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A modern energy infrastructure for the NHS
In an organisation as complex and energy intensive as the NHS, it is no surprise that energy costs are high and that a significant amount of energy is being wasted.
The NHS spends more than £750 million on energy each year. Hospitals run a 24-hour a day, 365 days a year service, often in old facilities that are ill-suited to modern health care needs.
Reducing that waste, and realising valuable carbon and cost savings, is, rightly, a significant strategic priority in all parts of the NHS across the UK. Of course, it is easier said than done. However, the UK Government backed Green Investment Bank (GIB) can help. We estimate that energy efficiency measures could cut the NHS bill by up to 20 per cent, saving £150 million a year. To realise these opportunities, a fundamental change in mindset is required, certainly in terms of how new technology is deployed and how it is financed.
GIB can help modernise energy infrastructure within the NHS estate and the significant overall savings will come from reduced energy demand, protection against rising energy prices and lower maintenance costs.
Reducing carbon intensity creates a significant and obvious financial opportunity. The NHS sustainable development unit suggests annual saving can be increased by £180 million through further energy efficiency and low carbon technology upgrades, staff engagement and better procurement.
However, identifying measures that optimise carbon and financial savings often requires specialist support and GIB is well placed to provide that help. Created by the UK Government and capitalised with £3.8 billion of public money, our mission is to help the UK transition to a greener economy by supporting projects that are both green and commercial. One of GIB’s priority areas for investment is public sector energy efficiency, especially in the NHS where we have established a track record of activity and have developed an innovative offering.
The GIB Health Sector Energy Efficiency Programme allows us to use the full spectrum of financing across debt and equity with the ability to fund long-term projects. We have a dedicated team of energy efficiency project and finance experts established to work with private and public sector organisations and co-investors.
The time is right. Energy efficiency technology is mature and well-proven and we have some very positive case studies showing what’s possible. Projects can include combined heat and power plants, boilers, building retrofits, lighting and energy reduction technologies for production processes. Funding examples include the UK’s largest health sector energy efficiency project – the energy innovation centre with Cambridge University Hospitals NHS Foundation Trust.
Serving Addenbrooke’s and Rosie hospitals, the £36 million funding package put together by GIB and Aviva Investors is a 25-year deal. Housing a combined heat and power unit, biomass boiler, dual fuel boilers and heat recovery from medical incineration, the centre will reduce costs by £6 million a year.
The combined heat and power technology (CHP) has been shown to be effective in terms of carbon reduction and financial savings. In simple terms, it is an engine that generates electricity with heat from the exhaust gases being recovered and used to supplement a local heating system. Reducing the carbon footprint, it also reduces reliance on electricity from the national grid. By producing electricity at the NHS facility, there is also the potential to export excess electricity back to the grid and benefit from the feed-in tariff.
The opportunity is significant. According to the Carbon and Energy Fund (CEF), the introduction of CHP within NHS England could save more than 232,000 tonnes of CO2 and nearly £50 million a year. The take-up of CHP is growing and there are various ways to access funds to reduce energy bills and consumption in the NHS.
The CEF is the most widely used framework assisting the NHS across the UK to meet its energy efficiency and carbon reduction goals. CEF simplifies the procurement process by bringing together the specialist expertise in the NHS and by consolidating the procurement of advisors and contractors.
The London RE:FIT framework is now available to all public sector organisations in the UK. Using a mini competition process, an NHS organisation would select one of 13 pre-qualified Energy Service Companies (ESCOs) for the design and implementation of energy conservation measures.
Another option is Essentia, created in 2012 by Guy’s and St Thomas’ NHS Foundation Trust bringing together professionals experienced in procuring healthcare infrastructure.
Essentia is in the process of establishing a framework agreement to provide a model for implementing energy efficiency and local energy generation measures into public sector estates.
Finally, Ecovate is a strategic partnership with King’s College Hospital NHS Foundation Trust (KCH) to help other public sector organisations realise significant financial and carbon benefits.
At GIB, we know there is a funding gap and we are actively working with private finance partner providers to create solutions. We accept there is no ‘one size fits all’ financing option for NHS energy efficiency projects.
Each of our finance options is based on consistent principles: spend to save; attractive rates; taking a long-term approach; and flexibility. Our business model for the NHS is established and our products and finance partners include Aviva ReALM Energy Centre Fund, Societe Generale Equipment Finance alliance and our GIB Energy Efficiency Funds: SDCL and Equitix.
From feasibility through to installation, the process can be completed in as little as twenty months. Payments don’t start until the plant has been proved to be working in accordance with contract specifications.
Although every project is different, a typical NHS energy efficiency project will begin with information gathering, survey and audits. The health entity would then identify outline investment opportunities and potential carbon savings.
The business case
The next step involves setting out the business case, considering a ‘spend to save’ option and commencing with initial funding opportunities, before moving to the market for procurement options. Existing frameworks or a new OJEU process can be used.
Procurement framework consultants can advise the financing solution that best works with the set of measures required. Once a detailed energy efficiency solution, evaluation and selection of a delivery partners occurred, various financing options can be investigated.
Following on from the Addenbroke NHS development, we created the Aviva ReALM Energy Centre Fund. This is the third energy efficiency fund to be supported by GIB, after SDCL and Equitix were established earlier in 2013.
The Aviva ReALM Fund is not the only funding solution GIB has developed for the NHS. We have partnered with Societe Generale Asset Finance to provide £50 million of asset financing for contractors to EE projects in the NHS.
The recently announced energy efficiency refurbishment of Rampton Hospital was concluded by Societe Generale Asset Financing and corresponded with the announcement of our partnership.
The funding will be used to build a new CHP plant, biomass and dual fuel boilers, an effluent treatment plant and various upgrades to its control systems.
The specialist energy efficiency fund manager, SDCL, recently announced a low carbon combined cooling, heating and power solution for St Bartholomew’s Hospital delivered under its ‘Powering Health’ partnership with GE, Clarke Energy and the NHS Confederation.
Another first, it is a fully financed private finance initiative to fund a low carbon combined chilling/heating and power (CCHP) solution delivered by Skanska.
These are all tangible examples of what can be achieved. Large or small, energy efficiency investments will deliver savings. Last year, a pilot project encouraging staff to turn off lights at Bart’s Health NHS Trust in London saved £100,000. Saving energy is no longer solely an environmental issue; it makes perfect commercial sense.