Energy efficiency in hospitals

March 2024

A practical approach to moving the needle

Inpatient healthcare is ranked by the Environmental Protection Agency (EPA) as the second-largest commercial energy user in the United States, and the healthcare industry spends more than $8 billion on energy every year.¹ This sector is also responsible for 8.5% of U.S. greenhouse gas (GHG) emissions.² As energy prices continue to rise nationwide, and the impacts of climate change continue to increase around the globe, the call to action has become urgent.

Hospital administrators recognize the need to prioritize energy-efficiency initiatives. Cost, of course, is a leading reason. A 237,400-square-foot, 75-bed hospital spends about $9,800 per bed on energy costs — about $735,000 per year.³

But equally important — or arguably more so — is the call for hospitals to become more environmentally responsible. Hospitals make up an estimated 36% of the 8.5% GHG emissions mentioned above.⁴

A 237,400-square-foot, 75-bed hospital spends about $9,800 per bed on energy costs —about $735,000 per year.³

A double-edged sword

So, why do many hospitals fail to execute a plan to address these liabilities? They face formidable challenges. Managers must contain costs but also need to balance a mix of higher operating expenses and lower budgets. Attaining reimbursement requirements and improving patient outcomes are also part of the puzzle. Further, each element occurs amid public demand for environmental sustainability. Given a hospital's complexity, energy-efficiency projects often take a back seat to other initiatives.

But the harms associated with the climate crisis, such as fossil fuel pollution, extreme heat, and weather events, are increasing in scale, frequency, and intensity. Between 2030 and 2050, climate change is expected to cause approximately 250,000 additional deaths per year, from undernutrition, malaria, diarrhea, and heat stress alone. The direct costs to health (excluding costs in health-determining sectors such as agriculture and water and sanitation) is estimated to be between $2 billion and $4 billion per year by 2030.⁵

The cost of doing nothing

The carbon emissions from healthcare giants such as hospitals — the largest emitters of greenhouse gas pollution in the industry —undoubtedly worsen everyone’s health.

The direct damage costs to health (excluding costs in health-determining sectors such as agriculture and water and sanitation) is estimated to be between $2 billion and $4 billion per year by 2030.⁵

Where to begin, what to expect

Giving energy-efficiency improvements top priority makes good business sense. Here, we outline solutions that can help hospitals reduce costs, energy consumption, and environmental impact. Let’s start with three questions that often impede the creation of an action plan: “What do we need, how do we pay for it, and where do we start?”

First things first

Though each hospital is unique, all share a need to cut costs. While Key tailors every financing strategy to a client’s needs, we also count on energy-efficiency projects to reduce our spend. First, we assess your organization’s business goals and operational objectives. The assessment helps identify and prioritize resources needed for an energy-efficiency strategy.

The savings spectrum: Where is your organization?

Some hospitals seek detailed guidance to upgrade equipment and systems. Others have sustainability managers who work with operations and need implementation resources or funding support. Still others are somewhere in between. Here are examples of three typical energy-efficiency initiatives and related benefits.

Basic

An LED lighting retrofit is one of the best energy investments a hospital can make. It’s also quick and relatively easy to accomplish while delivering direct patient benefits such as better-quality sleep. Other low-cost measures to realize immediate savings include replacing filters in HVAC systems and installing (or fine-tuning) basic system controls for the hospital environment.

Mid-tier

The following “intermediate” projects require more planning and investment, but they also offer greater returns:

Optimizing and redesigning LED lighting systems
Installing new HVAC equipment and air controls
Building Automation Systems (BAS): intelligent, interconnected communications systems that automatically keep HVAC, lighting, and electrical operations running smoothly and efficiently communications systems that automatically keep HVAC, lighting, and electrical operations running smoothly and efficiently

Advanced

In light of the mounting climate crisis faced by all healthcare facilities, implementing a more sophisticated and integrated sustainability plan is becoming more than a noble act of responsible investing. Replacing older or outdated boilers and chillers is a reasonable first step, but looking at a more holistic strategy is crucial for hospitals to safeguard against environmental catastrophes. Incorporating a power resiliency/redundancy system that uses cleaner technologies (see “Gridless power solutions” below) and renewable energy sources such as solar and wind offers significant environmental benefits and bigger payoffs. In fact, an onsite distributed generation system can be the difference between life and death in a hurricane or utility blackout.

The resiliency revolution

A steady power supply is non-negotiable in healthcare facilities. Because the effects of climate change on human health and well-being are increasingly evident in hospitals, the U.S. Centers for Medicare and Medicaid Services has increased the number of patientsafety compliance standards. One of the programs introduced by this initiative is value-based purchasing, which assesses outcomes and performance based on value rather than volume.⁶

Healthcare providers within these programs receive incentives or penalties based on regulatory measures. The measures cover a range of criteria, from equipment safety codes to building performance. Because Medicare and Medicaid account for nearly 35% of hospital revenue, power resiliency is becoming an imperative for hospital sustainability plans.⁷

Medicare and Medicaid account for nearly 35% of hospital revenue, making power resiliency a priority in hospital sustainability planning.⁷

Gridless power solutions

A power outage affects everything from surgical equipment, ventilators, respirators, and testing equipment to the heating and cooling system. Power disruption can also result in a loss of electronic patient data, which, in many cases, cannot be fully recovered. Fortunately, there are many backup power alternatives that address patient safety and facility efficiencies. Here are a few that span a broad range of sophistication and the relative investment required.

