TODAY’S STUDY: ENERGY EFFICIENCY IN HEALTHCARE

Those who interpret the recent shift in U.S. politics as entirely bad news for New Energy sorely underestimate its compelling logic. When inexperienced idealogues arrive in Washington, D.C., and the 50 statehouses determined to pare waste from budgets, they will find experts in Energy Efficiency already there, dramatically cutting costs.

As the profile of the healthcare sector below shows, the private sector has already discovered the compelling logic. Energy Efficiency is not different from New Energy, it is the necessary pre-requisite. It is the most affordable means by which businesses, governments and individuals can cut energy costs. The savings can then pay for New Energy infrastructure, which further cuts energy costs.

The best part of the equation is that beginning with Energy Efficiency makes less New Energy infrastructure necessary, further protecting the budget.


2010 Energy Efficiency Indicator – Healthcare Sector
Derek Supple, October 2010 (Institute for Building Efficiency/Johnson Controls)

According to new research from the American Society for Healthcare Engineering and Johnson Controls, energy efficiency continues to grow in importance in the healthcare sector as organizations do more than ever to “go green.”

Background

In March 2010, Johnson Controls’ Institute for Building Efficiency, the International Facility Management Association (IFMA), and the American Society for Healthcare Engineering (ASHE) conducted a survey of executives and managers responsible for making investments and managing energy use in commercial buildings across the world.

As part of the Energy Efficiency Indicator (EEI) broad survey to look at the trends in energy efficiency throughout the worldwide business community, Johnson Controls wanted to include a separate analysis of responses from organizations in the healthcare industry. Of the 2,882 respondents polled worldwide, 288 operated in the healthcare industry, and 246 were ASHE members.

The EEI survey examines what healthcare organizations are doing in response to rising energy costs, what factors are motivating efficiency improvements, how many organizations are planning to make investments, what payback they expect on energy efficiency investments, and what technologies and practices they have been implementing in their facilities.

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Summary

Current Emphasis on and Motivations for Energy Efficiency

• Energy efficiency is getting more attention among healthcare facility leaders. Sixty-six percent of respondents from the healthcare sector say they are paying more attention to energy efficiency in 2010 than they were one year ago.

• Energy management is more important to healthcare leaders than to executives surveyed in other industry sectors. The survey found that 59% of healthcare organizations believe energy management is extremely or very important, compared to 52% of respondents across all industries.

• Energy cost savings is the most significant factor motivating energy efficiency investment among healthcare organizations, with 88% saying cost savings is very or extremely important, and 99% saying it is at least somewhat important. Enhancing public image and taking advantage of government and/or utility incentives are the next most important motivating factors.

• It is no surprise that energy cost savings is such a significant motivator. As with other industries, nearly two-thirds of healthcare decision-makers expect their energy prices to increase over the next 12 months. On average, healthcare leaders surveyed expect prices to increase by 5% over this period.

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• Climate change continues to be an important motivator. About 37% of those in the healthcare industry believe significant legislation mandating energy efficiency or carbon reduction is extremely or very likely in the next two years, up from 32% in 2008. Another 40% believe such legislation is somewhat likely.

• Eight percent of healthcare organizations have a publicly stated carbon reduction goal, up from 5% of healthcare respondents in 2008. Nearly 50% of healthcare decision-makers identify improving energy efficiency in their buildings as their organization’s top strategy for reducing greenhouse gas emissions.

Energy efficiency in buildings was selected more than 10 times more often than the next most common selections: installing onsite renewable energy systems (3%), and purchasing renewable power (3%).

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Energy Efficiency Investment Plans and Financial Criteria

• The recession had a mixed impact on energy efficiency investment across all sectors. Over the last 12 months, 55% of healthcare respondents have invested less, whereas 45% have invested the same or more in energy efficiency as a result of the recession.


• Given the increased importance of, and attention to, energy efficiency within the healthcare sector, it will come as no surprise that healthcare organizations are more likely to be planning to make capital investments (67%) and operating expenditures (72%) in energy efficiency over the next 12 months, in comparison to other industries. These percentages exceed the overall percentage for North America by a 12-15% margin.

