ENERGY AND CARBON REDUCTION
Key considerations As Trusts embark on heat pump projects, I think there are lessons which estates and energy teams need to consider from both the installation of these new heating systems, and their previous experiences with CHP projects. System integration can be challenging for hospitals, and across the NHS estate there are unfortunately examples of new heating technologies that have not been consistently operational in the first few years. The issues sometimes come back to the question of whether the system can deliver the required heat output at the right levels, and, crucially, what the back- up system is if the new technology is not operational. For example, I have witnessed a new
biomass boiler not being operational for many months, and consequently the back-up oil boiler was the primary source of heat. The environmental gains derived from biomass were lost. The major question in these instances is whether the contractor which undertook the installation provided an appropriate and comprehensive performance guarantee to cover system availability, usage, and efficiency. We are seeing instances where some
contractors installing new systems only guarantee system efficiency. The issue is that there is no coverage for system availability or usage, despite business cases resting on projections based on contractors’ modelling and assumptions. The financial risk and environmental implications of system downtime and usage therefore all sit with the client.
Minimising risk So, how can clients mitigate risk and set up heating projects for environmental and cost saving success? Firstly, they need to structure contractual terms to comprehensively cover the required energy and greenhouse gas (GHG) emissions-saving performance of the system over its expected lifecycle. It may not be appropriate in all cases, but Trusts should consider the advantages of designing the contract so that the contractor takes responsibility for the whole package – from design, procurement, and installation, through to operation and maintenance, ensuring that the key aspects of performance risk are adequately transferred to the contractor under the guarantee. Splitting these responsibilities into parts may come with their own individual performance guarantees, but this may only partially cover the performance risk, and lead to the inevitable finger-pointing between contractors, with the Trust left to soak up any fallout. Particularly in the case of heat decarbonisation projects, I do think there is also a need for Trusts to seek
30 Health Estate Journal April 2022
KPI carbon targets have been included in Veolia’s NHS energy management contracts for more than 25 years.
an emissions-related guarantee, as well as classical financial energy savings guarantees. This is because in some cases the ‘back up’ fossil fuel heat source may be equivalent or cheaper in price. If we take our biomass example – without the non-domestic renewable heat incentive, which closed to new applications or those with agreed extensions at the end of March – the cost of biomass can be very similar to oil, and therefore a lack of availability would not necessarily penalise a contractor on a straight financial energy cost savings guarantee.
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Trusts should consider the advantages of designing the contract so that the contractor takes responsibility for the whole package
Setting up procurement for success Procurement is also critical to assess the past performance of contractors, their track record working with other Trusts, and how installed systems have performed. Setting the requirements early in terms of expected risk transfer, contractual structure, and performance measurement, is key, and ideally best done at the invitation to tender stage. Contractors will naturally look to put forward solutions that minimise their risk, and once that is enshrined in an accepted tender response, it can be very difficult to negotiate an appropriate risk transfer profile for the Trust without considerable increased cost. Close monitoring of the energy and
There is a need for NHS clients to have energy and cost-saving initiatives independently verified.
cost performance of the system is also key. There is a risk with these new technologies, and the move away from lower cost fossil fuels to higher cost electricity may mean that energy bills increase rather than decrease. Without or even with the NDRHI, the financial business case for moving from gas to heat pumps can be very tight, or may lead to increasing costs. As illustrated in the example earlier in the article, any reduction in performance against expectations has a much higher sensitivity in energy costs, with electricity being several times more expensive than fossil fuels.
©Veolia
©Veolia
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