Battery Storage

While backup gas generators might be a common power go-to for hospitals, they aren’t the most efficient choice — for energy, upkeep, and even safety reasons. The downside to relying on a backup generator (aside from environmental or operational motives) is the start-up time and interruption of critical equipment operations. Although a generator typically restarts the power within a few seconds, that small window of downtime can be disastrous for some healthcare equipment, and as a result, negatively affect patients’ quality of care.

Especially in hospitals, battery storage systems offer several advantages over gas generators. First, batteries provide instant power, ensuring uninterrupted electricity supply during emergencies. They are also cleaner and quieter, reducing pollution and noise levels, which is crucial for maintaining a conducive healing environment. Moreover, batteries are more reliable and require less maintenance compared to gas generators, minimizing the risk of breakdowns and ensuring continuous power for critical medical equipment.

Battery storage systems not only offer a safer, more immediate source of power but enable hospitals to save money by managing peak demand more effectively. During periods of high energy consumption, such as extreme weather conditions or increased patient demand, batteries can supplement power usage, minimizing strain on the electrical grid and reducing energy costs. Additionally, battery storage systems can be integrated with renewable energy sources, promoting sustainability and reducing operational costs in the long term.

Combined Heat and Power (CHP)

CHP generates electricity and captures heat to provide thermal energy for heating, cooling, hot water, and steam. CHP systems keep infrastructure operational during and after natural disasters, as well as in normal, year-round operation. CHP systems can provide an entire hospital’s energy services efficiently and indefinitely during grid outages.⁸ In addition to its reliability, other benefits of CHP include:

Superior efficiency. CHP systems achieve efficiencies of more than 80%, compared to 50% for typical technologies such as conventional electricity generation and onsite power.⁹
Cost savings. Superior efficiency means lower energy costs. CHP is especially cost-effective for hospitals because they operate continuously, have high energy costs, and use electricity and thermal energy.
Lower emissions. Compared to traditional energy sources, CHP systems produce fewer greenhouse gas emissions.

Fuel cells

A fuel cell is an electrochemical cell that converts the chemical energy of a fuel (such as hydrogen) and an oxidizing agent into electricity. Like traditional CHP systems, fuel cells can produce clean electricity and thermal energy.

Relative to its footprint, a fuel cell produces the largest amount of zero-emissions power than any other available technology. Hydrogen fuel cells are three times more powerful than fossil fuels and almost twice as efficient as conventional combustion-based power generation. For example, a conventional power plant generates electricity at 33% to 35% efficiency compared to about 60% for a fuel cell.¹⁰

Additional features and benefits of hospital fuel cells include:

Interior heat, laundry water, and sterilization steam
Modular design: system operation even while individual components are being repaired or replaced
Faster build, uptime, and recovery than electric utility grid networks
Long-duration backup generation
Seamless transition from and to grid during power outages

A conventional power plant generates electricity at 33% to 35% efficiency compared to about 65% for a fuel cell.¹⁰

The people perspective: A positive side effect

Every stage of sustainability includes the opportunity for hospitals to improve the hospital environment and outcomes for patients. By implementing energy-saving measures, healthcare facilities can not only reduce their ecological footprint but enhance patient care and overall operational efficiency. Improving ventilation and air filtration systems, for instance, reduces allergens and pathogens in the air. This not only increases comfort for patients and staff but prevents the spread of infectious diseases.¹¹

Relatively low-cost energy-efficient technologies such as touchless faucets, automated doors, and antimicrobial surfaces also minimize patients’ exposure to harmful bacteria and improve overall hygiene within a facility. Additionally, energy-efficient lighting (e.g., LED bulb upgrades and lighting systems that replicate natural daylight) as well as noise reduction initiatives such as acoustic insulation also contribute to creating a restful atmosphere and improve sleep quality, which is vital to the healing process.¹²

“Our surgery center has better air quality now. Even if it’s [somewhat] invisible, an HVAC system is almost as important as a good oxygen tank or surgery table.”

— Dick Clark, Former CEO
The Portland Clinic

Sustainable payment alternatives: A hands-on, beneficial approach

Energy efficiency represents a significant mission: Increase positive patient outcomes and staff productivity while reducing your overhead and carbon footprint. If the task seems cost-prohibitive or confusing, Key can help.

We keep quality, effectiveness, and service at the foundation of our work. We can also see the big picture from your perspective. You can rely on Key for:

Comprehensive, single-source financial support and banking resources
Customized, flexible funding solutions
Deep medical expertise and energy asset knowledge
Renowned structuring expertise
Strategic energy-efficiency vendor partner alliances
Longstanding relationship with energy-focused legal team
In-house underwriting, operations, and asset management specialists

Whatever your business goals, Key can help you integrate sustainability into your organization — including practical, immediate energy efficiency initiatives.

Learn more

For more information about how we can help expedite your hospital’s energy efficiency plans or projects, contact Tom McFadden, Key Equipment Finance Clean Energy at thomas.mcfadden@key.com.