It Saves for Hospitals to be Energy Efficient (Part 3 of 4)

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Today, we continue our series based on an article by Karen Minich-Pourshadi in the January/February 2013 issue of HealthLeaders magazine about healthcare organizations that have made energy-efficient decisions and reaped great rewards as a result.

Financing for energy-efficient approaches can be a challenging factor for most healthcare organizations, especially when other capital demands, such as medical equipment, take top priority. Robert Mulcahy, vice president of facilities and environment of care at Saint Peter’s University Hospital in New Brunswick, N.J., succinctly said, “There never seems to be enough money to invest into these green projects as aggressively as we need to.”

Saint Peter’s has 478 licensed beds and net revenue of $448 million, Minich-Pourshadi writes. Its capital budget was “tight” and as a result, it “had no intention of pursuing an energy-conservation operations project.”

However, something unusual (and enviable) happened, she explains. “…PSE&G, a Newark, NJ-based utility company, offered a program that when combined with a federal grant would underwrite 90 percent of a $9 million solar-panel project and cost Saint Peter’s just $1 million in capital dollars to complete.”

Although skeptical at first, the organization eventually embraced the deal, even though Garrick Stoldt, vice president and CFO, said, “The only reason we even looked at this program was to hedge on future energy prices because we have a great utility rate.”

Minich-Pourshadi writes, “Saint Peter’s funded 30 percent of the project though a federal grant and another 60 percent of the funds came from a 15-year, 11-percent interest loan paid through tax credits that was part of the PSE&G solar-loan program. The loan program works by covering 40 percent–60 percent of the cost of a system with the remainder being financed separately by the customer. The actual maximum loan amount is based on how much energy the recipient’s system is potentially expected to produce over the term of the loan.”

Saint Peter’s will repay the loan “by signing its Solar Renewable Energy Certificates (SREC) over to PSE&G,” foregoing the other repayment option, cash payments. To do this, a for-profit energy entity had to be created, Minich-Pourshadi notes, which Saint Peter’s achieved by repurposing its “defunct but taxable-durable medical-equipment company….The value of an SREC can vary according to market conditions; Saint Peter’s SRECs are currently valued at $350 each as part of the contractual agreement with the loan. “

Stoldt said, “So assuming that price is never greater than $350 per SREC, that loan will be 100 percent paid off, including tax credits, in 15 years.”

Both PSE&G and the federal grant have allowed Saint Peter’s to install “10,000 solar panels on four of its buildings and two large parking lots…the panels produce enough power to provide 100 percent of the daytime electricity for its nursing home and 30 percent of the power for the hospital. “

The article also details some of the innovative ways in which Saint Peter’s “took advantage of a public utility-sponsored, free-energy audit and uncovered other projects that could reduce its [carbon footprint] over three to five years.”

All in all, the loan repayment ended up taking only three years, Minich-Pourshadi reports. Stoldt said, “We had a million dollars of costs spread over three years, and we had over a million dollars of savings in the first year, so it was positive cash flow for us practically out of the gate.”

With all of the capital demands on your organization, have you figured out a way to still prioritize energy efficiency, possibly by using similar arrangements as Saint Peter’s? Please let us know in the Comments section. Many of our readers will find your insights beneficial.

On Monday, we wrap up this series by looking at Partners HealthCare in Boston and how they used simple energy-efficient solutions that didn’t cost much, but saved them a great deal.

-by Pete Fernbaugh

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