TRUST BOARD – 26 May 2010 Combined Heat and Power Outline ... · Combined Heat and Power Outline Business Case ... 1. Introduction ... with the Trust’s Strategy as set out in

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defAgenda item: 10

TRUST BOARD – 26th May 2010

Combined Heat and Power Outline Business Case considered by the Finance & Performance Committee on 24 May 2010

PURPOSE: The OBC sets out the Trust’s plans to meet its carbon reduction commitment for 2015 whilst delivering significant energy savings and reducing backlog maintenance.

Implications: Risks: Risks have been identified and are managed through the Project Board

and OCH Programme Board.

Financial: The financial cost, financial and balance sheet treatments are discussed in the case - these will be clarified through the competitive dialogue process

Human Resources: No implications at this stage however this will need to be readdressed during the competitive dialogue stage / FBC

National Policy: NHS Carbon Strategy: Saving Carbon, Improving Lives, launched in January 2009, Climate Change Act, BREEAM

Links to Corporate Objectives:

To improve the quality of all aspects of our service

Legal:

The Trust will be the required to join an emissions trading scheme, the Carbon Reduction Commitment. The Trust will sign up to the trading scheme in advance of the deadline of 30th September 2010.

Other:

Phases two and four OCH are required to achieve a BREEAM excellent rating, the CHP enables us to achieve this.

Recommendations:

The Board is asked to consider this OBC for approval to enable the Trust to progress to the OJEU competitive dialogue process. Please note the balance sheet treatment is still to be resolved. The position will be finally clarified through the competitive dialogue process.

DIRECTOR: Director of Strategic Development PRESENTED BY: Director of Strategic Development AUTHOR: Head of Estates DATE: 14thth May 2010

Executive Summary CHP OBC Page 1 of 16 May 2010

EXECUTIVE SUMMARY

COMBINED HEAT & POWER PLANT

OUTLINE BUSINESS CASE

Division: Strategic Estates Divisional Chair name Richard Harman Project Director Dean Goodrum Confirmation of support from Divisional Chair:

1. Introduction Briefly set out the case and what benefits it will deliver. The case must be consistent with the Trust’s Strategy as set out in the Annual Plan and IBP

This document presents the Outline business case for a new Combined Heat and Power (CHP) plant, that 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 proposed CHP plant would burn gas to generate electricity (providing savings to the Trusts from the differential in gas and electricity costs) and recycle the waste heat (from the engine body and exhaust) to supplement the hospital’s heating and cooling systems (providing further savings through reducing the overall demand for thermal energy).

The CHP plant will require an investment of circa £1.9million but will provide a payback within 7 years through savings in the Trust’s energy costs or circa £370k per

ENGINE GENERATOR

COOLANT COOLER OIL COOLER

EXHAUST GAS HEAT EXCHANGER OR

WASTER HEAT BOILER HIGH TEMPERATURE HEATING CIRCUIT

ELECTRICAL POWER DISTRIBUTION VIA INTERFACE

LOW TEMPERATURE HEATING CIRCUITS OR DRY COOLLER

COMBUSTION AIR

FUEL


annum (subject to procurement route). Various options are being considered in relation to the funding, Private Sector Finance will 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 proposal is consistent with the Trust’s wider redevelopment plans (Phase 4 OBC) which do 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 main benefits from this proposal would be;

The main benefits of the installation of a Combined Heat & Power plant will be; • To assist the Trust in meeting its Carbon Reduction commitment for 2015

(reducing carbon emissions by 3,029 tonnes per annum – 14% reduction in carbon)

• To promote the on-going sustainable development of the site • Energy savings of circa £370,000 per annum enabling financial resources to be

released for clinical service provision • Ability to comply with BREEAM (a requirement for future capital investment – any

investment of over £2million requires an “excellent” BREEAM rating) • Reduction in backlog maintenance costs (£320,000) • Limited requirement for capital expenditure (according to financing route

selected) • No adverse impact upon the services provided to patients or the quality of clinical

care provided by the Trust as a consequence of this project. • No adverse impact upon service users, visitors, members of staff and other

divisions/departments within the Trust. The case is consistent with Trust's strategic development plan :

• The case is linked to the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs.

• The proposed CHP is one element of the overall masterplan strategy for the

whole Trust. A high level masterplan was formulated to support the DQHH business case process in 2007 and has subsequently been updated and will form the basis of a Lister site planning application.

• As part of the overall masterplan strategy, the site’s electricity network was to


be upgraded to cope with the increased load and provide secure supply. The Business Case was approved in 2009 with works currently on site, having been designed anticipating the introduction of a CHP in terms of equipment controls and space.

The proposal will support the Trust in achieving some of its key organisational objectives through; • Reducing carbon emissions and also reducing the Trust’s carbon footprint by on

site electricity generation; all in accordance with the Carbon and Energy Strategy approved by the Board in June 2009. The Trust is registering with the CRC from August 2010 and the CHP proposal will assist the Trust to reduce its carbon emissions by 3,029 tonnes per annum (14%)

• Providing revenue savings from the Trust’s overhead expenditure, whilst

avoiding any demands upon the Trust’s capital programme (assuming a Private Sector Finance option is selected)

• Allowing for the replacement of outdated and inefficient boiler systems and

allowing a reduction in backlog maintenance costs of £320,000)

2. The Case The 2.1 Patient Needs Outline the clinical quality case for the investment in the box below Case The CHP project will support a number of clinical and financial challenges which the Trust faces; • By reducing expenditure on energy, it will release financial resources enabling

investment in the Trust’s core clinical services • By reducing the Trust’s Carbon emissions, it will enable the Trust to meet its

carbon reduction target for 2015 • By replacing a number of outdated, inefficient boilers it will enable the Trust to

reduce the level of its backlog maintenance, again releasing financial resources

2.2 Market Opportunity Outline Trust and competitor analysis of current service. National / local policy drivers (PCT, PBC, Network commissioning intentions).

The case augments the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs. The case is 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 will 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)

When comparing the Trust’s energy costs with those of other NHS Trusts of similar size, the East & North Herts Trust has one of the highest overall energy costs. Reducing these costs will provide the Trust with a competitive advantage.

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Opportunities exist at the present time to reduce the Trust’s overall energy usage and costs through the implementation of a CHP plant. The Department of Health now require, as part of an Outline Business Case approval, that all new builds achieve an “excellent” BREEAM rating and all refurbishments achieve a “very good” BREEAM rating. The installation of a CHP plant will ensure that the Trust meets this requirement. The health system has jointly developed the DQHH programme which delivers acute consolidation at the Lister Hospital. The specific phases of the consolidation are all fully supported by the PCT and it is understood that the CHP development is an integral enabling scheme to achieve the acute consolidation whilst contributing to the development of sustainable health services.


Furthermore, the East of England SHA, in approving the Trust’s Maternity Business Case, requires the Trust to have achieved a BREEAM for Health “Excellent” rating as a minimum for that development. The CHP development is an integral part of the process in enabling the Trust to meet its commitment to the SHA.

2.3 Project Description – Provide details of the:

2.3.1 Project Objectives

The main objectives of the project and consequential benefits from this proposal would therefore be; • Enable the Trust to meet its Carbon Reduction commitment for 2015 (providing a

reduction of 3,029 tonnes of CO2 per annum) • Deliver energy savings of circa £370,000 per annum enabling financial resources

to be released for clinical service provision • Ability to comply with BREEAM (a requirement for future capital investment) • Reduction in backlog maintenance costs

2.3.2 Project Deliverables

• 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


2.3.3 Timetable for Realisation

Milestone Start Date End Date Outline Business Case Feb 2010 May 2010

Select finance and contractor/partner route

Apr 2010 Dec 2010

Performance Design documentation June 2010 Aug 2010

OJEU procedure for tendering partners June 2010

Pre Qualification Questionnaires – shortlisting

Sep 2010 Sep 2010

Competitive Dialogue Process Oct 2010 Dec 2010

Select two bidders Dec 2010 Dec 2010

Select Preferred Partner Jan 2011 Jan 2011

Prepare contract

Feb 2011 Mar 2011

Full Business Case June 2010 Feb 2011

FBC Approval & Financial Close Mar 2011 Mar 2011

Sign contract Mar 2011 Mar 2011

Equipment Design & Lead Time Apr 2011 Nov 2011

Installation Nov 2011 Feb 2012

Commissioning Feb 2012 Mar 2012

2.3.4 Measures of Success

The measures of success for this project are; • A significant milestone in enabling the Trust to show a reduction in its carbon

emissions and to achieve Government set targets - an estimated reduction of 14% in carbon emissions

• A reduction in the Trust’s overall energy expenditure, and specifically a

significant contribution to the elimination of penalty payments due to the present over use of electricity above Maximum Demand level by the Trust

• A reduction in the Trust’s backlog maintenance liabilities

• Provide a major instrument in the achievement for BREEAM (Building Research Establishment Environmental Assessment Method) level of excellent in the new developments including Phases 2 and 4 of the Trust’s “Our Changing Hospitals” plan. The Department of Health now require, as part of an Outline Business Case


approval, that all new builds achieve an “excellent” rating and all refurbishments achieve a “very good” rating.

