GK Transformation were asked to support the Trust with the development of an Outline business case for a new Combined Heat and Power (CHP) plant.
This would incorporate;
- Combined heat and power plant complete with all components
- Two dual fuel boilers and all components
- Controls system compatible with existing energy centre controls
- Delivery, installation and commissioning of all plant and equipment
- Management and full maintenance of the energy system
The CHP plant required an investment of circa £1.9million but provided a payback within 7 years through savings in the Trust’s energy costs of circa £370k per annum (subject to procurement route). Various options were considered in relation to the funding, Private Sector Finance would enable the Trust to avoid capital expenditure, albeit with an associated reduction in the consequential revenue savings to the Trust.
The CHP plant would have an estimated life of 15 years, after which the Trust would have the option to replace the CHP plant or adopt an even more energy efficient solution as technologies continually improve and become ever more economically viable.
The resultant proposal was consistent with the Trust’s wider redevelopment plans which did not include any energy generation proposals, whilst maintaining the Trust’s options for implementing other “Green” energy proposals, such as solar, wind and geothermal power, in relation to any further developments.
The business case was consistent with Trust, NHS, Government and International policy with regard to;
- Energy management
- Sustainable development
- Environmental protection
- Pollution control
- Climate change
- Carbon Reduction Commitment
Specifically, the CHP plant proposal was designed to assist the Trust to meet its obligations in respect of;
- The Environmental Protection Act 1990 (EPA)
- The Climate Change Act 2008
- Securing the future, Delivering UK Sustainable Development Strategy: 2005
- Saving Carbon – Improving Health Good Corporate Citizen model
- BREEAM Healthcare
- Carbon Reduction Commitment (CRC)
The business case included a full analysis of comparative energy costs against peer Trusts within the NHS and provided a number of clear, measurable objectives and outcomes;
- Carbon Reduction commitment achieved
- Energy savings of £370,000 per annum (subject to financing route)
- Ability to comply with BREEAM requirements for Phase 2 and Phase 4 of OCH
- Reduction in backlog maintenance costs of £320,000
In addition to meeting the typical requirements of any business case (strategic fit, timetable for implementation, options appraisal, risk/benefit analysis) our analysis included a full sensitivity analysis of energy demand and market prices.
The financial analysis included a full public sector cost comparator incorporating both revenue and capital costs. The OBC contained an economic and I&E analysis of the financial implications of the CHP project. This analysis showed that in relation to the preferred option, for a capital investment of £1,840,000 savings of £377,000 (before capital charges) were identified, giving a return on investment of 13.92%. In addition to a full economic analysis, the business case also considered three main options for procuring the CHP scheme:
- Funding the scheme through private funding (ESCO)
- Funding the enabling costs for a CHP through Trusts funds but funding the actual CHP through an operating lease
- Funding the scheme from Trust funds
On the basis of the analysis the Trust was advised to deliver the CHP though the ESCO option which had the least impact on the Trust’s immediate cash position and delivered the CHP through a well-developed arrangement with little risk. The Trust as part of this development needed to apply to monitor to extend its PBL to cover this additional investment.
The recommendation from the OBC was approved by the Trust’s Executive Committee and presented to the Finance and Performance Committee. Ultimately the business case then progressed to OJEU with a view to commence competitive dialogue.