New capital funding for NHS energy efficiency - How you can benefit

On 23 January 2013 the NHS announced the establishment of a new £50m capital fund in the 2013-14 financial year for the improvement of energy efficiency across the NHS in order to contribute towards the NHS Carbon Reduction Strategy for England (CRS).  In this alert we set out some details of the proposals together with a summary of our experience of other related energy efficiency and energy generation issues.

In 2011-12 the NHS consumed a reported £583m worth of energy, making it a major consideration in terms of budget available for front line care.  The aim in the CRS is to reduce this consumption by 10 per cent by 2015 and this fund will assist in achieving that aim.

The application process is available on the Department of Health website.

Stage 1 Expressions of Interest must be received by 28 February 2013.

The fund is stated as being available for new and innovative projects to improve energy efficiency and reduce the carbon footprint of the NHS by reducing energy usage, carbon and emissions.

This announcement is part of a general government-wide push to improve energy efficiency and to decarbonise the UK economy (the statutory requirement for an 80 per cent reduction in carbon emissions from 1990 levels by 2050) and ought to be seen in the context of other energy efficiency and carbon reduction measures which are currently being proposed.

Energy Performance Contracts

Bevan Brittan LLP is currently working on several Energy Performance Contracts for NHS Trusts and companies providing energy and energy services to NHS Trusts. 

The basic premise of an Energy Performance Contract is that a Trust (or other energy consuming customer) will enter into a contract with a private sector counterparty over a period of typically 10 to 15 years under which the counterparty will provide an energy solution for the customer. 

The energy solution typically involves the private sector entity sourcing funding and installing infrastructure (such as a Combined Heat and Power plant) together with other energy saving measures (for instance low energy lighting, enhanced BMS controls) which will result in less energy being consumed and therefore lower bills for the customer.  The capital costs of the new infrastructure ought to be more than offset by the savings made by the customer on their energy bills and as a result the project ought to pay for itself. 

The customer usually also has the benefit of an Energy Savings Guarantee which underpins the performance by the counterparty – if the contractually promised levels of saving are not being delivered, the customer can reclaim from the counterparty.

The most high profile scheme for Energy Performance Contracts is the Carbon and Energy Fund; however we are also advising NHS Trusts who have chosen to procure their own solution outside this framework.

Green Deal

The announced proposals have similarities with the Government’s Green Deal Programme – the flagship policy for eco-refurbishment and carbon reduction through housing energy efficiency.

Bevan Brittan LLP advised Birmingham City Council on the completion of their ground-breaking Green Deal procurement with Carillion Energy Services Ltd, the first in the Government’s Green Deal strategy.

Birmingham became the first local authority in the country to appoint a delivery partner for Green Deal in a project estimated to be worth up to £1.5bn for Birmingham and neighbouring authorities.

As part of the project, Carillion will work with Birmingham City Council to refurbish around 60,000 homes and non domestic buildings, creating 250+ new jobs and helping reduce carbon dioxide emissions by 60 per cent by 2026. As well as working with Birmingham, Carillion will also have the opportunity to extend the provision of energy efficiency services to up to 40 other councils and public sector organisations across the wider West Midlands area who were party to the original procurement notice.

ECO

The Energy Company Obligation or ECO creates a legal obligation on certain energy suppliers to improve the energy efficiency of domestic households through the establishment of three distinct targets: the Carbon Emission Reduction Target, the Carbon Savings Community Target and the Affordable Warmth Target.

ECO support will be available to support the availability of measures such as solid wall insulation, which is likely to be too expensive to meet the Green Deal’s “golden rule” of generating energy savings sufficient to pay for the capital works.

The Renewable Heat Incentive (RHI) and the Feed In Tariff (FIT)

The RHI and FIT are both subsidies available to parties generating (in the case of the RHI) heat and (in the case of the FIT) electricity from renewable sources.  The intent behind the subsidies is broadly to cover the capital and operating costs of the energy generation and to generate a return on top.  As such, renewable energy technologies, such as biomass boilers or solar panels can be used as part of a site wide energy solution incorporating energy efficiency measures with the aim of operating on a cost neutral basis or better.

Conclusion

This announcement forms part of a whole raft of renewable energy generation and energy efficiency initiatives which are all designed to contribute towards the 80 per cent reduction targets in the Climate Change Act 2008. 

At Bevan Brittan, we have numerous ideas and practical solutions for you based on our “on the ground” experience of these projects coupled with our wider unrivalled expertise in advising in the National Health Service.