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Nhs Trust Business Case - PDF


Nhs Trust Business Case document sample

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									               Royal National Orthopaedic Hospital NHS Trust

 Business Case for Salix Loan to Install a Waste Heat Recovery System

1.     Introduction

The purpose of this Business Case is to seek Trust Board approval to install a waste
heat recovery system to the Trusts main boiler house to reduce the Trust carbon
emissions and meet the Government mandatory target. The following sections set
out the context, project description and funding details.

2.     Context

2.1    NHS Carbon Reduction Strategy (CRC)

As the largest employer in Europe, the NHS has a key role to play in the drive to
tackle climate change and reduce carbon emissions. The NHS has an estimated
carbon footprint of 18 million tonnes CO2 per year. Despite an ongoing improvement
in efficiency, this figure has increased by 40% since 1990. The CRC strategy
establishes that the NHS should have a target of reducing its 2007 carbon footprint
by 10% by 2015. This will require the current level of growth of emissions to not only
be curbed, but the trend to be reversed and absolute emissions reduced

2.2    Impact of Carbon Trading

In April 2010, the CRC Energy Efficiency Scheme was launched. Participation in the
scheme is mandatory for any organisation with at least one half-hourly electricity
meter settled on the half-hourly market and total half-hourly electricity consumption of
at least 6,000MWh. The Trust will be covered by the scheme and will have to buy
emissions allowances/carbon credits in an auction at the beginning of the year to
cover their estimated emissions for the year ahead. If emissions exceed these
allowances, the Trust will have to buy additional allowances on a secondary market
or through a government run ‘safety valve’ mechanism.

The first auction is in April 2011. All the money collected in the sale of allowances is
recycled back to participants. Each organisation’s recycling payment is determined
by the total pot available, its proportion of the total emissions in the baseline year
(2010/11 for introductory phase) and a bonus/penalty based on ranking in a
performance league table.

Finance will have a clear role in understanding the financial implications of this
scheme as it develops and accounting for payments and receipts arising from the
purchase and sale of allowances and from the recycling payment scheme. There will
also be a role for finance in the trading of allowances as this develops.

A Trusts performance in relation to carbon will be monitored by the auditor’s
evaluation such as ALE which in turn feeds into the Care Quality Commission’s
annual health check. Therefore, increasingly the actions being taken by NHS bodies
to address environmental issues will have an impact on assessment.

2.3       Government Funding

The Government announced in the 2009 Budget an allocation of £65m across the UK
for investment in energy saving projects in the public sector. To support this
£51million of this amount is available for (interest free) 100% loans to fund energy
saving projects through a non profit making company called Salix. Salix is an
independent, publicly funded company set up to accelerate public sector investment
in energy efficiency technologies through invest-to-save scheme. The loan, is
matched by the Trust and repaid from the financial savings attributed to the
reductions in energy consumption.

The Trust has been invited to join the scheme due to cancellations of other
schemes; this effectively makes us one of the last participants. Previously the
Trust was not eligible for funding due to uncertainty over its future at

3.        Trust Existing Energy Consumption

Utilising 2009/10 energy data from various meter readings, the consumption data for
the RNOH Stanmore energy footprint is illustrated in the table below:

                                      kWh         Tonnes/CO2       Tonnes/Carbon

 Total Energy Consumed:          26,872,281.0       7,111.6             1,941.3

Based on the above current consumption figures the Trust would be liable to pay in
the region of £23,296 per annum to the Department of the Environment under the
Carbon Reduction Commitment (CRC). This amount will undoubtedly soar as the
carbon footprint targets increase over the coming years. The Trusts current main
boilers send approximately 20% or more of their consumed energy out of the flues
with very little of the heat being returned after transmission losses.

4.        Description of the Waste Heat Recovery System

The FLU-ACE® waste heat recovery system has been identified as the most efficient
system for the Trust to install onto the primary steam main boilers that feed the site.
The system was designed by Kemco Inc in Florida, USA using technology developed
during the last oil crises. The technology has been refined and improved resulting in
the state of the art technology that no alternative supplier can match. The FLU
ACE® system recovers waste heat energy from the flue gas exhaust generated from
the boilers. The recovered “free” energy can be utilised for boiler feed water pre-
heating and winter for space heating. The boilers have an anticipated life span of
seven years. The project is a total turnkey installation, installed and commissioned
before project handover and delivery is 12 to 14 weeks.

5.        Benefits

The system provides the following key benefits:

      •   The system will reduce the boiler exhaust temperature in the flue from
          potentially 160ºC to 23ºC which in turn increases its efficiency.

      •   Boiler feed temperature increases.

      •   Annual financial savings.

     •   Reduced carbon emissions

     •   Rapid return on investment.

6.       Financial Implications

On approval of this Business Case and following the Trust signing the agreement
with Salix the funds are transferred into the Trusts bank account. Thereafter the
Trust then uses this money to make the payments to GEM the manufacturer of the
FLU-ACE® waste heat recovery system.

The table below shows the initial costs, payment conditions and carbon savings:

 Total Price delivered to site          £160,908.00
 Installation pipe-work and electrics   £ 97,000.00
 Commissioning                          £ 3,000.00
 Total Contract Price                   £260,908.00*

 Annual Savings                         £69,344.00
 Payback                                3.76 years
 Carbon saving per annum                = 167 Tonnes (8.8% reduction in Carbon)

* Note: All costs exclude VAT

The Trust draws down the loan to cover the payments which is 35% payment on
order and 65% against shipping documents. Thereafter the value of the loan from
Salix is repaid over circa 4 years by 8 equal instalments with the first repayment due
at the start of March 2011 with the final payment in September 2014. Once the
project loan has been repaid to the fund the project recipient will continue to benefit
from the ongoing energy savings.

The table below illustrates the savings, repayment and payback period based on this
years gas prices.

7.       Recommendation

It is recommended that approval is given to sign the commitment letter agreement for
the loan from Salix Finance due to the following reasons:

     •   Enhance capital investment on site that is made available from the project for
         future energy reduction projects
     •   Reduce the Trusts carbon footprint – aiding the Trust to achieve the targets
         as set out in the Carbon Reduction Strategy
     •   Reduce the cost of energy bills
     •   Carbon emissions and other environmental performance data is becoming
         increasingly important. Not only is the accuracy of data important in
         assessing an organisation’s and the health service’s progress towards
         targets, but it will also impact on financial payments under the CRC Energy
         Efficiency Scheme’s performance regime.
     •   Trust has obtained an interest free loan from Salix.


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