NSW Health audit report: too much energy waste; try harder

20 June 2013 — An audit of NSW Health has found energy bills soared by nearly 50 per cent in three years. Yet little had been done to capture potential savings, prompting the Green Building Council to call for greener health care buildings.

It’s a finding that could jolt the energy efficiency industry into action. A similarly “scathing” audit report on Victoria’s health department a year ago found that energy bills of about $70 million could be shaved by 35 per cent. There are now plans for 27 tenders by 2018 for work to redress the issue, industry sources in Victoria said.

• See list of tenders on the Victorian government’s procurement website

The NSW report, issued early this month by the Audit Office of NSW,  found some of the increases were because of rising electricity costs, and that costs were expected to rise again by another 50 per cent in the next five years.

Between 2008–09 and 2011–12, energy prices increased significantly and NSW Health building energy cost increased by 47 per cent or nearly $39 million – from  $81.8 million to $120.4 million, the report said.

It also found a failure to implement energy savings programs that could be funded through the Treasury Loan Fund.

Other reasons included the 2011 organisational restructure and other priorities of the LHDs, which “delayed the development of NSW Health’s environmental sustainability strategy and local plans”.

There was some limited good news. The Audit Office found that the department had reduced its energy use by two per cent despite increased hospital activity and that it had invested in cost effective energy savings initiatives.

But “It did not meet it’s remission reduction target in 2010 and, at the current rate, is unlikely to meet its 2013-14 target,” the report said.

The conclusion was that “NSW Health has not managed its building energy use as well as it intended.”

GBCA chief operating officer Robin Mellon urged the state government to implement sustainable building policies which would not only save energy but improve health care outcomes for patients.

“More money spent on energy means less money available for primary care,” he said.

“We have solid evidence that Green Star-rated buildings emit around one third of the greenhouse gas emissions and use one third of the electricity when compared with the average Australian building – whether that’s an office, a school or a hospital.

“While hospitals are notorious energy-guzzlers, green buildings are cheaper to operate because smart, sustainable design conserves energy and water. They also enable better patient care, reduce the length of stay required in hospital and decrease staff absences and turnover.

“A number of governments around Australia, most notably in South Australia, understand that Green Star-rated healthcare facilities are more efficient, cost-effective long-term assets that require significantly fewer taxpayers’ dollars to operate.

“SA Health achieved Australia’s first Green Star rating for a hospital – the Flinders Medical Centre – and is currently seeking ratings for the New Royal Adelaide Hospital and the redevelopment of Lyell McEwin Hospital.

“Despite the NSW Government investing $4.7 billion in hospital redevelopments in rural and regional areas, no NSW Health projects have been registered to achieve Green Star ratings.”

Mr Mellon said the GBCA was keen to work with the department to consider how the rating tools could help reduce energy costs, meet the emissions reduction target of 11 per cent, and improve patient care.

However the department piloting specific benchmarks for the thermal performance of new hospitals, the report said.

“NSW Health requires its new facilities valued at over $10 million to undergo the Green Star process and to achieve a minimum four star rating.

“However, independent certification to that rating is not required and the rating does not guarantee optimal thermal performance of buildings. Also, the required post-evaluation of new buildings to ensure they operate as per the design specifications is not applied consistently.”

Key findings in the report included that:

• Between 2008–09 and 2011–12,  NSW Health improved its building energy use despite increases in the number of operations and bed days of over eight per cent and nearly two per cent respectively.
• NSW Health reduced its emissions by two per cent, from 921,253 tonnes of CO2-e (that is, carbon dioxide equivalent) to 906,593 tonnes of CO2-e and energy use by two per cent, from 4.6 million gigajoules to 4.5 million gigajoules.
• However, NSW Health did not meet its 2010–11 interim emissions reduction target of 817,000 tonnes of CO2-e. Emissions were 15 per cent above target. This was because only six out of 62 initiatives identified in Energy Savings Action Plans were reported as being implemented and investment in cost-effective energy saving initiatives did not deliver sufficient emissions reduction.
• NSW Health is also unlikely to meet its 2013–14 target.
• While NSW Health’s strategy includes emissions reduction targets for building energy use, it does not include KPIs and targets for reducing energy use and cost, and improving energy efficiency.
• Between 2008-09 and 2011-12, energy prices increased significantly and NSW Health building energy cost increased by 47 per cent or nearly $39 million.

