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The conversation about sustainability in the NHS is starting to change, and whilst the goal of carbon reduction is still there, the approach to delivering the message is wider, recognising the impacts of climate change that we are now enduring, and the fact that our health economy as a whole is not sustainable from a financial perspective. Consequently the Sustainable Development strategy paper published in January (Sustainable, Resilient, Healthy People and Places), highlights that “environmental and social sustainability can be addressed alongside economic sustainability challenges.” Interestingly, this vision not only talks about reducing carbon emissions and minimising waste, but also fosters the building of resilience to climate change and nurturing community strengths.
At the heart of the strategy’s goals however, remains the need to adhere to the Climate Change Act target of a reduction in emissions of 80 per cent by 2050 against the 1990 baseline. To plot a trajectory to that target, a 34 per cent reduction is required by 2020. This applies to emissions from building energy, travel and procurement.
With this in mind, this article looks at the most effective way of reducing emissions from building energy, and the impact that one organisation, the Carbon and Energy Fund, is having on emissions in the NHS.
There are many ways of reducing building related energy consumption, but in the writer’s experience, the importance of affordability, practicality and resilience have tended to reduce the list of measures adopted to combined heat and power (CHP), high efficiency lighting, boiler enhancement, insulation and improved controls. All of these produce measurable reductions in terms of CO2 and cost, and are suitable for the application of cost guarantees by performance contracting.
Other measures will undoubtedly become more and more viable as their economics improve and as the news of successful case studies spreads. Behavioural change programmes could well be much more comprehensively adopted in the future as a result, for example.
Combined heat and power
The technology which is most effective in terms of carbon reduction and at the same time also effective financially, is combined heat and power, or CHP. To the uninitiated, this can be described simply as an engine that generates electricity, with heat from the exhaust gases being recovered and used to supplement a local heating system.
This reduces the CO2 footprint, as it reduces the import of electricity from the national grid, a source of power which is far less efficiently produced. It is also cost effective, as although the user will burn a lot more gas with a CHP engine, there are huge cost savings to be made by making electricity at site level, rather than purchasing it from the grid. On top of this is the opportunity to export excess electricity back to the grid, reaping the benefit of the feed-in tariff.
Consequently CHP has the potential to make a big impact on NHS finances and its CO2 footprint. This is borne out in practice, and by the research that the Sustainable Development Unit has carried out. It produced a marginal abatement cost (MAC) curve study, presented in their 2010 update, which portrayed the relative merits of 29 CO2 reducing initiatives.
The introduction of CHP within NHS England where not installed at that time could save over 232,000 tonnes of CO2 per annum, and nearly £50 million per annum. Putting to one side the figures relating to medical equipment packaging, drug wastage and travel planning, these amounts represent 32 per cent and 50 per cent respectively of the total value of savings for all of the listed measures.
The take up of CHP in the NHS is growing, but there are perceived barriers to it. Cost is one of these, as most installations will cost over £1 million all-in. Past failures of CHP, or at least problems with maintenance and overall performance are another issue. But the potential benefit is too good to be overlooked, and the import of performance contracting from the more developed USA energy industry is making a difference.
The NHS wants to promote CHP, and the Carbon and Energy Fund (CEF) has been established in partnership with it to help make things happen, and has been set ambitious targets. The intention is that the CEF, with a framework approach, will be able to foster a degree of positive uniformity, with a form of contract that guarantees financial savings within a highly competitive bidding structure. This approach will prevent NHS trusts from having to “re-invent the wheel” for each procurement, but at the same time promoting a lot of flexibility and innovation to suit individual site needs.
The CEF is partnered with NHS Shared Business Services, overseen by a membership of trustees selected from NHS trusts, the Department of Health and the Carbon Trust. It has created a framework of 17 contractors who are leaders in the field of energy performance contracting, procured through the EU’s OJEU process. The CEF provides support to trusts in the form of project management and technical advice, and legal representation alongside the model contract mentioned earlier. It helps arrange funding for all of the projects that it works on, meaning that trusts don’t have to use their own reserves – unless they wish to.
A feasibility study is offered, as well as management of the procurement without any financial compensation or cost commitment, right up to board approval of a preferred bid.
Overhauling the system
With CEF procurement, a trust will have new energy infrastructure and a variety of energy saving measures installed, eradicating some of the trust’s backlog maintenance requirements. It will achieve this without capital expenditure, following a competitive tender of the entire installation, which will be innovative and tailored to the trust’s needs. The annual cost of providing and maintaining the installation will be met and usually exceeded by the guaranteed financial savings on utility bills that the project will generate, and the trust’s carbon footprint will be substantially reduced.
From feasibility through to installation, the process can be completed in as little as 20 months, and the payments for it don’t commence until the plant has been proved to be working in accordance with the contract specifications.
This might seem like a salesman’s dream, but it is a reality and trusts are already realising the benefits of what the CEF offers the NHS.
The procurement process
First, a trust which is interested in working with the CEF makes contact with them. Assuming both parties are happy to move forward with each other, a no-obligation feasibility study is carried out. If the study points to a viable project, the parties enter into a membership agreement, which describes what the CEF will do, and what is required of the trust, e.g. provide detailed information about the site and the energy infrastructure/consumption.
The procurement commences with interviews of interested contractors, who are then shortlisted for the first stage of a mini competition – usually four in number. Over a period of six to eight weeks, the bidders use their knowledge of the site and the data provided by the trust to develop site wide proposals for energy/CO2 reduction. During this time, two sets of meetings between the trust and each contractor individually will take place. These discussions will help each bidder’s proposals adapt and evolve into schemes which will be beneficial and acceptable to the trust.
This is followed by a formal tender, in which the concepts developed in the previous stage are worked up into fully priced bids, setting out the proposals’ annual charges and guaranteed savings. These are evaluated on a best value basis which combines qualitative and financial metrics.
At this point a business case is required to approve acceptance of the preferred bidder. This enables the trust and contractor to enter into the contract finalisation period – around four months will be expended in agreeing the documents for signing. Once the contract has reached financial close, the installation period commences, usually taking a year. On satisfactory practical completion the installation becomes operational, and payments to the contractor by the trust will start to flow.
Long term gains
Contracts will normally run for a minimum of 15 years, during which period the CEF will audit performance of the equipment to ensure that the guaranteed cost savings are being realised by the trust.
The CEF has been running for less than three years now but already contracts to a total capital value of around £100m have been signed. Its formula is now being extended beyond the NHS to local authority and university application, such are the advantages of what it can do.