Shrinking energy costs

Energy costs eat up a chunk of a hospital’s budget. Demand response may help shrink those costs.

According to a 2003 Commercial Building Energy Consumption Survey (CBECS), the average hospital spends $675,000 on energy costs annually, exceeding the per-building energy costs of other building types by a factor of 10. In an analysis of Medicare and Medicaid data, the American Hospital Association found that utilities account for about 2.4 percent of hospital costs.

Demand response is a program that protects the electric grid and reduces consumption during peak times. More hospitals are looking into how using the program can reduce their energy costs.

The demand response strategy typically pays users for reducing their demand. Building owners typically get paid in two ways: participation in the program and for performance or level of energy reduction.

Last June, Mercy Health (formerly Catholic Health Partners), secured new electricity, natural gas and demand response contracts for all 19 of its Ohio acute care hospitals and all its long-term care, integrated care and physician-practice facilities. 

Mercy Health is the largest health system in Ohio and one of the largest health systems in the United States. With $6 billion in assets, Mercy Health operates more than 250 health facilities, including 23 hospitals, eight senior living communities, five hospice programs and eight home health agencies.

Calvin Wright, chief resource officer of the health system, said by proactively identifying and executing energy saving opportunities across their network of hospitals and care facilities, they have achieved tens of millions of dollars in bottom-line savings over the past five years.

And although the demand response program is in early stages at the health system, said Curtis Broughton, corporate director of purchased services, a return on investment is expected soon.

“We’ll have a first year’s savings of close to $300,000,” he said. “We have a three-year commitment that we are into, so we are going to see that check reciprocating over the next few years. It’s a pretty decent win for us.”

John Ebers, associate director of facility engagement and energy program at Practice Greenhealth, said hospital leaders should have a thorough understanding of what a utility has to offer before deciding on a demand response contract.

“Whether it’s a demand response program or a utility rebate program offered, the vice president of facilities and CFO will be the key players to understand the financial impacts of the utility programs as they relate to the hospital's long-term energy management plan,” Ebers said.