Findings on NSW Health’s plans to improve its building energy use include:

• NSW Health’s Environmental Sustainability Strategy released in 2012 provides a broad strategic framework for managing building energy use. It identifies the priority sites and includes a series of emissions reduction targets through to 2019–20 (at five per cent below the year 2000 emissions level).
• The strategy was an important step, but further work is needed in some critical areas to guide detailed planning at local health district (LHD level. This includes a method to account for the impact of new facilities on overall emissions, KPIs, targets and benchmarks, guidance on investment decisions, including system-wide bundling of projects at whole-of-health, and the uptake of cleaner/renewable energies, an energy efficiency investment program and guidance for managing energy demand and influencing behaviour to reduce energy use.
• Current management arrangements and governance structures do not always encourage investment in energy efficiency. In particular LHDs and energy managers receive limited support and training, increases in energy bills are covered through budget supplementations irrespective of performance, LHDs have no internally allocated seed funding to cover the cost of energy audits, the monetary threshold to seek loans from the Treasury Loan Fund limits investment choices, the Treasury Loan Fund processes are lengthy and complex, there is no permanent prequalified panel of energy performance contractors to select from and there is no flexibility in using and repaying loans from the Treasury Loan FunOur analysis showed that it has improved energy efficiency, but this has not been enough to compensate for increases in costs. Between 2008–09 and 2011-12, energy use per separation reduced by nearly ten per cent, per bed day reduced by four per cent, per full-time equivalent employee reduced by over nine per cent.

• NSW Health building energy cost per separation increased by over 36 per cent, per bed day increased by over 44 per cent and per FTE increased by nearly 37 per cent.
• Analysis also showed significant variations in energy efficiency across LHDs and the top 10 hospitals. Some of these variations reflect buildings of different design, size and age, in different climate zones and running different services. Some will also reflect LHDs and hospitals with better energy management than others. The scale of the variations suggests there is scope for further improvement.
• The development of benchmarks and evaluations of energy efficiency of hospitals are in early stages. The Office of Environment and Heritage has developed and piloted a draft energy benchmarking tool for existing NSW hospitals based on the National Australian Built Environment Rating System methodology, but further work is required to finalise it.
• NSW Health is also piloting specific benchmarks for the thermal performance of new hospitals. NSW Health requires its new facilities valued at over $10 million to undergo the Green Star process and to achieve a minimum four star rating. However, independent certification to that rating is not required and the rating does not guarantee optimal thermal performance of buildings. Also, the required post-evaluation of new buildings to ensure they operate as per the design specifications is not applied consistently.

Key recommendations include:

• minimum energy efficiency performance standards for technologies, plant and equipment used in public hospitals
• provision of seed funding for energy audits
• bundling energy efficiency improvements at an appropriate level to maximise value
• an investment program with financing options ranging from the use of recurrent budgets to large scale capital investment outside the Treasury Loan Fund
• phasing in investment in renewable energy where cost-effectivedevelop KPIs and targets for reducing energy cost and use, and improving energy efficiency
•  develop and start implementing a strategy to strengthen the role of the Sustainability Unit

The Ministry of Health should by June 2014:

• Review the NSW Health Engineering services and Sustainable Development Guidelines TS11 and include a requirement for all new and refurbished facilities to: have their energy and emissions baselines determine; use the benchmarks once finalised for monitoring performance; be independently certified to a minimum four star Green Star rating; have a budget for energy efficiency in initial project costing; implement evaluations of thermal performance at 18 months post-occupancy
• Work with LHDs to provide energy managers with a budget for minor energy saving initiatives, as well as support and training.
• Link any budget supplementations provided to LHDs and relevant specialty health networks for increases in energy costs to their performance in managing building energy use.
• Have all small sites, including franchise accounts, on state contracts or similar contracts to secure competitive energy prices and electronic access to data from providers.
• To better measure, monitor and report on performance, the Ministry of Health should require LHDs and relevant specialty health networks to report annually to the Ministry of Health on progress against their implementation plans
• Review performance in managing building energy use at each interim target.
• Develop quality assurance procedures for data on building energy use.