3. Activity / Capacity & Operational Issues

3.1 Forecast activity (based on details assumption) for both NHS & PP activity

The CHP proposal takes account of the predicted activity associated with the Phase 4 development. Any increases in energy demand over and above that identified as part of the Phase 4 development will improve the overall efficiency of the CHP. However, reductions in future energy demand will have the potential to affect the viability of the CHP operation. Through discussions with manufacturer’s it has been advised that current CHP units can run efficiently at 80% load. The project team have carried out an initial assessment of the hospital’s energy consumption profiles over the last couple of years to establish an indicative CHP size based on current demand. However, with the large scale redevelopment proposed for the site it can be assumed that load will increase and therefore at this stage an estimated profile has been produced including a number of assumptions. These are: + Electrical maximum demand for 2015 based on Trust load schedule revision 7

dated November 2009, + Steam output figures for 2015 based on increased floor space calculations. Existing data has been extracted from the previously commissioned reports highlighted in the introduction and site ERIC (Estates Return Information Collection) reports. Guidance recommends that load profiles are based on a number of bands, with at least the following being considered. + Daytime + Night + Summer + Winter However the site at present does not have the metering capacity to provide this level of data and this is currently being reviewed by the Trust to enable this to be included within the Full Business Case. For the purpose of this OBC we have therefore identified monthly base load energy consumption figures for three years, as can be seen from the following table and graphs.


Year 2008(1) 2009(1) 2015

Month

E (kW) H (kW) E (kW) H (kW) E (kW)(5) H (kW) (2) (3)

January 811.6 -(4) 837.7 1,317.0 3,221.7 1,382.1 February 845.2 2,517.0 1,495.7 1,316.0 3,218.3 1,381.1 March 824.4 2,373.0 726.0 1,317.0 3,221.7 1,382.1 April 961.6 1,782.0 1,330.0 1,316.0 3,218.3 1,381.1 May 781.6 1,164.0 735.4 1,316.0 3,218.3 1,381.1 June - (4) 1,156.0 732.5 1,316.0 3,218.3 1,381.1 July 787.6 976.0 751.9 1,315.0 3,191.1 1,380.0 August 814.9 1,061.0 733.6 1,316.0 3,218.3 1,381.1 September 707.2 1,240.0 757.8 1,315.0 3,191.1 1,380.0 October 1,275.5 1,316.0 772.8 1,317.0 3,221.7 1,382.1 November 778.5 1,316.0 801.2 1,326.0 3,232.0 1,391.6 December 779.2 1,317.0 849.4 1,390.0 3,402.0 1,458.7

(1) Figures taken from Trust Optimal Monitoring System ISX (2) Estimated figures based on historical energy consumption per m2, (kWh).

2009 area based on 62,549m2, 2015 area based on 72,934m2 (3) Figures adjusted to include an efficiency factor of 10% to cover losses

associated with current boilers. (4) Figure shown on Trust Optimal Monitoring System not in line with all other

months and therefore error assumed (5) Figures based on Trust maximum demand projection figures for Phase 4 with

85% diversity.

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(Note: base load figure for electricity is that which will not be exceeded for 80% of the year and for heat (steam output) the minimum load during summer months) The best energy efficiency and carbon emissions performance can be seen from a CHP plant designed to meet the minimum base heat load requirements. It can be seen from the above working with the estimated 2015 figures that the base heat load is 1,380kW and therefore based on this a CHP plant sized in the region of 1.3MW would be suitable, therefore falling within the industry standard for a small scale system. However, consideration needs be given to the possibility that the CHP will be up and running ahead of 2015 and hence the estimated base load. Therefore, if we take the 2009 figures as being the base load the CHP unit would be running at approximately 95%. Through discussions with manufacturer’s it has been advised that current CHP units can run efficiently at 80% load and therefore the figures fall within this criteria. Sensitivity Analysis

The economic viability of the CHP is dependent upon its sizing. Whilst the previous sections have identified forecast levels of energy demand based upon the Trust’s planned developments and predicted levels of clinical activity, there remains a degree of uncertainty as to the precise sizing of the CHP unit at the present time. The project team have therefore considered the options for mitigating against a significant change in the Trust’s future energy demands. Impact of rise in clinical activity/new buildings on Lister site – will increase the efficiency of the unit and improve the payback period on the investment. Only a definite and significant rise in clinical activity would warrant increasing the size of the CHP.


Impact of fall in clinical activity resulting in closure of buildings on the Lister site – The CHP will operate efficiently at 80% of its design capacity/baseload. A 20% reduction in the Trust’s base load demand will result in an even greater reduction in clinical activity. Impact of additional “green” power generation initiatives – unlikely to have any impact upon the CHP, as these initiatives are mainly concerned with generation of electricity (CHP electricity generation will only account for circa 30% of total Trust requirement)

It would appear that only a major change to the Trust’s forecast future activity (reduction) would bring into the question the viability of the CHP project. In the event that this were to occur, should Phase 4 not proceed, the Trust would need to review the sizing of the CHP.

3.2 Summarise how the proposal will impact operationally, including impact on other divisions, services and patients

Service Users & Patients

There should be no effect on the Trust’s clinical activity as a result of the installation of the CHP plant. Energy supply will be maintained to users as at present. Similarly, there should be no impact upon the patients. The installation will comply with current electrical regulations and ensure full compliance with Health and Safety issues. Staff

There are no significant implications for the Trust’s workforce as a consequence of this proposal. There are no implications for any other staff employed by the Trust Other Departments/Divisions

There should be no impact upon other departments/divisions within the Trust. The project can be entirely managed within the resources of the Trust’s Estates function. The proposed location for the CHP is situated well away from clinical areas, therefore any noise pollution from the planned works would be negligible.

3.3 Risks – indicate key risks

The existing risk register established by the project team was used as the basis for an initial assessment. These risks were analysed to highlight the key project risks and to identify other risks that should be included for assessment. A further meeting of the project team together with key stakeholders was convened


to work through each of the risks in turn and to verify the risk assessment scoring. As a result of this process a number of additional risks were included on the risk register, which is shown at Appendix 12. Mitigating actions have been identified for the key risks and these have all been incorporated into the risk register, together with the assignment of a risk owner.

4. Financial Analysis

4.1 Overview

The economic benefit of installing a CHP unit arises out of the relationship between annual operating cost savings and capital outlay, the latter being dependant on the procurement method chosen as identified below. The annual cost savings must be sufficient to meet the requirements for return on the capital investment by the owners of the plant whether this is the Trust or an ESCO Contractor. Payback on a CHP scheme is defined as the period at the end of which the cumulative cost savings equal the capital cost. It is often referred to as ‘simple payback’ as it does not require any assumptions about the project in terms of timing, lifetime or interest rates. The only complication is whether it is measured from the beginning of the project or from commissioning / completion. This type of calculation method is widely accepted and used for this stage of a project however more detailed appraisals will need to be carried out as the project progresses at FBC stage. A CHP unit will provide energy cost savings per kWh due to the ability to generate power and utilise the heat released at a cost below imported power costs. These savings are obviously dependent upon the relative prices of fuel and power and moderated by the additional maintenance costs.

4.2 Capital Cost and funding source (Capital Programme, PPP, Fundraising)

Public Sector Cost Comparator The project team have requested outline costs from a number of potential suppliers. To date, the most comprehensive cost estimates received have identified the following cost estimates in order to enable the construction of a Public Sector Cost Comparator. The capital value falls within the Trust’s delegated authority for approval (less than £8million)


Capital Costs Item Cost Estimate (Public Sector

Comparator) 1.3MW CHP £800,000 Waste Heat boiler associated with the CHP

£150,000

Distribution pipework to plantroom D1 (basement under tower block)

£250,000

Heat exchangers within plantroom D1 to suit CHP load

£50,000

Controls £50,000 Installation and builder’s work £320,000

Commissioning £50,000

Strip out of 3 x existing steam boilers and configuration of services

£80,000

2 x new gas fired boiler (approximate size 1.5MW each)

£90,000

Total – CHP Base system £1,840,000

Additional Optional Capital Costs

Item Cost Estimate (Public Sector Comparator)

Absorption Cooling associated with the above CHP, including any distribution pipework

£500,000

Total – Additional Costs £500,000

Maintenance Cost (Revenue)

Fully comprehensive 15 year cover £92,000.00 per year

Proposed Energy Savings Additional Expenditure on Gas (£890,000) Savings on Electricity £ 901,000 Savings on Heat Energy (Gas) £ 458,000 Net Saving (Cost) £ 469,000 The OBC contains an economic and I&E analysis of the financial implications of the CHP project (section 10). This analysis shows that in relation to the preferred option, for a capital investment of £1,840,000 savings of £377,000 (before capital charges) have been identified, giving a return on investment of 13.92%. The position in economic terms, allowing for non-recurrent costs is illustrated below; Investment £Capital Cost 1,840,000 Non-Recurrent Costs 140,000 Total Investment 1,980,000 Savings per annum 377,000 Economic return on investment 13.92%


Sensitivity to Future Energy Prices Key to the economic viability of the CHP proposal is the relationship between gas and electricity prices. The CHP proposal is viable because the price of electricity is so much greater than the prices of natural gas. If the relative price difference were to deteriorate in the future, it would bring into question the viability of the project. With this in mind the project team have sought projections of future energy costs. Each year the Department of Energy and Climate Change (DECC) publishes updated energy projections (UEPs), analysing and projecting future energy use and carbon dioxide emissions in the UK. The projections are based on assumptions of future economic growth, fossil fuel prices, UK population and other key variables. These projections, shown in the table below, are the most up to date and most reliable figures available. They are consistent with the most recent UK budget announcements and include all firm and funded environmental policy measures. They are used to inform energy policy and associated analytical work across Government departments. To best reflect prices obtained through large purchasing bodies such as PASA or OGC Buying Solutions (hence, the NHS procurement route) we should be looking at gas and electricity prices projected for the industrial sector.

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These forecasts indicate that not only will the price differential between electricity and gas be maintained, the difference in price will increase, further supporting the future viability of the CHP proposal.

