Energy performance contracts: an innovative approach to hospital energy management

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There’s no doubt about it, hospitals are energy hogs. ENERGY STAR estimates that in the US alone, healthcare organizations spend over $8.8 billion on energy every year. To bring this number down, major energy efficiency improvements are needed such as metering, automation, equipment upgrades, and continuous monitoring across the entire healthcare infrastructure. But these efforts can come with a staggering price tag.

An energy performance contract (EPC) may just be the answer.

An EPC is used when an organization wants to implement extensive energy efficiency improvements, but lacks the upfront funding to do so. The EPC solves this dilemma by guaranteeing that the project will produce enough energy savings to cover the full cost of the project, which is funded through third-party financing. As part of the agreement, if the energy reduction goal is not met, then the energy service company often pays the difference out of their own pocket.

As you might expect, the entities that benefit most from EPCs are those that are publicly funded, such as municipalities, universities, schools, and hospitals. These organizations are in a constant struggle to make ends meet and need creative alternatives to fund a major energy efficiency initiative.

An example of this is the county of Region Skane in Sweden, which chose an EPC to help them meet their ambitious goal to be fossil-fuel free by 2020. With 31 healthcare facilities, implementing an extensive hospital energy efficiency project would likely be enormously expensive. But by utilizing an EPC, Region Skane was able to fund upgrades to their healthcare infrastructure, resulting in annual energy savings of 18 million Swedish krona  ($2.8 million).

And it looks like EPCs are gaining popularity, with hospitals in the US, Australia, and Canada starting to follow suit. Additionally, Pike Research sees an opportunity for EPCs to gain momentum across Europe.

Want to learn more about the Region Skane project? Check out the case study videos on the Schneider Electric Healthcare Solutions page.

Want to know how much a 10, 20 or 30% reduction in energy costs could save a typical hospital? Read my last blog: Is energy efficiency the key to hospital financial health?

Let us know in the comments below if your facility has used an EPC and how it has worked out.

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