The Ministry of Health should by June 2014:

• Work with the Office of Environment and Heritage to develop a benchmarking tool for NSW hospitals and adopt it for monitoring performance.
• Give LHDs, relevant specialty health networks and hospitals access to performance information so they can compare their performance to others and set improvement targets in their implementation plans .
• Start progressively to monitor and report: trends in energy use, cost and efficiency on a rolling three years basis, including in annual reports; on the performance of existing, new and refurbished facilities against respective KPIs, targets and benchmarks
• Review the extent to which sub-meters are being used for monitoring energy use in hospitals to identify gaps and develop funding options.
• Include energy management in chief executives performance agreements with the Ministry of Health.

To encourage investment in energy efficiency, NSW Treasury should by December 2013:

• Review, jointly with the Office of Environment and Heritage, the administrative arrangements for the Treasury Loan Fund to secure its continuation.
• Assist NSW Health to identify appropriate financing options for energy efficiency initiatives, including the existing Treasury Loan Fund, and ways to secure such funds.
• Assist NSW Health with approval processes to seek authorisation to draw down and spend outstanding loans from the Treasury Loan Fund in new financial years.
• Introduce flexible loan repayment options for the Treasury Loan Fund, such as delayed loan repayments where justified.

To encourage greater investment in energy efficiency and benchmarking of performance, the Office of Environment and Heritage should by December 2013:

• Review, jointly with NSW Treasury, the administrative arrangements for the Treasury Loan Fund to secure its continuation
• Allocate resources to a seed funding program for projects which could be potentially funded from the Treasury Loan Fund
• Review the administrative rules to enhance successful access to loans from the Treasury Loan Fund, including risk-based assessment and approval processes.
• Simplify key Treasury Loan Fund application documents and administrative processes Provide guidance and training on energy management
• Establish, in consultation with the Department of Finance and Services, a permanent panel of prequalified energy performance contractors, including contractors with expertise in health settings
• Require agencies to apply for loans from the Treasury Loan Fund for energy savings projects at set regular intervals, and introduce time standards for finalising the assessment of compliant applications.

To encourage greater investment in energy efficiency and benchmarking of performance, the Office of Environment and Heritage should by June 2014:

• Finalise the energy efficiency benchmarking tool for NSW hospitals

NOTE

The Treasury Loan Fund was set up in 1998 to provide low interest loans to general government budget dependent agencies to implement cost-effective energy and water efficiency projects. The NSW Office of Environment and Heritage administers and assesses agencies’ applications for loans from the fund to invest in those projects, and recommends suitable projects to NSW Treasury for approval to access the fund

Conclusion

The Audit Office said that NSW Health had reduced its energy use by two per cent despite increases in hospital activity and had invested in cost-effective energy savings initiatives.

But it “did not meet its emissions reduction target in 2010–11 and, at the current rate, was unlikely to meet its 2013–14 target”.

“We conclude that NSW Health has not managed its building energy use as well as it intended.

“Over the same period, energy prices have increased significantly. Expenditure on energy in NSW Health increased by 47 per cent (nearly $39 million), despite a two per cent reduction in energy use.

“This increase was considerably faster than the increase in total health expenditure and activity. The price of energy over the next five years is expected to continue to rise. This makes the case for investment in energy efficiency measures stronger than ever.

“There are significant variations in energy efficiency across LHDs and hospitals. Some of these variations reflect buildings of different design, size and age, in different climate zones and running different services. Some will also reflect LHDs and hospitals with better energy management than others. The scale of the variations suggests there is scope for further improvement.

“The 2011 organisational restructure and other priorities of the LHDs delayed the development of NSW Health’s Environmental Sustainability Strategy and local plans. There has been progress recently. The strategy was completed in 2012; the LHD implementation plans are due in 2012-13.

“In the absence of a strategy and plans up until recently, energy efficiency measures have been limited in scope, and the available government investment funds have not been fully utilised. While it is too early to comment on the implementation plans being prepared by the LHDs, we can say that more work is needed in some critical areas if the strategy and plans are to translate into sustained improvement in energy efficiency.

“This work includes:

• an energy efficiency investment program
• more technical support to LHDs
• the right incentives to invest and manage energy costs.

“We conclude that planning to improve building energy use has not been as effective as it could be, so far. NSW Health reporting and evaluation of energy use and energy efficiency are under-developed. As a result, KPIs, targets and benchmarks are needed to identify scope for improvement and to monitor progress.”