Financing Options Appraisal

In summary there are three 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; a) Funding the Scheme through Private Funding The Trust has always assumed that the CHP would be procured through an ESCO arrangement, where a private sector contractor would design build and operate the CHP. This would avoid using restricted capital resources and potentially be off balance sheet, therefore not counting against the Trust’s Prudential Borrowing Limit. In determining the likely treatment of an ESCO type arrangement a number of key factors lead to the conclusion that an ESCO scheme is likely to be on balance sheet and to lead to the Trust requiring to pay for the asset and hence the arrangement would count against the Trust’s PBL. These are as follows: • The Trust is likely to have to guarantee a level of energy to the CHP

contractor; • It is unlikely that the CHP contractor would sell on energy to other customers

(particularly not NHS customers); • The CHP contractor would deliver the scheme on request of the Trust rather

than independently; The Trust would in effect be paying for the asset through the additional cost of the energy provided to the Trust. It is unlikely that the Trust could deliver a scheme through an ESCO which did not reflect these factors and give an off balance sheet position. The CHP scheme is anticipated to deliver significant savings to the Trust (£370,000 per annum before capital related costs, potentially circa £170,000 after capital related costs are accounted for) and the ESCO contract could be set up so that the Trust buys gas through HSMC and sells it on to the private sector contractor. These elements would have an impact on the key financial ratios that are used in defining the Trust’s Prudential Borrowing Limit, which would be expected to increase as a result of the CHP. Developing the scheme through ESCO also helps manage the Trust’s cash position and would not be threatened by any unavailability of treasury capital. HM Treasury currently requires government departments to budget for PFI and similar arrangements according to their treatment in the National Accounts. This divergence is unique to PFI and follows European System of Accounts 95 (“ESA 95”), the European rules that dictate how member states should prepare their national accounts to ensure consistency of preparation across the EC. As a result, PFI contracts likely to be accounted for as on-balance sheet may be budgeted for as off balance sheet. However Foundation Trusts must continue to score PFI schemes accounted for as on balance sheet against their PBL even if HM Treasury might budget for them as off balance sheet. Position on ESA 95 b) Funding the enabling costs for a CHP through Trusts funds but funding the actual CHP through an operating lease. In this option the Trust would look to disaggregate the costs of the CHP into two parts. The enabling costs to enable a CHP plant to be installed would be funded by


the Trust (circa £1 million) , the actual CHP itself would be installed by a private contractor. The same financial arrangements as the ESCO would be made, although the price of fuel would potentially be cheaper as the contractor would have to cover a smaller amount of capital outlay. This would have the affect of only 50% of the total capital cost initially hitting the Trust’s Prudential Borrowing Limit. However it would be dependent on the contractor charging a lease cost which was less than 85% of the value of the asset to ensure that the asset was treated as an operating lease and off balance sheet. Therefore the Trust would need to make a careful judgement on the life of the contract (by necessity less than the life of the asset, possibly 5 years) to ensure the most cost effective financial arrangement and an off balance sheet position. It is extremely likely that new accounting guidance will be introduced in the next 2 to 3 years which will mean that in future all leases will be treated as finance leases and therefore on balance sheet. However there is likely to be dispensation for NHS Trusts which allows for this change in accounting policy in relation to the future calculation of its PBL. This option would still rely on investment from the Trust’s internal resources of circa £1 million c) Funding the scheme from Trust funds; The Trust could look to fund the CHP from its own resources, this will generate a better revenue position (circa £300k per annum savings after capital charges) but relies on the Trust finding £2 million capital. The PBL is unlikely to be improved in this option, as the income for the Trust will not increase. Impact Upon the Trust’s Prudential Borrowing Limit All the options stated above, will put pressure on the Trust’s prudential borrowing limit. However as a result of the investment the Trust will be stronger financially, and therefore a strong case could be put to Monitor to extend the Trust’s PBL to cover this essential investment. This would allow the Trust to consider each of the options in relation to the one that delivers the best financial position rather than the one that delivers the least impact on the Trust’s PBL. Preferred Financing Option On the basis of the analysis the Trust should look to deliver the CHP though option 1 which has least impact on the Trust’s immediate cash position and delivers the CHP through a well developed arrangement with little risk. The Trust, as part of this development, should apply to Monitor to extend its PBL to cover this additional investment. Conclusion

The above analysis shows that the investment in the CHP delivers savings over and above the cost of the investment. The size of the unit is considered to be optimal for the level of demand anticipated over the next fifteen years. With a payback period of less than seven years, the proposed CHP project will provide the Trust with savings of circa £1.8million over a 10 year period and with a life expectancy of 15 years in total, the CHP provides a potential saving of circa


£3.7million over the lifetime of the asset.

Recommendation

In conclusion, you are recommended to approve this outline business case to implement a Combined Heat & Power Plant for the Lister Hospital. This will then allow the project team to progress with the OJEU process with a view to commencing competitive dialogue. Please note the balance sheet treatment issue is still to be resolved and work with PWC on this will be clarified in June 2010. However it is likely that the position will finally be clarified through the competitive dialogue process, at a later stage.

Executive Committee outcome (taken from minutes of the meeting)

When complete please send to: Victoria Fisher Trust Secretary Richard Harman Director of Strategic Estates Dean Goodrum Capital Development Manager Barbara Jenkins Assistant Director Clinical

Reconfiguration Stephen Posey Director of Strategic Development John Sloan Deputy Director of Finance

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OUR CHANGING HOSPITALS

COMBINED HEAT & POWER PLANT (CHP)


MAY 2010

LISTER HOSPITAL

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CHP OBC Page 2 of 77 May 2010

CONTENTS

1. EXECUTIVE SUMMARY 5

2. INTRODUCTION 21

2.1 Overview 21

2.2 Objectives 21

2.3 Benefits of Preferred Option 22

2.4 Business Case Process 22

2.5 PCT and SHA Support 23

3. STRATEGIC CONTEXT 24

3.1 Local Context – DQHH 24

3.2 National Context 25

3.3 Competitive Position of the Trust 26

3.4 Trust underlying Strategy (masterplanning) 27

4. CASE FOR CHANGE 29

4.1 Introduction 29

4.2 The Current Position and Existing Facilities 29

4.3 The Current Position - Carbon Emissions & Sustainability 33

4.4 The Current Position - BREEAM Healthcare 34

4.5 Project Scope 35

5. ACTIVITY MODELLING AND OUTCOMES 36

5.1 DQHH Modelling Assumptions 36

5.2 Current & Forecast Energy Consumption 36

5.3 Future Demand Projections - Sensitivity Analysis 38

5.4 CHP Sizing and Requirements 38

6. WORKFORCE PLANNING AND DEVELOPMENT 40

7. FORMULATION OF OPTIONS 41

7.1 Introduction 41

7.2 Renewable Energy Options 41

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7.3 Combined Heat & Power Plant Options 41

7.5 Option Appraisal 45

8. FINANCING OPTIONS 46

8.1 Introduction 47

8.2 Financing Options Appraisal Update at end when we have TP/PWC update 47

8.3 Preferred Financing Option 49

9. PREFERRED OPTION 50

9.1 Introduction 50

9.2 Recommended System Proposal 52

9.3 Outline Design & Location (Estate Solution) 52

9.4 Dedicated Waste Heat Boiler 52

9.5 Supporting Services Requirements & Solutions 53

9.6 Lifecycle and on-going Maintenance – Financial 54

9.7 Fit with Estates Strategy/masterplanning 54

9.8 Implementation 54

9.9 Implications for Service Users, Patients and Staff 54

9.10 Benefits 55

10. FINANCIAL APPRAISAL 56

10.1 Introduction 56

10.2 Current Financial Position 56

10.3 Baseline Revenue Costs 56

10.4 Proposed Costs 57

10.5 Proposed Energy Savings 58

10.6 Public Sector Comparator 59

10.7 Grants, Loans & Other Funding Support 61

10.8 Carbon Reduction Commitment (CRC) 61

10.9 Sensitivity Analysis 61

10.10 Return on Investment 63

10.11 Overall Affordability 63

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10.12 Conclusion 63

11. RISK ASSESSMENT AND MANAGEMENT 64

11.1 Risk Assessment Methodology 64

11.2 Risk Identification & Assessment 64

11.3 Risk Monitoring 64

11.5 Risk Management Plan 64

12. PROGRAMME AND PROJECT MANAGEMENT 65

12.1 Project Structure 65

12.2 Key Personnel 66

12.3 Project Timetable 67

12.4 Post-Project Evaluation (PPE) 67

13. PLANT & EQUIPMENT STRATEGY 70


13.2 Manufacturers 70

13.3 Legislative Considerations 70

13.4 Environmental Considerations 70

13.5 Conclusions 71

14. PROCUREMENT STRATEGY 72


14.2 Procurement Strategy 73

14.3 Procurement Schedule 73

14.4 Risk 73

15. BENEFITS REALISATION 75


15.2 Objectives & Benefits 75

15.3 Benefits Realisation Plan 75

16. CONCLUSIONS AND RECOMMENDATIONS 77

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1. EXECUTIVE SUMMARY EXECUTIVE SUMMARY

COMBINED HEAT & POWER PLANT - OUTLINE BUSINESS CASE

Division: Strategic Estates Divisional Chair name Richard Harman Project Director Dean Goodrum Confirmation of support from Divisional Chair:

1. Introduction Briefly set out the case and what benefits it will deliver. The case must be consistent with the Trust’s Strategy as set out in the Annual Plan and IBP

This document presents the Outline business case for a new Combined Heat and Power (CHP) plant, that 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 proposed CHP plant would burn gas to generate electricity (providing savings to the Trusts from the differential in gas and electricity costs) and recycle the waste heat (from the engine body and exhaust) to supplement the hospital’s heating and cooling systems (providing further savings through reducing the overall demand for thermal energy).

