trust discuss the list of possible savings measures and decide which projects to take forward.
- This is followed by the installation and management phase where new technologies are fitted. Typical improvements can include lighting upgrades, boiler plant installations, heating improvements, BMS controls, changes to the building fabric, air conditioning systems and improved insulation.
- Finally, the supplier oversees the ongoing measurement of results and maintenance of equipment.
Energy performance contracts may seem like a daunting new option, so what are the questions trusts should ask potential energy suppliers before embarking on a programme of investment?
- Past projects: in our experience, the provider’s track record is key. Ensure they have examples of previous successful partnerships, as these will guide the course of action. The complexity of the majority of hospital estates means there are many avenues to be explored before the final options are decided upon, and reference sites provide tangible examples of what works best in different situations.
- Minimising disruption: it is to ensure that there is minimal disruption to patient care during the instalment phase.
- Engagement: targets are set collaboratively, and both the trust and the supplier work together to ensure the success of the project over the course of the term. No one estate is the same, therefore communication is crucial to the success of the project.
- Support: large-scale projects need top level buy-in.
Energy performance contracts may not be the solution for all trusts. However they demonstrate that risk-free funding models do exist, which are facilitating improvements that will go on creating savings that can be reinvested into patient care for many years to come. Furthermore, energy companies as an industry need to look for new ways of enabling the public and private sector to invest in energy efficiency measures now so that future savings can be reached.
Dr Randall Bowen is head of energy performance at British Gas