• While healthcare organizations are more likely than those in other industries to plan capital and operating expenditures in energy efficiency this year, they do not expect to spend a higher proportion of either budget on these improvements than do organizations in other industries.

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On average they expect to spend 7% of their facilities-related capital budget and 5% of their facilities-related operating budget on such improvements.

• Healthcare organizations appear to be tightening their investment criteria for energy efficiency projects. The average maximum allowable payback period among healthcare decision-makers in 2010 is 3.3 years, down from 4.2 years in 2008. This compares with a 3.2-year payback required, on average, across all North American industry sectors.

• The top barriers preventing healthcare organizations from capturing potential energy savings are a lack of internal capital to fund projects (45%) and the inability to identify projects with a sufficient ROI (21%), very consistent responses from other industry sectors. Scarcity of capital is a particularly significant barrier for healthcare organizations.

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Energy Management Practices and Technologies

• Ninety-three percent of healthcare facility leaders track energy use on at least a monthly basis, compared to 83% of all North American respondents across all industries.

• Consistent with energy efficiency being even more important to them than to those in other industries, healthcare organizations are more likely to have implemented numerous measures to reduce energy use and costs in their buildings over the past 12 months:

Staff-related: They are more likely to send staff to energy management seminars and more likely to have hired an energy manager.

Equipment and Systems: They are more likely to have replaced inefficient equipment before the end of its useful life, to have upgraded or installed a building management system, and to have installed variable-speed drives to reduce energy use.

Lighting: The vast majority of healthcare organizations have switched to energy-efficient lighting, and they are considerably more likely to have installed occupancy or daylight sensors compared to North American facility leaders surveyed in other industries.

Building Design: More healthcare organizations have installed energy-saving glass and re-roofed with white roofing, whereas others sectors were more likely to increase insulation.

Energy Supply: Considerably more healthcare organizations have negotiated energy contracts, put energy price hedging strategies in place, participated in demand response programs, and conducted utility bill validation.

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• An increasing number of healthcare organizations have at least one certified green building, up from 4% in 2008 to 11% in 2010. Healthcare organizations are less interested in green building certification for both new construction and existing building retrofit projects, relative to other industries. Only 18% of healthcare decision-makers are targeting green certification for their newly constructed buildings.

However, the majority of healthcare organizations seek to at least include green elements (80%).

• Healthcare respondents tend to believe that lighting and smart building technologies will be the clean energy technologies that see the greatest performance-to-price ratio improvements over the next 10 years. The overall North American sample is more likely to believe solar photovoltaic energy and electric vehicle technology will improve in cost-effectiveness over that period.

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Energy Efficiency Investment Plans and Financial Criteria

A new question was added to the 2010 survey to determine the impact of the global recession on energy management spending. The recession had a mixed impact on energy efficiency investment for the healthcare organizations, consistent with other sectors. Over the last 12 months, 40 percent of healthcare respondents have invested less, 21 percent have invested at historically consistent levels, and 24 percent have invested more in energy efficiency as a result of the recession.

Healthcare organizations are more likely to make capital investments in energy efficiency improvements in the coming year (68%), compared with only 52% overall in North America.

While healthcare organizations are more likely to make capital investments in energy efficiency, those investments will represent a smaller percentage of facilities-related capital budgets compared to those planning energy efficiency capital investments in other sectors. This finding is understandable due to the special healthcare delivery-related building systems required by healthcare organizations.

Healthcare organizations are also more likely than the overall North American respondent pool to be planning operating budget expenditures on energy efficiency programs and projects over the next 12 months, with 72% of healthcare organizations planning to make such investments.

But again, while healthcare organizations are more likely to make operating budget expenditures, those organizations expect to invest a smaller proportion of their operating budget in energy efficiency than do organizations in other industries planning such investments.

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On average, healthcare organizations expect to see a reduction in energy consumption of 5% as a result of their energy efficiency investments, consistent with expectations of respondents in other industries, who expect to see a 6% consumption reduction as a result of their investments.

When asked how they plan to fund energy efficiency and/or renewable energy investments, the vast majority of healthcare decision-makers (76%) report that they plan to use internal facilities capital budgets.