The CHP plant will require an investment of circa £1.9million but will provide a payback within 7 years through savings in the Trust’s energy costs or circa £370k per annum (subject to procurement route). Various options are being considered in relation to the funding, Private Sector Finance will enable the Trust to avoid capital

ENGINE GENERATOR


EXHAUST GAS HEAT EXCHANGER OR

WASTER HEAT BOILER HIGH TEMPERATURE HEATING CIRCUIT



COMBUSTION AIR

FUEL

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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 proposal is consistent with the Trust’s wider redevelopment plans (Phase 4 OBC) which do 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 main benefits from this proposal would be;

The main benefits of the installation of a Combined Heat & Power plant will be; • To assist the Trust in meeting its Carbon Reduction commitment for 2015

(reducing carbon emissions by 3,029 tonnes per annum – 14% reduction in carbon)

• To promote the on-going sustainable development of the site • Energy savings of circa £370,000 per annum enabling financial resources to be

released for clinical service provision • Ability to comply with BREEAM (a requirement for future capital investment – any

investment of over £2million requires an “excellent” BREEAM rating) • Reduction in backlog maintenance costs (£320,000) • Limited requirement for capital expenditure (according to financing route

selected) • No adverse impact upon the services provided to patients or the quality of clinical

care provided by the Trust as a consequence of this project. • No adverse impact upon service users, visitors, members of staff and other

divisions/departments within the Trust. The case is consistent with Trust's strategic development plan :

• The case is linked to the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs.

• The proposed CHP is one element of the overall masterplan strategy for the

whole Trust. A high level masterplan was formulated to support the DQHH business case process in 2007 and has subsequently been updated and will form the basis of a Lister site planning application.

• As part of the overall masterplan strategy, the site’s electricity network was to

be upgraded to cope with the increased load and provide secure supply. The Business Case was approved in 2009 with works currently on site, having

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been designed anticipating the introduction of a CHP in terms of equipment controls and space.

The proposal will support the Trust in achieving some of its key organisational objectives through; • Reducing carbon emissions and also reducing the Trust’s carbon footprint by on

site electricity generation; all in accordance with the Carbon and Energy Strategy approved by the Board in June 2009. The Trust is registering with the CRC from August 2010 and the CHP proposal will assist the Trust to reduce its carbon emissions by 3,029 tonnes per annum (14%)

• Providing revenue savings from the Trust’s overhead expenditure, whilst

avoiding any demands upon the Trust’s capital programme (assuming a Private Sector Finance option is selected)

• Allowing for the replacement of outdated and inefficient boiler systems and

allowing a reduction in backlog maintenance costs of £320,000)

2. The Case

2.1 Patient Needs Outline the clinical quality case for the investment in the box below

The CHP project will support a number of clinical and financial challenges which the Trust faces; • By reducing expenditure on energy, it will release financial resources enabling

investment in the Trust’s core clinical services • By reducing the Trust’s Carbon emissions, it will enable the Trust to meet its

carbon reduction target for 2015 • By replacing a number of outdated, inefficient boilers it will enable the Trust to

reduce the level of its backlog maintenance, again releasing financial resources

2.2 Market Opportunity Outline Trust and competitor analysis of current service. National / local policy drivers (PCT, PBC, Network commissioning intentions).

The case augments the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs. The case is consistent with Trust, NHS, Government and International policy with regard to;

• Energy management • Sustainable development • Environmental protection • Pollution control • Climate change

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• Carbon Reduction Commitment Specifically, the CHP plant proposal will 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)

When comparing the Trust’s energy costs with those of other NHS Trusts of similar size, the East & North Herts Trust has one of the highest overall energy costs. Reducing these costs will provide the Trust with a competitive advantage.


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Opportunities exist at the present time to reduce the Trust’s overall energy usage and costs through the implementation of a CHP plant. The Department of Health now require, as part of an Outline Business Case approval, that all new builds achieve an “excellent” BREEAM rating and all refurbishments achieve a “very good” BREEAM rating. The installation of a CHP plant will ensure that the Trust meets this requirement. The health system has jointly developed the DQHH programme which delivers acute consolidation at the Lister Hospital. The specific phases of the consolidation are all fully supported by the PCT and it is understood that the CHP development is an integral enabling scheme to achieve the acute consolidation whilst contributing to the development of sustainable health services. Furthermore, the East of England SHA, in approving the Trust’s Maternity Business Case, requires the Trust to have achieved a BREEAM for Health “Excellent” rating as

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a minimum for that development. The CHP development is an integral part of the process in enabling the Trust to meet its commitment to the SHA.

2.3 Project Description – Provide details of the:

2.3.1 Project Objectives

The main objectives of the project and consequential benefits from this proposal would therefore be; • Enable the Trust to meet its Carbon Reduction commitment for 2015 (providing a

reduction of 3,029 tonnes of CO2 per annum) • Deliver energy savings of circa £370,000 per annum (before capital charges and

financing costs) enabling financial resources to be released for clinical service provision

• Ability to comply with BREEAM (a requirement for future capital investment) • Reduction in backlog maintenance costs

2.3.2 Project Deliverables

• Carbon Reduction commitment achieved • Energy savings of £370,000 per annum (before capital charges and financing

costs) • Ability to comply with BREEAM requirements for Phase 2 and Phase 4 of OCH • Reduction in backlog maintenance costs of £320,000

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2.3.3 Timetable for Realisation



Apr 2010 Dec 2010




Sep 2010 Sep 2010




Prepare contract

Feb 2011 Mar 2011







2.3.4 Measures of Success

The measures of success for this project are; • A significant milestone in enabling the Trust to show a reduction in its carbon

emissions and to achieve Government set targets - an estimated reduction of 14% in carbon emissions

• A reduction in the Trust’s overall energy expenditure, and specifically a

significant contribution to the elimination of penalty payments due to the present over use of electricity above Maximum Demand level by the Trust

• A reduction in the Trust’s backlog maintenance liabilities

• Provide a major instrument in the achievement for BREEAM (Building Research Establishment Environmental Assessment Method) level of excellent in the new developments including Phases 2 and 4 of the Trust’s “Our Changing Hospitals”

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plan. The Department of Health now require, as part of an Outline Business Case approval, that all new builds achieve an “excellent” rating and all refurbishments achieve a “very good” rating.

3. Activity / Capacity & Operational Issues

3.1 Forecast activity (based on details assumption) for both NHS & PP activity

The CHP proposal takes account of the predicted activity associated with the Phase 4 development. Any increases in energy demand over and above that identified as part of the Phase 4 development will improve the overall efficiency of the CHP. However, reductions in future energy demand will have the potential to affect the viability of the CHP operation. Through discussions with manufacturer’s it has been advised that current CHP units can run efficiently at 80% load. The project team have carried out an initial assessment of the hospital’s energy consumption profiles over the last couple of years to establish an indicative CHP size based on current demand. However, with the large scale redevelopment proposed for the site it can be assumed that load will increase and therefore at this stage an estimated profile has been produced including a number of assumptions. These are: + Electrical maximum demand for 2015 based on Trust load schedule revision 7

dated November 2009, + Steam output figures for 2015 based on increased floor space calculations. Existing data has been extracted from the previously commissioned reports highlighted in the introduction and site ERIC (Estates Return Information Collection) reports. Guidance recommends that load profiles are based on a number of bands, with at least the following being considered. + Daytime + Night + Summer + Winter However the site at present does not have the metering capacity to provide this level of data and this is currently being reviewed by the Trust to enable this to be included within the Full Business Case. For the purpose of this OBC we have therefore identified monthly base load energy consumption figures for three years, as can be seen from the following table and graphs.

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Year 2008(1) 2009(1) 2015

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(1) Figures taken from Trust Optimal Monitoring System ISX (2) Estimated figures based on historical energy consumption per m2, (kWh).

2009 area based on 62,549m2, 2015 area based on 72,934m2 (3) Figures adjusted to include an efficiency factor of 10% to cover losses

associated with current boilers. (4) Figure shown on Trust Optimal Monitoring System not in line with all other

months and therefore error assumed (5) Figures based on Trust maximum demand projection figures for Phase 4 with

85% diversity.

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(Note: base load figure for electricity is that which will not be exceeded for 80% of the year and for heat (steam output) the minimum load during summer months) The best energy efficiency and carbon emissions performance can be seen from a CHP plant designed to meet the minimum base heat load requirements. It can be seen from the above working with the estimated 2015 figures that the base heat load is 1,380kW and therefore based on this a CHP plant sized in the region of 1.3MW would be suitable, therefore falling within the industry standard for a small scale system. However, consideration needs be given to the possibility that the CHP will be up and running ahead of 2015 and hence the estimated base load. Therefore, if we take the 2009 figures as being the base load the CHP unit would be running at approximately 95%. Through discussions with manufacturer’s it has been advised that current CHP units can run efficiently at 80% load and therefore the figures fall within this criteria. Sensitivity Analysis

The economic viability of the CHP is dependent upon its sizing. Whilst the previous sections have identified forecast levels of energy demand based upon the Trust’s planned developments and predicted levels of clinical activity, there remains a degree of uncertainty as to the precise sizing of the CHP unit at the present time. The project team have therefore considered the options for mitigating against a significant change in the Trust’s future energy demands. Impact of rise in clinical activity/new buildings on Lister site – will increase the efficiency of the unit and improve the payback period on the investment. Only a definite and significant rise in clinical activity would warrant increasing the size of the CHP.

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Impact of fall in clinical activity resulting in closure of buildings on the Lister site – The CHP will operate efficiently at 80% of its design capacity/baseload. A 20% reduction in the Trust’s base load demand will result in an even greater reduction in clinical activity. Impact of additional “green” power generation initiatives – unlikely to have any impact upon the CHP, as these initiatives are mainly concerned with generation of electricity (CHP electricity generation will only account for circa 30% of total Trust requirement) It would appear that only a major change to the Trust’s forecast future activity (reduction) would bring into the question the viability of the CHP project. In the event that this were to occur, should Phase 4 not proceed, the Trust would need to review the sizing of the CHP.

