Open 24 hours a day, 365 days a year, hospitals are prodigious energy users.

Hospitals are second only to food service buildings for energy use per square foot in the commercial sector, due to their around-the-clock demand and use of specialized, energy-intensive equipment, according to the U.S. Energy Information Administration.

An annual survey conducted by the consultancy Grumman/Butkus Associates released last month found participating hospitals paid an average of $3.16 per square foot per year for energy, down from $3.75/sq. ft. at the 2008 peak, but little changed since 2012.

The good news for hospitals, especially those in markets with higher energy costs, is the potential for substantial utility bill savings with a comprehensive energy efficiency retrofit.

In New Jersey, Public Service Electric and Gas Company (PSE&G) operates one of the few U.S. energy efficiency programs dedicated to hospitals. The $199 million Hospital Efficiency Program has funded 50 energy efficiency projects at three dozen hospitals across the state.

“There’s great demand in this area. We have folks coming to us all the time asking us to help them,” Karen Reif, vice president of renewables and energy solutions at PSE&G, told Greentech Media in an interview.

Hospitals avoid upfront costs with on-bill repayment

For participating hospitals, a major selling point of the program is that upgrades are installed at no upfront cost.

“We offer a whole-building approach,” said Reif. “We go in and we cover the full cost of the energy efficiency upgrades — everything from the audit, the engineering and the cost of construction.”

Hospitals are responsible for a cost share, typically 35% to 40% of the overall project cost, according to PSE&G program manager Mike Savage. Payments are made, interest free, over 60 months via the hospital’s monthly utility bill.

“Thereafter,” said Savage, in an interview, “they typically take the savings and plow it back into their operations.”

Participating hospitals save an average of more than $400,000 annually in utility costs after completion of a retrofit.

Earlier this month, for instance, PSE&G completed a $5.7 million energy efficiency project at the Robert Wood Johnson University Hospital in Somerset that is expected to save the hospital more than $600,000 in annual energy costs. The retrofit included an upgrade to the air-conditioning chiller plant, installation of LED fixtures and controls in the hospital and parking structure, and replacement of energy-wasting motors, fans and pumps with new models.

Savage said hospitals’ most sought-after energy efficiency measures are upgrades to chillers and boilers. “The facilities department is always competing against other groups within the hospital for allocation of capital,” he said, so hospitals will typically replace those high-capital pieces of equipment first.

The next most popular energy-saving improvements are whole-campus LED retrofits, followed by replacement of air-handling units and other HVAC system upgrades.

In the wake of Superstorm Sandy, hospitals in New Jersey are also seeking to boost their resilience by adding combined heat and power (CHP) systems that can deliver electricity during grid outages. PSE&G dedicated $6.1 million under the Hospital Efficiency Program toward the installation of CHP systems at seven hospitals.

Another option: Energy savings performance contracts

Another option for hospital operators eager to undertake an efficiency retrofit but not wanting to tap into the capital budget to do so is to sign an energy savings performance contract.

Like the model used by PSE&G, energy savings performance contracts enable the customer to add energy-saving equipment with no upfront cost. An energy service company (ESCO) takes on the responsibility of installing energy-efficiency equipment and guarantees the project’s savings.

“The performance contracting model just fits so well,” Luis Rodrigues, vice president and general manager of energy and environmental solutions at Honeywell in Canada, told Greentech Media in an interview. Honeywell is one of the biggest players in the ESCO space.

He went on, “We can go in and implement all kinds of retrofits and effectively fund those retrofits through savings that we’re prepared to guarantee. The client ends up with a much better-performing building.”

Rodrigues said Honeywell has completed projects at 50 hospitals in Canada, some worth as much as $30 million.

As part of the contracts, Honeywell engineers perform remote, real-time monitoring of hospital equipment. Before, critical building systems at the hospital might have been checked monthly.

“We can predict there’s going to be an issue before the hospital staff would even know the issue is there,” said Rodrigues. “We can also reduce downtime because we’re doing a lot of predictive analysis through engineering algorithms and in people looking in real time at what the systems are doing.”

Hospital energy efficiency projects completed by Honeywell in Canada include many of same improvements identified by Mike Savage for projects in New Jersey: chillers and boilers, LED swap-outs and HVAC system upgrades.

But Rodrigues said in the province of Ontario, where he is based, hospitals are also coming to him asking for solutions to reduce peak electricity demand charges.

Under Ontario’s Industrial Conservation Initiative, large energy users can mitigate demand charges – in the province, known as “global adjustment” costs — by reducing electricity demand at peak periods. Hospitals and other large energy users pay global adjustment charges based on their contribution to the top five peak demand hours in Ontario over the course of each 12-month period.

“That’s where battery storage starts to make sense,” said Rodrigues. “Hospitals are therefore reaching out to people like us to say, ‘How do I curtail this risk?’”

PSE&G looking to expand efficiency program

Encouraged by the popularity of the Hospital Efficiency Program, PSE&G is looking to both extend and expand the program.

According to Karen Reif, PSE&G has spent $180 million of the $199 million authorized by state regulators for the existing program. PSE&G has committed the remaining $19 million to projects in its development pipeline.

Last September, PSE&G asked the New Jersey Board of Public Utilities (BPU) to approve a new $2.8 billion “Clean Energy Future” program. The proposal includes $350 million to serve hospitals on PSE&G’s wait list, as well as to extend the energy efficiency program to universities, schools and local governments.

“We have a list of hospitals that have contacted us regarding wanting to do wider and deeper energy efficiency savings,” said Reif. “In order to start new projects, we need to obtain additional funding.”

Reif said PSE&G hopes the Clean Energy Future proceeding is resolved at the BPU by the end of 2019.