In addition, 21 percent plan to fund projects using grants or tax credits, and 18 percent plan to procure efficiency improvements using energy savings performance contracts. Other sectors are more likely to have energy- or climate-related budget set-asides (9%) than the healthcare sector (6%). Healthcare organizations are more likely to consider “shared-savings” agreements provided by energy services companies and third party ownership companies.

Healthcare organizations appear to be tightening their investment criteria for energy efficiency projects. The average maximum allowable payback period among healthcare decision-makers in 2010 is 3.3 years, down from 4.2 years in 2008. This compares with a 3.2-year payback required, on average, across all North American industry sectors.

A new question was added in 2010 to identify key energy efficiency barriers. The top barriers preventing healthcare organizations from capturing potential energy savings are a lack of internal capital to fund projects and the inability to identify projects with a sufficient ROI , very consistent responses from other industry sectors. Scarcity of capital appears to be a particularly significant barrier for healthcare organizations.

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Energy Management Practices and Technologies

Most of the EEI respondents track their energy usage on a monthly basis. About 93 percent of healthcare facility leaders track energy use on at least a monthly basis, compared to 83% of all North American respondents. Compared to 2008, fewer respondents track this energy information on only an annual or quarterly basis.

Over the past 12 months, healthcare organizations were as likely as those in other industries to have educated staff on how they can reduce energy usage, and they were considerably more likely to have attended or sent others to energy management seminars. One-fourth of healthcare organizations have hired an energy consultant, which is more than in other industries.

Organizations in the healthcare industry are also considerably more likely than others to have implemented a number of systems-related measures to improve energy efficiency. Most notably, the majority of healthcare organizations have installed variable-speed drives or upgraded an existing building management system. Almost all the healthcare organizations had adopted at least one of the listed items.

About three-quarters of the healthcare respondents have switched to energy-efficient lighting, consistent with other sectors. Healthcare organizations are more likely to have installed occupancy or daylight sensors to reduce lighting energy use (56%), compared to other industries (40%).

A much smaller percentage of organizations have implemented building envelope improvements to save energy over the past year. Organizations in the healthcare industry are more likely than other industries to have installed energy-saving glass and reflective white roof membranes, whereas other industries are more likely to have increased building insulation.

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Half of the organizations in the healthcare industry have negotiated energy contracts with suppliers, which is nearly double the proportion of organizations in other industries. Those in healthcare are also more likely to have energy price hedging strategies in place, to participate in demand response (smart grid) programs, and to have implemented a utility bill validation system or service.

An increasing number of healthcare organizations have at least one certified green building, up from 4% in 2008 to 11% in 2010. Healthcare organizations are slightly less likely to have a green certified building than those in other industries. However, healthcare organizations are more likely to have buildings with green elements that are not green certified.

Healthcare organizations are less likely to target green building certification for both new construction and existing building retrofit projects, relative to other industries. Eighteen percent of healthcare decision makers are targeting green certification for their newly constructed buildings. However, the majority of healthcare organizations seek to at least include green elements (80%).

The healthcare industry is not yet sold on renewable energy. Almost two-thirds are not considering utilizing any type of renewable energy in construction or retrofit projects. Solar photovoltaic power systems and solar thermal water and space heating are the technologies considered most often.

When asked to select up to three clean energy technologies they expected to have the greatest improvement in performance relative to price over the next 10 years, healthcare respondents identified lighting, smart building, and solar photovoltaic technologies as most promising. Healthcare leaders are more likely to be optimistic about improvement in lighting and smart building technologies compared to the overall North American sample, which is more likely to select solar photovoltaic and electric vehicle technologies than the healthcare sector.

Conclusion

Healthcare organizations are more focused than ever on doing well by doing good: saving money and the environment at the same time. Even as expectations for energy price increases fall, there is more attention than ever on improving the efficiency of buildings and processes. But it is clear that good intentions are not enough to get these types of projects implemented on a large scale. There are natural barriers to an efficient market that practitioners throughout the value chain are working to correct, and with the right mix of good policy, innovative technology and new financial structures, there is hope that the efficiency of the existing healthcare building stock can be dramatically increased.