Building Operating Management

Healthcare Facilities Use PPAs to Fund Infrastructure Improvements





While healthcare facilities face financial barriers to investing in these systems, forward-thinking institutions are taking advantage of Power Purchase Agreements (PPAs) to fund infrastructure improvements with little-to-no upfront costs. A PPA also allows the institution to purchase electricity and/or thermal power from the PPA provider and through these payments, the hospital is also paying off a portion of the cost of a new system.  In this situation, the PPA provider is the equity investor/owner of the system and, as a for-profit entity, is able to bring federal and state tax benefits into the project economics. The PPA provider also helps the hospital reduce its project risk as it provides performance guarantees to the hospital and becomes the primary source of power for that institution, with excess power needs delivered by the grid or other systems.

PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution. This funding option leverages the benefits of on-site energy generation through third-party ownership.

There are currently a range of generous incentives available to healthcare facilities interested in installing CHP technologies. Given these available incentives, and an interest by hospitals in both improving their environmental footprint and increasing facility resilience, CHP is becoming an attractive option for health care facilities of all types and sizes.

The DOE is playing a significant role in the effort to reduce costs and increase the use of renewable energy technologies. Likewise, the federal investment tax credit (ITC) for industrial energy efficiency projects can lower investment paybacks. The Environmental Protection Agency also has an online CHP policies and incentives database that allows users to search for CHP policies and incentives by state or at the federal level. This database has two primary purposes:

♣    Policy makers and policy advocates can find useful information on significant state/federal policies and financial incentives affecting CHP; and
♣    CHP project developers and others can easily find information about financial incentives and state/federal policies that influence project development.

The University of Maryland Upper Chesapeake Medical Center (UM UCMC) in Bel Air, Maryland wanted to fortify emergency backup power to three load centers that serve health care occupants at the 44-acre campus. Like all hospitals, UM UCMC had a required diesel backup generator, but it could only handle about 40 percent of healthcare-specific loads during an emergency, and that precluded the ability to bring on air conditioning when the utility feed went down.

"As we've seen with Hurricane Katrina and more recently Hurricane Sandy, that is not a good position for hospitals to be in with no cooling during a summertime utility emergency," said Don Allik, director of facilities at UM UCMC.

UM UCMC partnered with Baltimore Gas and Electric (BGE), Clark Financial Services Group, TMR Engineering, and Clark Construction Group for a new system that increases efficiency, provides electricity for UM UCMC's base load, and supplies a thermal base load for both steam and chilled water, making it significantly more efficient than the conventional method of electricity generation. The system also provides backup power to ensure operations during an emergency or natural disaster.

UM UCMC is the first hospital Maryland to qualify for the BGE EmPower Maryland Incentive, receiving close to $2 million for the system's construction.  UM UCMC chose the Combined Heat and Power (CHP) system because of its ability to provide cleaner more efficient primary power as well as serve as a significant backup power source during a prolonged grid outage. The existing diesel generators at the hospital only served the critical care loads but the new system powers more than 60 percent of the hospital's electrical load.

The $8.5 million project started with a capital funding request to the medical center board. But in healthcare, competition for funds is always steep, and typically the clinical side wins out over infrastructure needs. The facility director looked for alternative ways to provide power to the campus, ultimately signing a Power Purchasing Agreement (PPA).

UM UCMC’s PPA structure will save the hospital a projected $9 million over the 20-year contract due to the contractual price of electricity and the waste heat utilization, which avoids the need to purchase more electricity or natural gas to power conventional systems.

PPAs help institutions mitigate costs, fund clean and renewable energy development, lower overall utility costs and access tax incentive programs that would be otherwise unavailable to a not-for-profit healthcare institution.  This funding option leverages the benefits of on-site energy generation through third-party ownership.

By being proactive about their energy independence and taking the initiative to upgrade their facility infrastructure, UM UCMC management and hospital administration are improving the overall footprint of healthcare. The use of PPAs to fund these projects, like CHP systems, makes this a win for UM UCMC, the environment, and the communities and patients they serve.


Claudia Meer is managing director Energy & Structured Finance, Clark Construction Group and may be reached at claudia.meer@c-fsg.com or 301- 272-8444. Using project-specific financing options, Energy & Structured Finance develops, designs, builds, owns, and operates and maintains, custom-designed, clean and renewable energy systems for clients. Implementing an array of alternative technologies, the group develops tailor-made solutions to help clients reach their energy goals, realize cost savings and capital expenditure outlays, and reduce implementation risk.


Continue Reading: FM Strategies: Funding for Healthcare

Innovative Funding Sources Provide Upgrades to Healthcare Facilities’ Infrastructures

Healthcare Facilities Use PPAs to Fund Infrastructure Improvements



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  posted on 6/11/2015   Article Use Policy

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