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EU carbon woes

Renewable heat incentive

DOH sustainability

How It Works
Hospitals presently pay suppliers for energy and are liable for increasing carbon tax. The payments made are higher than they need be, as much energy is wasted through poor efficiencies of old plant, The CEFS offers a new for old strategy that pays for itself through efficiency gains.

The CEFS aims to provide Health Boards and Trusts with a contract that guarantees an agreed level of savings when compared with their existing energy and carbon liabilities.

The CEFS contract allows for payments over a fixed term (typically 15 years) to a specialist contractor selected from the established NHS framework, with all performance and payments throughout the term monitored and audited by the Fund. The payments are offset by guaranteed savings, and in most cases these exceed the costs.

The CEFS contract is a NHS Specific standardised, but sophisticated energy services performance contract, and is free to members of the CEFS. After a short mini-competition and four bids, the Project team will choose the best company to work with. The contract the Health Board/ Trust signs will identify the agreed and fixed level of guaranteed savings and the payment to the contractor which includes all costs to the project including fees. In return the contractor will provide the required infrastructure upgrade, and deliver the carbon and energy savings.

The easiest way to understand the economics of a project under the fund is to consider a live example.
The table below summarises the feasibility from a real project and presents  three funding options. The reason for this is that every project using the CEFS has the choice of using its own funding, that of the contractor ( which includes Salix, grants or whatever ), or that of the CEFS. The CEFS is delighted if Health Boards and Trusts choose to fund projects themselves, as it leaves more of the Fund capital  for projects that don't have other options. Irrespective of funding source, the CEFS still lets members use its expertise, contract, payment and audit mechanisms for their projects.

  • In the first option the CEFS funded option is considered
  • In column two a conventional ESPC PPP is costed ( this is how all the pilot projects were funded )
  • In column three the self-funded cost model is laid out.

How It Works

What the table shows is:

Self-funded option

  • The Energy scheme investment including fees, optimism bias, CHP and everything else is £6.7m
  • Should the Health Board or Trust fund the project itself the installation will be on balance sheet and incur capital charges of £233K pa ( depreciation is not cash and thus excluded from the table )
  • The Health Board/ Trust will incur maintenance charges for the installation at £944Kpa
  • The installation will generate £3.4m pa of energy and related cost savings from existing budgets per annum.
  • The Net present value of the savings after discount at 3.5% and CPI of 2.5% over the 15 year life of the contract is a cash benefit of £22.8m for the project ( this is a large project on an inefficient site).

This is a project well worth doing.

Conventional Energy Services Performance contract ( ESPC / PPP )

  • The installation is off balance sheet under IFRS and the Health Board/ Trust incurs no capital or capital charge or depreciation costs. There is no impact on the organisation's PBR
  • However the Health Board/Trust does need to pay the contractors costs ( capital deployed, fees, management, profit, operation, maintenance and life cycle costs ) of £1.68m pa, and
  • the project delivers a guaranteed saving of £3.4m pa from existing energy and related budgets.
  • The Net present value of the savings after discount at 3.5% and CPI of 2.5% over the 15 year life of the contract is a cash benefit of £21.4m for the Health Board/ Trust.

A Carbon and Energy Fund Scotland option

  • The installation is off balance sheet under IFRS and the Health Board/ Trust incurs no capital or capital charge or depreciation costs. There is no impact on the PBR
  • However the Health Board/ Trust does need to pay the contractors costs, capital deployed, fees, management, profit, operation, maintenance and life cycle costs of £1.58m pa, and
  • the project delivers a guaranteed saving of £3.4m pa from existing energy and related budgets.
  • The CEFS will monitor the project for the life of the project at no additional cost
  • The Net present value of the savings after discount at 3.5% and CPI of 2.5% over the 15 year life of the contract is a cash benefit of £22.8m for the Health Board/ Trust, showing that the CEFS model equals a self-funded option for this project.