3.2 Summarise how the proposal will impact operationally, including impact on other divisions, services and patients

Service Users & Patients

There should be no effect on the Trust’s clinical activity as a result of the installation of the CHP plant. Energy supply will be maintained to users as at present. Similarly, there should be no impact upon the patients. The installation will comply with current electrical regulations and ensure full compliance with Health and Safety issues. Staff

There are no significant implications for the Trust’s workforce as a consequence of this proposal. There are no implications for any other staff employed by the Trust Other Departments/Divisions

There should be no impact upon other departments/divisions within the Trust. The project can be entirely managed within the resources of the Trust’s Estates function. The proposed location for the CHP is situated well away from clinical areas, therefore any noise pollution from the planned works would be negligible.

3.3 Risks – indicate key risks

The existing risk register established by the project team was used as the basis for an initial assessment. These risks were analysed to highlight the key project risks and to identify other risks that should be included for assessment. A further meeting of the project team together with key stakeholders was convened to work through each of the risks in turn and to verify the risk assessment scoring. As a result of this process a number of additional risks were included on the risk register, which is shown at Appendix 12.

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Mitigating actions have been identified for the key risks and these have all been incorporated into the risk register, together with the assignment of a risk owner.

4. Financial Analysis

4.1 Overview

The economic benefit of installing a CHP unit arises out of the relationship between annual operating cost savings and capital outlay, the latter being dependant on the procurement method chosen as identified below. The annual cost savings must be sufficient to meet the requirements for return on the capital investment by the owners of the plant whether this is the Trust or an ESCO Contractor. Payback on a CHP scheme is defined as the period at the end of which the cumulative cost savings equal the capital cost. It is often referred to as ‘simple payback’ as it does not require any assumptions about the project in terms of timing, lifetime or interest rates. The only complication is whether it is measured from the beginning of the project or from commissioning / completion. This type of calculation method is widely accepted and used for this stage of a project however more detailed appraisals will need to be carried out as the project progresses at FBC stage. A CHP unit will provide energy cost savings per kWh due to the ability to generate power and utilise the heat released at a cost below imported power costs. These savings are obviously dependent upon the relative prices of fuel and power and moderated by the additional maintenance costs.

4.2 Capital Cost and funding source (Capital Programme, PPP, Fundraising)

Public Sector Cost Comparator The project team have requested outline costs from a number of potential suppliers. To date, the most comprehensive cost estimates received have identified the following cost estimates in order to enable the construction of a Public Sector Cost Comparator. The capital value falls within the Trust’s delegated authority for approval (less than £8million)

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Capital Costs Item Cost Estimate (Public Sector

Comparator) 1.3MW CHP £800,000 Waste Heat boiler associated with the CHP

£150,000

Distribution pipework to plantroom D1 (basement under tower block)

£250,000


£50,000




£80,000


£90,000



Item Cost Estimate (Public Sector Comparator)

Absorption Cooling associated with the above CHP, including any distribution pipework

£500,000




Proposed Energy Savings Additional Expenditure on Gas (£890,000) Savings on Electricity £ 901,000 Savings on Heat Energy (Gas) £ 458,000 Net Saving (Cost) £ 469,000 The OBC contains an economic and I&E analysis of the financial implications of the CHP project (section 10). This analysis shows that in relation to the preferred option, for a capital investment of £1,840,000 savings of £377,000 (before capital charges) have been identified, giving a return on investment of 13.92%. The position in economic terms, allowing for non-recurrent costs is illustrated below;

Investment £Capital Cost 1,840,000 Non-Recurrent Costs 140,000

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Total Investment 1,980,000 Savings per annum 377,000 Economic return on investment 13.92%

Sensitivity to Future Energy Prices Key to the economic viability of the CHP proposal is the relationship between gas and electricity prices. The CHP proposal is viable because the price of electricity is so much greater than the prices of natural gas. If the relative price difference were to deteriorate in the future, it would bring into question the viability of the project. With this in mind the project team have sought projections of future energy costs. Each year the Department of Energy and Climate Change (DECC) publishes updated energy projections (UEPs), analysing and projecting future energy use and carbon dioxide emissions in the UK. The projections are based on assumptions of future economic growth, fossil fuel prices, UK population and other key variables. These projections, shown in the table below, are the most up to date and most reliable figures available. They are consistent with the most recent UK budget announcements and include all firm and funded environmental policy measures. They are used to inform energy policy and associated analytical work across Government departments. To best reflect prices obtained through large purchasing bodies such as PASA or OGC Buying Solutions (hence, the NHS procurement route) we should be looking at gas and electricity prices projected for the industrial sector.


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These forecasts indicate that not only will the price differential between electricity and gas be maintained, the difference in price will increase, further supporting the future viability of the CHP proposal. Financing Options Appraisal

In summary there are three 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

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actual CHP through an operating lease. • Funding the scheme from Trust funds;

a) Funding the Scheme through Private Funding The Trust has always assumed that the CHP would be procured through an ESCO arrangement, where a private sector contractor would design build and operate the CHP. This would avoid using restricted capital resources and potentially be off balance sheet, therefore not counting against the Trust’s Prudential Borrowing Limit. In determining the likely treatment of an ESCO type arrangement a number of key factors lead to the conclusion that an ESCO scheme is likely to be on balance sheet and to lead to the Trust requiring to pay for the asset and hence the arrangement would count against the Trust’s PBL. These are as follows: • The Trust is likely to have to guarantee a level of energy to the CHP

contractor; • It is unlikely that the CHP contractor would sell on energy to other customers

(particularly not NHS customers); • The CHP contractor would deliver the scheme on request of the Trust rather

than independently; • The Trust would in effect be paying for the asset through the additional cost of

the energy provided to the Trust .It is unlikely that the Trust could deliver a scheme through an ESCO which did not reflect these factors and give an off balance sheet position. The CHP scheme is anticipated to deliver significant savings to the Trust (£370,000 per annum before capital related costs, potentially circa £170,000 after capital related costs are accounted for) and the ESCO contract could be set up so that the Trust buys gas through HSMC and sells it on to the private sector contractor. These elements would have an impact on the key financial ratios that are used in defining the Trust’s Prudential Borrowing Limit, which would be expected to marginally increase as a result of the CHP. Developing the scheme through ESCO also helps manage the Trust’s cash position and would not be threatened by any unavailability of treasury capital. Position on ESA 95 b) Funding the enabling costs for a CHP through Trusts funds but funding the actual CHP through an operating lease. In this option the Trust would look to disaggregate the costs of the CHP into two parts. The enabling costs to enable a CHP plant to be installed would be funded by the Trust (circa £1 million) , the actual CHP itself would be installed by a private contractor. The same financial arrangements as the ESCO would be made, although the price of fuel would potentially be cheaper as the contractor would have to cover a smaller amount of capital outlay. This would have the affect of only 50% of the total capital cost initially hitting the Trust’s Prudential Borrowing Limit. However it would be dependent on the contractor charging a lease cost which was less than 85% of the value of the asset to ensure that the asset was treated as an operating lease and off balance sheet. Therefore the Trust would need to make a careful judgement on the life of the contract (by

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necessity less than the life of the asset, possibly 5 years) to ensure the most cost effective financial arrangement and an off balance sheet position. It is extremely likely that new accounting guidance will be introduced in the next 2 to 3 years which will mean that in future all leases will be treated as finance leases and therefore on balance sheet. However there is likely to be dispensation for NHS Trusts which allows for this change in accounting policy in relation to the future calculation of its PBL. This option would still rely on investment from the Trust’s internal resources of circa £1 million c) Funding the scheme from Trust funds; The Trust could look to fund the CHP from its own resources, this will generate a better revenue position (circa £300k per annum savings after capital charges) but relies on the Trust finding £2 million capital. The PBL is unlikely to be improved in this option, as the income for the Trust will not increase. Impact Upon the Trust’s Prudential Borrowing Limit All the options stated above, will put pressure on the Trust’s prudential borrowing limit. However as a result of the investment the Trust will be stronger financially, and therefore a strong case could be put to Monitor to extend the Trust’s PBL to cover this essential investment. This would allow the Trust to consider each of the options in relation to the one that delivers the best financial position rather than the one that delivers the least impact on the Trust’s PBL. Preferred Financing Option On the basis of the analysis the Trust should look to deliver the CHP though option 1 which has least impact on the Trust’s immediate cash position and delivers the CHP through a well developed arrangement with little risk. The Trust, as part of this development, should apply to Monitor to extend its PBL to cover this additional investment. or look to fund through operational capital with the additional surpluses generated used to repay the capital programme over the following 5 years. Conclusion

The above analysis shows that the investment in the CHP delivers savings over and above the cost of the investment. The size of the unit is considered to be optimal for the level of demand anticipated over the next fifteen years. With a payback period of less than seven years, the proposed CHP project will provide the Trust with savings of circa £1.8million over a 10 year period and with a life expectancy of 15 years in total, the CHP provides a potential saving of circa £3.7million over the lifetime of the asset. Recommendation

In conclusion, you are recommended to approve this outline business case to implement a Combined Heat & Power Plant for the Lister Hospital. This will allow the project team to progress with the OJEU process with a view to commencing competitive dialogue.

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Please note the balance sheet treatment issue is still to be resolved and work with PWC on this will be clarified in June 2010. However it is likely that the position will finally be clarified through the competitive dialogue process, at a later stage.

