The NHS provides highly specialised and energy intensive hospital services to more than one million people every 36 hours. Hospitals are open 24 hours a day, 365 days a year with energy bills costing upwards of £750 million every year.1 Energy costs are expected to increase at a rate above inflation; consuming an increasing share of NHS budgets. Systematically reducing energy use through demand reduction and a transition to low cost, renewable sources will help not only save money, it will also lower the NHS's carbon footprint and could even become a source of revenue. Experts estimate that efficiency measures could cut the energy bill by up to 20 per cent, saving £150 million each year. This week’s blog is written by our colleague, Stuart Wright, a leader in energy advisory services working in Risk Advisory, and discusses how smart approaches to energy use can help protect front line services.
The need for energy efficiency
Hospitals are the NHS’s biggest energy consumers. As such, how effectively they control this expense will directly impact on frontline services and patient care. To put this into perspective, the average energy intensity of hospitals (510 kWh/m2)2 are over double that of office energy consumption (215 kWh/m2),3 and can have comparable energy intensities to that of factories. The major energy uses are building services (heating, cooling, hot water production, ventilation, and lighting), medical services (scanners, sterilisers, etc.), IT services, catering, and electrical appliances.
The 2016 Carter review of NHS efficiencies identified a significant opportunity for hospitals to achieve cost efficiencies by reducing their energy consumption; estimating that if all acute trusts could move to the median benchmark then £36 million could be saved per annum. This saving could increase to as much as £125 million if hospitals were able to invest in energy saving schemes such as LED lighting, combined heat and power units, and smart energy management systems.4 According to one source, a cluster of 14 hospitals who invested through the NHS carbon and energy fund have already amassed £300m savings over three years.5 Looking at the bigger picture, the NHS’ 10 point efficiency plan includes – under item 7 – an expectation to derive £100m from energy cost savings in 2017/18,6 which is clearly possible, but doing so will require significant proactive engagement on the issue from each trust.
Behavioural energy efficiency; seeing it through to the bottom line
Efforts to reduce energy consumption, and associated utilities costs, have been supported in recent years by legislative measures and voluntary initiatives; from the application of carbon-based taxes such as the CRC Energy Efficiency Scheme (CRC EES),7 to the more recent requirement on large users across Europe to complete energy audits every four years, as required under the Energy Savings Opportunity Scheme (ESOS).8 However, though the link is clearly inferred, the delivery of bottom line savings is not a requirement, and getting an engineer’s report, or a subcontractor to manage compliance, can become a tick-box exercise with no positive end result for the organisation’s bottom line.
Systematically bringing down utilities costs is a difficult task in most workplaces, but in a hospital, with life-threatening and acute care services in play, you need to plan changes carefully. Like all change efforts, you need an active role to be taken by leaders at all relevant levels of the organisation to make energy goals part of core operational processes and procedures, and to forge links through to financial and performance management and benefits reporting. The opportunities are there to dramatically improve operating costs, reducing the need for cuts elsewhere and even improve patient comfort.
Putting energy “smarts” into practice
A recent case in point relates to a visit we made to a hospital in Shropshire as part of an energy optimisation programme. This was one of a chosen cluster of hospitals: off-site data analytics showed probable energy inefficiency. Metering and other core business data were correlated to help us identify specific equipment and plant that were not shutting down as intended. Once we got on site, and examined operations during the day, and at night, we could isolate the problem to a set of air handling units (AHUs) servicing two theatres, and another smaller one supporting sterile services, that were running at full speed, 24/7. Outside of operating times, this was detrimental not only for energy bills, but also for its secondary impact on draining other patient-occupied areas of the heated air they relied on to support patient recoveries.
Similarly, we found other hospitals with:
- excessive and unnecessary out of hours lighting;
- staff that didn’t understand how to use thermostats or air conditioning controls;
- misinformation on what worked versus what didn’t to control energy costs effectively
- completely disengaged management and finance teams due to poorly compiled energy cost information
- catering facilities that were blowing air-conditioned air out of a nearby window.
Finding the right balance between supply, price, and demand risk management
Identifying issues such as these is only part of what is needed. There needs to be a clear delineation of responsibilities and accountabilities to ensure key teams with control over energy assets are managed effectively. When Deloitte’s energy advisory team takes on a challenge to cut energy costs, we always look at it from three perspectives; demand, price, and supply.
If cutting energy costs is the ultimate aim, management need to think about a few key things: the type of energy being used, when it is being used, and how much is being used. This then needs to be cross-compared to the energy contract – here, the devil is often in the detail. The level of price-certainty required by the organisation, its anticipated demand profile and what capacity may be able to be exported are all levers to be used to optimise cost. We have also found that large organisations tend to be over-supplied with multiple subcontractors providing anything from energy audits and bill validation, to carbon tax compliance and bureau or dashboards that together do not offer proportionate value, and in many cases are duplicated, or contracts not set up or managed holistically around the central purpose of energy demand and cost management.
A conundrum for me is that where organisations spend tens of millions on staff, materials, or other key service contracts, they undertake well-deserved due diligence activities, but when it comes to energy and utilities, these so often remain subject to so fewer checks and balances, with the perception that little more can be done. Key actions are therefore about changing the mind-sets of management and relevant staff, challenging misinformation by providing the right information in the right way, and supporting the key teams who - perhaps unwittingly – determine success or failure in protecting critical budgets and the services they protect. One of the most pervasive -- yet solvable challenges affecting the supportive infrastructure and operational performance of the NHS - is its energy consumption, and by so doing can offer a pain-free way to protect jobs and improve patient care.
Case example: Nuffield Health
Nuffield Health is one of the leading not-for-profit healthcare organisations, with 31 hospitals and other large sites. One of Nuffield Health’s largest operational costs lies in its utilities consumption, and this had been steadily increasing.
Deloitte completed a six-week energy diagnostic, evaluating ten areas of the management system against good practice in energy price, supply, and demand risks. We gave each of the sites we assessed a report of proposed changes, tailored to its specific situation. These changes formed the basis of a planned seven per cent reduction in energy use across the group by the end of the first year.
As of January 2016, Nuffield Health’s hospitals are currently at ten per cent less, indicating a significant step towards the target of 25 per cent reduction by 2020.9
Read the full case study on how our team helped Nuffield Health slim down and cut its significant energy bill, here.
1 Sustainable Development Unit website, http://www.sduhealth.org.uk/news/273/uk-green-investment-bank-announces-programme-of-support-to-finance-nhs-energy-efficiency/
2 Hospital (clinical and research) energy benchmark, Chartered Institution of Building Services Engineers (CIBSE) Energy Benchmarks (TM46)
3 General office energy benchmark, Chartered Institution of Building Services Engineers (CIBSE) Energy Benchmarks (TM46)
4 Carter Review, Operational productivity and performance in English NHS acute hospitals, 2016 https://www.gov.uk/government/publications/productivity-in-nhs-hospitals
5 Clean energy news website, https://www.cleanenergynews.co.uk/news/efficiency/nhs-energy-savings-exceed-300-million-as-efficiency-installs
6 NHS England, Funding and efficiency website, https://www.england.nhs.uk/five-year-forward-view/next-steps-on-the-nhs-five-year-forward-view/funding-and-efficiency/
7 CRC Energy Efficiency Scheme (CRC EES) https://www.gov.uk/guidance/crc-energy-efficiency-scheme-qualification-and-registration
8 Energy Savings Opportunity Scheme (ESOS) https://www.gov.uk/guidance/energy-savings-opportunity-scheme-esos