Growth Prospect: Cogenerated Power

Posted on October 10, 2012


Portfolio theory garnered the Nobel Prize in economics because of an innovative approach to a long-standing finance conundrum: how to maximize financial return for a given risk profile. In a nutshell, portfolio theory proved that by spreading risk among several different investments, financial risk would be substantially minimized, thus maximizing financial returns. Although there is much more to it, portfolio management subscribes to the ‘not all your eggs in one basket’ idea of diversification; it means building elements of Plan B into your Plan A, so your Plan A is more reliable (and Plan B is only for true catastrophies).

Most hospitals utilize a portfolio of utilities to maintain operations, primarily some combination of electricity, water, natural gas, and steam, as well as other gases for procedures, and maybe diesel for emergency backup. A well-informed Facilities Director may have researched traditional, as well as ‘alternative’ (cogen, photovoltaic, fuel cells, wind, biomass), energy sources for his hospital, and perhaps suggested a prudent approach to purchasing.

What about the uninformed Directors out there? Despite relying on a portfolio of energies, how many hospitals and healthcare systems manage their energy portfolio utilizing portfolio theory?

Given the historic reliance on electricity, and growing demand and cost associated with electricity, what are hospitals doing to augment, supplement and otherwise tap new energy sources? From brown-outs to natural disasters, a facility’s electricity source is tenuous, at best. Yet hospitals rely almost exclusively on electricity “from the grid”, i.e. from an outside utility.

Cogenerated power, also known as “combined heat and power” or CHP, is growing in viability for healthcare facilities. Cogenerated power is typically delivered via a power system where owners use less fuel (natural gas) in a more efficient power plant. Waste heat created by electricity generation in these units is captured, or “recovered”, and converted into energy that heats steam or hot water for the hospital, thus reducing costs.

All of this is done in a pre-packaged, pre-engineered unit that is factory assembled and shipped to the hospital. After hook-ups, a hospital is generating a significant percentage of electricity on-site, usually 30-60%, on its own. The grid merely supplements the remainder of the hospital’s electricity demand.

Why is CHP popular now?

  1. Natural Gas Prices. Electricity prices continue to rise; natural gas prices continue to drop. Natural gas exploration continues to be successful in the Midwest and Northeast. Facilities with access to natural gas can leverage a favorable spark gap, or the price difference between grid-supplied electricity and natural gas. Hospitals save money every month.
  2. Efficiency. While power production from electricity is only 33-35% efficient, CHP delivers 70%. A two-megawatt CHP system can provide 500 tons of cooling, and help offset 50%+ of your hospital’s current grid power demand.
  3. Affordability. A two-megawatt CHP system could provide a simple payback in 3-5 years, with an internal rate of return above 30%. A self-contained, unitized system can be installed with minimal impact on existing hospital MEP infrastructure in 9-12 months.
  4. Risk Mitigation. Hospitals are less dependent on the supply and cost structure of traditional utilities, as well as the unpredictability of the supply. In Florida, electricity is more likely to be interrupted in a hurricane than natural gas. With electricity supplied from natural gas, hospitals would not be limited to the minimal functional capacities and short time frame that diesel generators provide. The bulk of operations could continue.
  5. Energy Legislation. Numerous future changes will directly affect healthcare energy planning and design, and require proactivity in planning on the facility and system-wide level.  Some of the expected changes:
  • Building Code Adoption – Efficiency increases mandated via International Green Construction Code and ASHRAE
  • Sustainability Programs – LEED and others insist on audits and real operations data
  • Energy Modeling – More emphasis on design performance, user impact and commissioning
  • Net-Zero – Municipalities have begun legislating buildings generate as much energy on-site as they use
  • Real-time Energy Pricing – Daily or hourly utility price structures are being adopted
  • Carbon Tax – Cap-and-trade legislation will limit energy footprint for energy “hog” industries; healthcare could be one

As covered in other posts, few things are as essential to a hospital’s supply chain as patients, blood, and energy. It makes sense for hospitals to protect these raw materials and proactively manage the risk associated with any disruptions to those supply chains, portfolio or not. Like sustainability, efficient energy management is a trend not going anywhere but up.

Posted in: Growth Prospect