Executive Committee outcome (taken from minutes of the meeting)

When complete please send to: Victoria Fisher Trust Secretary Richard Harman Director of Strategic Estates Dean Goodrum Capital Development Manager Barbara Jenkins Assistant Director Clinical

Reconfiguration Stephen Posey Director of Strategic Development John Sloan Deputy Director of Finance

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2. INTRODUCTION 2.1 Overview The Trust has previously agreed a Carbon and Energy strategy (June 2009), which included the development of a Combined Heat & Power Plant as a key part of the strategy to deliver the Trust’s objectives of reducing both its carbon emissions and the costs of its energy usage. This document presents the Outline business case for a new Combined Heat and Power (CHP) plant, that 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

This business case identifies a number of additional options that would be investigated further as the project progresses through the Full Business Case process, namely;

• The addition of absorption cooling • The outsourcing of the Trust’s electrical infrastructure maintenance (in whole or in

part) The proposed CHP plant would burn gas to generate electricity (providing savings to the Trust from the differential in gas and electricity costs) and recycle the waste heat (from the engine body and exhaust) to supplement the hospital’s heating systems (providing further savings through reducing the overall demand for thermal energy). The adoption of the absorption cooling option would allow the CHP to supplement the Trust’s cooling systems. The CHP plant will require an investment of circa £1.9million but will provide a payback within 7 years through savings in the Trust’s energy costs or circa £370k per annum (subject to finance route). Various options are being considered in relation to the funding, Private Sector Finance will 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 proposal is consistent with the Trust’s wider redevelopment plans (Phase 4 OBC) which do 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. 2.2 Objectives The objectives of the project are; • To reduce the Trust’s overall cost of energy by circa £370,000 per annum through;

• Reducing the reliance on the levels of imported electricity

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Executive Committee – 13th May 2010Finance and Performance Committee – 24th May 2010 Trust Board – 25th May 2010

• Eliminating penalty tariffs that apply when more energy is demanded than is contracted for

• To reduce the Trust’s carbon emissions by 14%, thereby enabling the Trust to meet its

2015 Carbon Reduction target. • To achieve a BREEAM rating of “excellent” • To ensure minimal disruption to the Hospital during installation • To achieve the above objectives whilst integrating the construction activities with the

other developments being carried out under OCH. 2.3 Benefits of Preferred Option The main benefits of the installation of a Combined Heat & Power plant will be; • To assist the Trust in meeting its Carbon Reduction commitment for 2015 (reducing

carbon emissions by 3,029 tonnes per annum) • To promote the on-going sustainable development of the site • Energy savings of circa £370,000 per annum enabling financial resources to be released

for clinical service provision • Ability to comply with BREEAM (a requirement for future capital investment – any

investment of over £2million requires an “excellent” BREEAM rating) • Reduction in backlog maintenance costs • Limited requirement for capital expenditure (according to financing route selected) • No adverse impact upon the services provided to patients or the quality of clinical care

provided by the Trust as a consequence of this project. • No adverse impact upon service users, visitors, members of staff and other

divisions/departments within the Trust. 2.4 Business Case Process The Business Case follows a pre-designated development and approval process. The OBC document has been produced by a dedicated project team from within the Strategic Development and Estates Directorates of the East & North Hertfordshire NHS Trust. This Business Case follows from the approval of the Trust’s Carbon and Energy Strategy (June 2009). The approval process for the OBC is as outlined below;

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Furthermore, the East of England SHA, in approving the Trust’s Maternity Business Case, requires the Trust to have achieved a BREEAM for Health “Excellent” rating as a minimum for that development. The CHP development is an integral part of the process in enabling the Trust to meet its commitment to the SHA.

The methodology used to produce this OBC is based on the Capital Investment Manual (CIM) published by the NHS Executive.

2.5 PCT and SHA Support The health system has jointly developed the DQHH programme which delivers acute consolidation at the Lister Hospital. The specific phases of the consolidation are all fully supported by the PCT and it is understood that the CHP development is an integral enabling scheme to achieve the acute consolidation whilst contributing to the development of sustainable health services.

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3. STRATEGIC CONTEXT 3.1 Local Context – DQHH The case augments the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs. In September 2006, the East of England Strategic Health Authority (SHA) asked the East & North Hertfordshire PCT to review the underlying assumptions of Investing In Your Health (IIYH) and particularly the affordability of the proposed new hospital at Hatfield. It was concluded through financial appraisal that this option was no longer affordable. Following this decision an Acute Services Review (ASR) was initiated to identify the options for the future delivery of health care in Hertfordshire. This work culminated in the production of a business case for the DQHH in June 2007. This business case showed that consolidation of acute services at the Lister Hospital over QEII Hospital as the preferred option for several reasons:

• quality and age of existing facilities • capacity to deliver services • potential for expansion • financial viability

As a result of full public consultation through the summer of 2007, the PCT and Trust boards decided in December 2007 to follow the recommendations of the business case. For East and North Hertfordshire NHS Trust this primarily meant the consolidation of acute services onto the Lister Hospital site and comprises the following:

• phase 1 – independent sector treatment centre • phase 2 – maternity services reconfiguration • phase 3 – car parking • phase 4 – expanded and modernised A&E department, including urgent care centre,

together with alterations to existing tower block to increase ward space, • phase 5 – new south block – new building to include additional ward space, new

theatres and clinical space (following a strategic review in 2009, this was combined with Phase 4)

The diagram below sets out the indicative phasing for the overall programme: Indicative programme phasing Options 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Phase 1 ISTC Phase 3 Car ParkProvides car Phase 2 Women's & Children's Phase 4 Emergency Services Consolidation including ICU, wards and A&E

Sets out the indicative phasing and timescales

Phase 4 Surgical and Theatres

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What is BREEAM? BREEAM (BRE Environmental Assessment Method) is the leading and most widely used environmental assessment method for buildings. It sets the standard for best practice in sustainable design and has become the de facto measure used to describe a building's environmental performance.

The installation of the CHP will help the Trust to achieve this BREEAM “excellent” rating and therefore remove an important constraint upon the future development of the Trust and in particular the DQHH strategy.

As part of DQHH it is essential that the Trust achieves a BREEAM for Health “Excellent” rating as a minimum for the approval of its business case.

The Department of Health now require, as part of a Full Business Case approval for any investment of over £2million, that all new builds achieve an “excellent” BREEAM rating and all refurbishments achieve a “very good” BREEAM rating. The installation of a CHP plant will ensure that the Trust meets this requirement. The Trust has committed to achieving the “excellent” BREEAM rating as part of its Maternity Business Case, the installation of the CHP plant will ensure that the Trust meets this commitment.

3.2 National Context The case is 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 will assist the Trust to meet its obligations in respect of; The Environmental Protection Act 1990 (EPA) – introduced as the main legislation controlling atmospheric emissions and other types of pollution in the UK The Climate Change Act 2008 - seeks to implement in Britain the world wide commitment to take action on climate change. Securing the future, Delivering UK Sustainable Development Strategy: 2005 - the UK sustainable development strategy and recognises that although climate change is the most serious global environment threat, promoting new, modern and sustainable ways of living, working and producing and travelling also stand to achieve wider benefits to human health and well-being. Saving Carbon – Improving Health – the recently published NHS Sustainability Development Unit Carbon Reduction Strategy challenges NHS organisations to measure and monitor progress towards a 10% carbon reduction by 2015 against 2007 levels.

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Good Corporate Citizen model - enables NHS Trusts to identify their contribution to sustainable development. The resource model provides Trusts with ways in which to integrate social, economic and environmental considerations into the core activities of NHS Trusts. The Model was been revised in 2009 with input from the NHS Sustainable Development Unit, ensuring synergy with the commitments made in “Saving Carbon-Improving Health”. BREEAM Healthcare - was commissioned to assess the environmental credentials of healthcare buildings. It provides the NHS with a tool to ensure that the best environmental practice is incorporated into the design and construction of new builds and major refurbishments. The Department of Health now require, as part of a Full Business Case approval for any investment of over £2million, that all new builds achieve an “excellent” rating and all refurbishments achieve a “very good” rating. 3.3 Competitive Position of the Trust When comparing the Trust’s energy costs with those of other NHS Trusts of similar size, the East & North Herts Trust has one of the highest overall energy costs. Reducing these costs will provide the Trust with a competitive advantage.


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Opportunities exist at the present time to reduce the Trust’s overall energy usage and costs through the implementation of a CHP plant. A large number of NHS Trusts across the country already operate CHP plants, Appendix 1 lists all of the Trusts in England and Wales with CHP units. Appendix 2 provides some further information in the form of a Market Evaluation on the CHP schemes at a number of these Trusts, which are similar to what is being proposed for the Lister Hospital site. As part of the project plan it is anticipated that the Trust’s project team will visit at least one of the above sites to view the installation and discuss the benefits that CHP has had on the site with the Trust staff that are using them.

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As part of the overall masterplan strategy, the site’s electricity network was to be upgraded to cope with the increased load and provide secure supply. The Business Case was approved in 2009 with works currently on site having been designed anticipating the introduction of a CHP in terms of equipment controls and space.

