FINANCE
upgrade was performed during the scheduled annual maintenance visit. Another example is Signature
Healthcare, an award-winning health system based in Brockton, Massachusetts, USA. Signature Healthcare worked with Siemens to identify critical upgrades to its main heating and cooling systems at its primary hospital campus, resulting in a $9 million infrastructure improvement plan. By leveraging the full breadth of Siemens’ expertise and smart financing structures, Signature Healthcare was able to fund the infrastructure plan, simplify its debt structure and, ultimately, provide for financial flexibility.
Financing the cost of conversion through energy efficiency While there is wide consensus around the need to make health estates smart, all countries and sectors need a way of making that conversion financially sustainable. How can this be done? The starting point is to use smart technology to reduce energy consumption in healthcare buildings. This produces hard financial savings that – through smart financing arrangements – can be harnessed to subsidise or even pay for overall smart buildings conversion. This can be done at an enterprise level, or in small incremental steps, each of which proves its return on investment. For whole building and multi-building
projects, budget-neutral schemes are available from specialist financiers to enable conversion. They are increasingly becoming known as ‘Building Efficiency as a Service’ (BEaaS) arrangements. The integrated solutions provider introduces technology and systems to create smart buildings that deliver a clearly predictable level of energy savings. The reduction in energy costs is then harnessed to effectively fund the cost of conversion. While the level of energy reduction
will vary – depending on external climate, cost of power, and other factors – in most cases the savings can be reliably reflected in a financing structure to deliver self- financing smart building upgrades anywhere in the world, although the technique, to date, is most mature in the western world. After the end of the financing period, the facility benefits from the ongoing reduced energy consumption, along with all the other added benefits of smart buildings. Many building efficiency and smart buildings projects are undertaken in smaller incremental steps. If this approach is chosen, then the capital-neutral economics of BEaaS cannot be deployed. Nevertheless, there is a huge operating advantage in being able to spread conversion costs over a financing period – managing cash flow by aligning expenditure with the rate of energy savings. The building technology products that
IFHE DIGEST 2022
make energy efficiency and smart capabilities possible come to market through a supply chain of distributors, value-added partners (VAPs), solution builders, and engineering, procurement and construction (EPC) companies. Various forms of smart equipment
and technology finance are available to manage the cost of acquiring upgrades such as energy-efficient HVAC control and building automation (on-premise or via cloud), remotely managed digital controls for fire safety and security, remote occupancy management systems, touchless controls throughout a building, and much more. Where the solution provider has
teamed up with an expert financier, who understands the technology, its applications and its benefits, then financing arrangements – often based on leasing structures – can be tailored to fit the building owner’s/manager’s precise cash-flow profile, aligning costs with the rate of benefits and/or savings gained.
The investment challenge Evidence has also been offered showing how energy efficiency is the key financial starting point for meeting smart buildings aspirations, and that specialist financing techniques allow that conversion to happen without the need to source and deploy large amounts of capital. What, then, is the size of the investment challenge of energy efficiency conversion in healthcare buildings that these financing techniques help to make happen in an economically sustainable way? It is important to present an estimate of the sheer financial scale of energy efficiency conversion to appreciate how important the role of smart financing is – especially since many authorities in the public sector, for instance, have noted that it simply cannot be afforded out of public capital alone.7 The latest insight paper from Siemens Financial Services establishes the urgency and value of smart buildings conversion,
as well as the mandatory drivers that are focusing attention on converting existing buildings to greater energy efficiency. This insight study has modelled the cost of official buildings energy conversion targets by 2040 at $14.4 billion in the healthcare sector. These estimates illustrate the sheer size of the investment challenge, and underline the importance of smart finance to make smart buildings transformation happen in a financially sustainable way. In a budget-constrained environment,
energy efficiency savings are increasingly seen as the ideal starting point for smart buildings transformation - either as a single investment or as a series of incremental projects - with smart financing techniques playing a major role in enabling those future savings to finance the cost of conversion.
IFHE
References 1 WSP. Hospitals after COVID-19: How do we design for an uncertain future? October 2020 [
https://www.wsp.com/en-GL/insights/ hospitals-after-covid-19-how-do-we-design- for-an-uncertain-future].
2 Harvard Business Review. How Hospitals Are Using AI to Battle COVID-19, April 2020. CNBC. How China is using robots and telemedicine to combat the coronavirus, March 2020.
3 Healthcare Global. Smart hospitals: the digital future of global health, April 2020.
4 Bloomberg NEF. Liebreich: Energy Efficiency Key to COVID Recovery, June 2020.
5 Architectural Digest. How the COVID-19 Pandemic Will Change the Built Environment, March 2020.
6 Modern Building Alliance. EU Pilot project on fire safety, May 2020.
7 See, for instance: European Commission – Build UP, The European Portal for Energy Efficiency in Buildings, Financing Energy Efficiency in Buildings, August 2019; Energy Efficiency Infrastructure Group, Making Energy Efficiency a Public and Private Infrastructure Investment Priority, October 2019.
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