UK health trusts following US lead with increased take-up of Energy Performance Contracts

EPCs enable trusts to fund energy efficiency measures, reducing carbon emissions and saving money to plough back into frontline services

Richard Scott, head of consultancy at E.ON

NHS trusts are able to guarantee energy savings and a reduction in costs as the UK follows the lead of the United States with an increased take-up of Energy Performance Contracts (EPCs).

EPCs are becoming more common this side of the Atlantic, providing trusts with the certainty of a measurable cut in carbon emissions and costs in line with tough government targets.

The contracts guarantee a specific level of energy savings for a given capital investment, reducing both emissions and energy costs.

An example of where the approach is already working is at Newham University Hospital in east London, where the board has signed a six-year deal with E.ON to implement a raft of new energy-saving measures.

The project was among the very first of the London Development Agency’s RE:FIT programme, which aims to reduce emissions across the capital. Several more are now in operation.

Central to the approach was the replacement of outdated and inefficient air handling units, paid for as part of the EPC.

Speaking to BBH this week, E.ON’s head of consultancy, Richard Scott, said: “What we find when speaking to healthcare clients is that, more than in most other sectors, there is concern that a lot of firms are making big claims that they can help to cut their energy bills and save them energy. Many are genuine, but it’s a real risk if you are not an expert.

“No single building is the same and even buildings within the same hospital estate may be different, be built in different ways, or be operated differently. You need someone to come in and tell you exactly how these buildings are performing and how they can perform better.”

E.ON is working with a number of trusts using this approach.

“Energy Performance Contracts sound new and exciting, but it’s an approach used extensively in North America and it is growing rapidly in the UK,” said Scott.

Energy Performance Contracts sound new and exciting, but it’s an approach used extensively in North America and it is growing rapidly in the UK

“Under an EPC approach there is no outlay for the public purse because the provider of the service can fund the investment needed, for example to upgrade building services equipment or to install technology such as combined heat and power plants.

“If the total cost is, say, £5m including purchase of the equipment, installation and audit and assessment, this is all taken together and the client, in this case the NHS trust, pays a service fee. What is so attractive about EPCs is that this fee will be less than the value of the guaranteed savings.

This means that from day one the trust is cash positive and money that is being saved is going back into the public purse and into patient care.

“In basic terms, if the fee being paid by the trust is £10 a month, then they are guaranteed savings of at least £11 a month.”

But he warned that the EPC approach works best when it is spread over a long period of time.

“The level of actual savings is independently assessed, then under the guarantee the provider has to make up any shortfall, ensuring the savings are reached for the duration of the contract,” he explained. “This means the longer the contract runs, the better it is for the trust. Not much discussion of payback – that was day one.”

The EPC model has become so popular that major public buildings, including the Empire State Building in New York, are now using the approach.

Closer to home it is helping to reduce emissions at both Newham Hospital, Leeds City Council and the London Borough of Ealing. E.ON is working on projects with Queens Medical Centre in Nottingham and has been awarded ‘preferred bidder’ status with Bath Spa University.

What is so attractive about EPCs is that this fee will be less than the value of the guaranteed savings. This means that from day one the trust is cash positive and money that is being saved is going back into the public purse and into patient care

“Lots of people are starting to become aware of EPCs,” said Scott. “The Government also appears very keen on the approach.

“Within the NHS it seems there is slow progress towards the target of cutting emissions by 80% by 2050 and one of the best ways forward is through EPCs.

“Carbon reduction is such a complex issue and it’s not just about large-scale interventions like biomass boilers and combined heat and power plants. Less-obvious areas, such as voltage optimisation and air handling with heat recovery, offer significant opportunities and bringing in companies that specialise in these areas, under the EPC approach, can help to identify savings and enable trusts to improve their performance without major capital outlay.

“It is about ensuring clients are using only the energy they need to, and are reassured of measurable and guaranteed results from the decisions they take.”

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