3.4 Trust underlying Strategy (masterplanning) a) The case is consistent with Trust's strategic development plan: The case is linked to the "Our Changing Hospitals" plan, which is consistent with the “Delivering Quality Health Care for Hertfordshire” strategy, which is fully aligned with the commissioning intentions of local PCTs. The proposed CHP is one element of the overall masterplan strategy for the whole Trust. A high level masterplan was formulated to support the DQHH business case process in 2007 and has subsequently been updated and will form the basis of a Lister site planning application. Key elements of the masterplan at DQHH stage which continue to be priorities for investment by the Trust include:

• development for women’s and children’s consolidated services (approved and on-site)

• increasing car parking capacity to support consolidation of services • increasing acute ward, critical care, theatre and diagnostic capacity to meet the

requirements for consolidating acute services • development of an urgent care centre in conjunction with East and North

Hertfordshire PCT and consolidation of A&E services • a new-build ‘block’ providing new theatres, critical care and beds

It is envisaged that each of these elements will be progressed as stand-alone business cases whilst recognising the inter-relationships between them. Following on from the work undertaken to support the DQHH process a stakeholder workshop, including SHA and PCT representatives, took place in December 2007 to explore options around the location, timing and phasing, and preferred funding and procurement route for the main five elements of the strategy. Further work has been undertaken to test the feasibility of individual components of the strategy, and discussions with the planning authority and Hertfordshire County Council Highway Authority with a coping report are now in preparation.

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Lister aerial plan East and North Hertfordshire Hospitals NHS Trust Lister Hospital Site: Proposed Developments

The Trust masterplanning work will, when completed, form the Trust’s development control plan (DCP) and part of the estates strategy. b) The proposal will support the Trust in achieving some of its key organisational objectives through; • Reducing carbon emissions and also reducing the Trust’s carbon footprint by on site

electricity generation; all in accordance with the Carbon and Energy Strategy approved by the Board in June 2009. The Trust is registering with the CRC from August 2010 and the CHP proposal will assist the Trust to reduce its carbon emissions by 3,029 tonnes per annum

• Providing revenue savings from the Trust’s overhead expenditure, whilst avoiding any

demands upon the Trust’s capital programme (assuming a Private Sector Finance option is selected)

• Allowing for the replacement of outdated and inefficient boiler systems and allowing a

reduction in backlog maintenance costs

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As part of this development, the Trust has embarked upon a £5.1million investment to upgrade its electrical infrastructure.

4. CASE FOR CHANGE 4.1 Introduction The CHP project will support a number of clinical and financial challenges which the Trust faces; • By reducing expenditure on energy, it will release financial resources enabling investment

in the Trust’s core clinical services • By reducing the Trust’s Carbon emissions, it will enable the Trust to meet its carbon

reduction target for 2015 • By replacing a number of outdated, inefficient boilers it will enable the Trust to reduce the

level of its backlog maintenance, again releasing financial resources

4.2 The Current Position and Existing Facilities The Lister Hospital site is currently undergoing a major redevelopment programme and this is expected to continue through until 2015. Due to the level of redevelopment envisaged it is imperative that the Trust commit to an agreed ‘Project Map’ which identifies all proposed new build and refurbishment projects, as this will play a major part in the correct sizing of the CHP moving forward. For the purpose of this report the following projects are considered over and above the current site accommodation and it use: Phase 2 + Refurbishment of, and new build to Maternity Department Phase 4 + Refurbishment of, and new build to Accident & Emergency Department + New build Clinical Ward Block + New build Endoscopy and Day Surgery Theatre Block + Tower Block Ward refurbishments (levels 11, 10, 7 and 6) + Catheter Laboratory extension + Chemotherapy Extension Potential future developments are in the initial concept stages; these have been kept in mind at this stage but are not included for within the base load profiles.

4.2.1 Services Infra Structure Many of the existing hospital engineering services distribution systems are currently still being used throughout the hospital. It is the Trust’s intention to re-use / upgrade the existing infra structure wherever possible, utilising the existing boiler room as the sites main energy centre. The following sets out the current site provision associated with the heating, hot water and electrical network, all services that will have an influence on the CHP.

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Heat Generation The heating and hot water to the site is generated via five duel fuel (gas / oil) steam boilers located within the boiler room adjacent to the Estates Department. These five boilers were installed during the original hospital development in the late 1960’s and are of varying capacities as detailed below; • 1 No 17,000 lbs/hr • 3 No 13,000 lbs/hr • 1 No 6,000 lbs/hr Two dedicated steam mains, one 4 inch and one 6 inch (known as summer and winter mains respectively), distribute from the boiler room into the services tunnels that run at basement level across the site to serve hot water and heating calorifiers located in the main Level D1 plant room and other various departmental plant rooms as set out below. • The Level D1 Plant room serves Main Tower Block (Wards), Main Entrance areas,

Pathology, Pharmacy, Catering, Administration areas, Theatres Block, Maternity Block, Paediatric Wards, Outpatients Department and Accident and Emergency.

• The plant within this plant room is configured as follows:

o 4 No steam to LTHW Calorifiers at 4,000,000 BTU/hr (1171kW) o 1 No steam to LTHW Calorifiers at 1,000,000 BTU/hr (292 kW) o 15 No duty / standby LTHW heating pump sets.

Five steam to LTHW calorifiers located within the basement plant room serve fifteen sets of zoned heating pumps, also located within this plant room. Pipework is then distributed within the basement tunnels to serve the various buildings and departments across the site. • Separate departmental plant rooms are located within Occupational Therapy, Elderly

Care Unit (ECU), Cardiac Catheter Laboratory, Maternity, Mental Health Unit and Residencies.

• The plant within this plant room is configured as follows:

o 2 No Steam to LTHW Calorifiers at various outputs o Duty/standby LTHW heating pump sets.

In addition to the central LTHW system the steam ring mains also distribute around the site to serve various heat emitters (Heating coils / batteries, plate heat exchangers in stand alone buildings), catering equipment and plant and sterilizing equipment. The Hot Water System plant is configured as follows: • 3 No 2,000 Gallon Steam to HWS Calorifiers (High Level). • 1 No High Level duty/standby pump set. • 3 No 2,000 Gallon Steam to HWS Calorifiers (Low Level). • 1 No Low Level duty/standby pump set. • 6 No. 2,000 Gallons @ 3 hours recovery Steam to HWS Calorifiers • 2 No duty/standby pump set.

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These works are currently being installed on site and it is the intention for the proposed CHP plant to be connected onto the new generator switchboard (located within sub station S3) as detailed in the diagram below.

The six Steam-to-HWS calorifiers located in the basement plant room are split into two sets of three, low level and high level. The high level system serves levels 5 to 12 of the Main Tower Block with the low level system serving levels 1 to 4 across the site, with the exception of the Mental Health Unit, Occupational Therapy, Cardiac Catheter Laboratory, ECU and Residencies which have separate hot water generation in their own dedicated plant rooms. Electrical Infra Structure The site is currently served by a 40 year old high voltage network feeding four main electrical sub stations as summarised below:

• Sub Station A (S7) This incorporates the current main HV 11,000 volt duplicate incoming electricity supplies (EDF), which serves the main site HV ring network. This sub station also houses transformer T1 which serves the residential areas and some main hospital areas.

• Sub Station B (S5) This incorporates transformers T2 and T3 supplying the majority of the main hospital departments including the main block.

• Sub Station C (S2) This houses transformer T4 and supplies the energy centre and Estates department • Sub Station D (S6) This incorporates a separately metered LV 400V electricity supply (EDF), feeding the Strathmore Building.

Other than the introduction of sub station D and essential breakdown work, no major upgrading work has been undertaken to the electrical infra structure since the hospital was built. The current maximum demand on the site is approximately 1.7MVA which exceeds the current contract limit held with the Regional Electricity Company. As part of the site redevelopment the Trust have commissioned the upgrade of the site HV infra structure comprising of a new HV ring, new and upgrade works to sub stations, increase in site wide generator capacity and the introduction of new main switchboards. These works will increase the maximum demand available to 5.0MVA. Within the design, due allowance has been made for the introduction of a CHP and the constraints this has imposed are detailed below.

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This configuration is based on a parallel mode operation thereby allowing the CHP plant to operate in conjunction with the local distribution network by having the electrical switchgear connections between the CHP plant, the site and the local distribution network all closed, with the CHP plant and the local network operating electrically locked together. 4.2.2 Backlog Maintenance There are two separate elements of maintenance which can be considered for including within the CHP package, depending on the procurement route taken, with these being:

+ New System – (an additional requirement, that will be part of the contract package)

+ Backlog – (eliminating the necessity to maintain boilers that will be replaced as part of the proposal)

It is expected that the CHP provider will be required to maintain the CHP plant itself and any associated plant and distribution pipework, however there is the possibility that other new systems such as the high voltage network could be placed within their remit, taking it away from the Trust. In addition, some CHP providers are willing to take on backlog maintenance, with those associated with this site being maximising the efficiency of the steam system by replacing the existing storage calorifiers with plate heat exchangers. This would however be the subject of detailed contract negotiations in the future.

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The value of the backlog maintenance in relation to the three boilers is estimated to be in the region of £320,000 4.3 The Current Position - Carbon Emissions & Sustainability Over the past couple of years the East and North Hertfordshire NHS Trust has made a conscious effort in developing a low energy, sustainable estate aiming to meet the demands imposed on healthcare premises moving forward. This has included investigations into a number of different options and studies being carried out by the Trust in an effort to achieve a coordinated site wide strategy which compliments the major redevelopment proposed for the Lister Hospital site, up to 2015. Lister Performance To identify the current performance of Lister Hospital with respect to energy consumption, carbon dioxide and water in relation to UK hospital averages and best practice, we have obtained historic data from the following sources, which has enabled us to collate the following benchmarking figures.

+ Trust Optimal Communications Website + Trust ERIC (Estates Return Information Collection) forms

Within the table below, reference is made to HTM 07-02: EnCO2de which sets out a method of calculation for benchmarking healthcare premises in terms of energy consumption and carbon dioxide. Details of this calculation method are shown at Appendix 3. Table 1 ENERGY CONSUMPTION LISTER AVERAGE BEST

PRACTICE

EnCO2de uses GJ/100m3/annumBasis of Lister Hospital @2.4m 74.8 72 <52

Basis of EnCO2de: @2.7m 66.4 72 <52

CARBON DIOXIDE

Based on EnCO2de for existing buildings kg/m2 125 145 125

Note: EnCO2de figures are based on 28%electricity and 72% fossil.

At Lister Hospital, 2008/2009 figures identifythe energy split being 74%/26%

WATER

CIBSE Benchmark for large Acute Hospitals m3/m2 2.37 1.6 1.38

At present the Lister Hospital is calculated to be emitting approximately 7,700 tonnes of CO2 per annum. With the addition of the Phase 4 developments, this is likely to increase to

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At present the Trust is not meeting its Carbon reduction targets; with the planned developments the Trust’s position in relation to its carbon emissions will worsen without mitigating actions (such as the installation of the CHP).

approximately 15,000 tonnes. Appendix 4 provides a more detailed analysis of these energy usage calculations over the past three years. It can be seen from the above that although the site is performing well in certain aspects. However, as the Trust moves towards a 50/50 energy split, its Carbon Dioxide emissions will move nearer to the 145kg/m2 level.

4.4 The Current Position - BREEAM Healthcare

BREEAM is an energy assessment method for healthcare projects based upon the BRE Standard Assessment Model and replaces the previous NEAT (NHS Energy Assessment Tool) which ceased in mid 2008. BREEAM is a ‘holistic’ assessment for the project as a whole and embraces all aspects of energy conservation associated with the design and construction of a building based upon a weighted score for various credits contained within 9 assessment categories, as detailed below, plus an “innovation” category.

+ Management + Health and Wellbeing + Energy + Transport + Water + Materials + Waste + Land Use and Ecology + Pollution

BREEAM “ratings” are targeted based upon the nature of the project and range from Pass, through good, very good and excellent to outstanding. As a minimum requirement to attain an ‘Excellent’ rating, there are mandatory credits which must be successfully achieved; otherwise the rating cannot be awarded regardless of whether the overall credit score exceeds the minimum level. These mandatory credits are:-

+ Man 1 – Commissioning (1 Credit) + Man 2 – Considerate Constructors (1 Credit) + Man 4 – Building User Guide (1 Credit) + Hea 4 – High frequency lighting (1 Credit) + Hea 12 – Microbial contamination (1 Credit) + Ene 1 – Reduction of CO2 emissions (6 Credits) + Ene 2 – Sub-metering of substantial energy uses (1 Credit) + Ene 5 – Low or Zero Carbon Technologies (1 Credit) + Wat 1 – Water consumption (1 Credit) + Wat 2 – Water meter (1 Credit) + Wat 3 – Storage of Recyclable Waste (1 Credit) + LE 4 – Mitigating ecological impact (1 Credit)

As highlighted under the energy category, ENE, there are a number of mandatory sections that are required to be achieved and particular attention must be paid to ENE 1 – Reduction

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As all capital developments of over £2million require a BREEAM “Excellent” rating, this is an essential requirement of the entire Phase 4 development. The CHP plant will enable the Trust to meet its CO2 emission reduction target and thereby will help the Trust to achieve the “Excellent” rating. Following production of a design EPC Certificate for the Women's Services development, to achieve the mandatory 6 credits under ENE1 a CHP was included and was a critical element in achieving this.

of CO2 emissions where 6 credits are required as a minimum to achieve the ‘Excellent’ rating.

4.5 Project Scope The proposed project is hoping to address the issues mentioned above, particularly those relating to renewal of the existing heat generation and electrical infrastructure facilities. In addition, the installation of the CHP will help to reduce the Trust’s current level of backlog maintenance. The main objectives of the project and consequential benefits from this proposal would therefore be; • Enable the Trust to meet its Carbon Reduction commitment for 2015 (providing a

reduction of 3,029 tonnes of CO2 per annum) • Deliver energy savings of circa £370,000 per annum (subject to finance route) enabling

financial resources to be released for clinical service provision • Ability to comply with BREEAM (a requirement for future capital investment) • Reduction in backlog maintenance costs (£320,000)

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The CHP proposal takes account of the predicted activity associated with the Phase 4 development. Any increases in energy demand over and above that identified as part of the Phase 4 development will improve the overall efficiency of the CHP. However, reductions in future energy demand will have the potential to affect the viability of the CHP operation. Through discussions with manufacturer’s it has been advised that current CHP units can run efficiently at 80% load.

5. ACTIVITY MODELLING AND OUTCOMES 5.1 DQHH Modelling Assumptions Activity modelling for DQHH and East & North Hertfordshire NHS Trust has included all of the emergency, elective and outpatient activity currently undertaken by the Trust. These assumptions have been revisited and confirmed as part of this OBC based on up to date information and recent experience of the service. The activity modelling database for DQHH has been used as the basis for modelling maternity activity for this business case. This not only ensures consistency with DQHH but also with the Trust’s financial planning for Foundation Trust status. The DQHH model is based on 2003 ONS forecast data for each district by age, sex, migration etc. The model also takes into account the impact of planned housing developments in the region as a result of work undertaken by Anglia Ruskin University (Chelmer forecasts). For patients outside Hertfordshire the model also uses 2003 ONS population projections. The clinical activity forecasts are detailed within the Trust’s Long Term Financial Model (LTFM).

It should be noted that the relationship between clinical activity and energy demand is not a direct one. Rooms will still require heating and lighting, regardless of the levels of activity, consequently the Trust’s overall level of clinical activity would have to fall by circa 50% in order to reduce the Trust’s CHP baseline by 20% 5.2 Current & Forecast Energy Consumption The project team have carried out an initial assessment of the hospital’s energy consumption profiles over the last couple of years to establish an indicative CHP size based on current demand. However, with the large scale redevelopment proposed for the site it can be assumed that load will increase and therefore at this stage an estimated profile has been produced including a number of assumptions. These are: + Electrical maximum demand for 2015 based on Trust load schedule revision 7 dated

November 2009 + Steam output figures for 2015 based on increased floor space calculations. Existing data has been extracted from the previously commissioned reports highlighted in the introduction and site ERIC (Estates Return Information Collection) reports. Guidance recommends that load profiles are based on a number of bands, with at least the following being considered.

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It can be seen from the above, working with the estimated 2015 figures, that the base heat load is 1,380kW and therefore based on this a CHP plant sized in the region of 1.3MW would be suitable, therefore falling within the industry standard for a small scale system.

+ Daytime + Night + Summer + Winter However the site at present does not have the metering capacity to provide this level of data and this is currently being reviewed by the Trust to enable this to be included within the Full Business Case. For the purpose of this OBC we have therefore identified monthly base load energy consumption figures for three years, as can be seen from the following table and supporting graphs.

Year 2008(1) 2009(1) 2015

Month



(6) Figures taken from Trust Optimal Monitoring System ISX (7) Estimated figures based on historical energy consumption per m2, (kWh). 2009 area

based on 62,549m2, 2015 area based on 72,934m2 (8) Figures adjusted to include an efficiency factor of 10% to cover losses associated

with current boilers. (9) Figure shown on Trust Optimal Monitoring System not in line with all other months

and therefore error assumed (10) Figures based on Trust maximum demand projection figures for Phase 4/5

with 85% diversity. Appendix 5 provides details of the Trust’s Electrical and Steam Load profiles for the previous two years. The best energy efficiency and carbon emissions performance can be seen from a CHP plant designed to meet the minimum base heat load requirements.

However, consideration needs be given to the possibility that the CHP will be up and running ahead of 2015 and hence the estimated base load. Therefore, if we take the 2009 figures as being the base load the CHP unit would be running at approximately 95%.

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It would appear that only a major change to the Trust’s forecast future activity (reduction) would bring into question the viability of the CHP project. In the event that this were to occur, should Phase 4 not proceed, the Trust would need to review the sizing of the CHP.

As previously stated, it has been advised that current CHP units can run efficiently at 80% load and therefore the figures fall within this criteria. Notwithstanding the above, at this stage the base load figures being estimated should be read with caution as from experience these would appear high and will include inherent losses, which if improved through energy enhancement measures, will have a dramatic effect on the CHP size. It is imperative therefore that further detailed analysis is carried out to understand what these losses are and to what extent they exist. Appendix 6 provides an indicative diagram identifying the main areas which will need to be considered and works are currently being instigated by the Trust. These works are due for completion in the summer of 2010, which will enable a final sizing of the CHP to be completed. Please note that the sizing of the CHP will ultimately be the responsibility of the supplier. 5.3 Future Demand Projections - Sensitivity Analysis The economic viability of the CHP is dependent upon its sizing. Whilst the previous sections have identified forecast levels of energy demand based upon the Trust’s planned developments and predicted levels of clinical activity, there remains a degree of uncertainty as to the precise sizing of the CHP unit at the present time. The project team have therefore considered the options for mitigating against a significant change in the Trust’s future energy demands. Impact of rise in clinical activity/new buildings on Lister site – will increase the efficiency of the unit and improve the payback period on the investment. Only a definite and significant rise in clinical activity would warrant increasing the size of the CHP. Impact of fall in clinical activity/closure of buildings on the Lister site – The CHP will operate efficiently at 80% of its design capacity/baseload. A 20% reduction in the Trust’s baseload demand will result in an even greater reduction in clinical activity. Impact of additional “green” power generation initiatives – unlikely to have any impact upon the CHP, as these initiatives are mainly concerned with generation of electricity (CHP electricity generation will only account for circa 30% of total Trust requirement)

Appendix 7 sets out the Trust’s maximum demand projections. 5.4 CHP Sizing and Requirements Following some discussions on the size of the proposed future CHP and request for the maximum size CHP that can be connected to the 11kv circuit breaker at the new sub station S3 we have produced these notes for consideration and information (see Appendix 8). These relate mainly to the electrical load and electrical control issues rather than the thermal load. It is assumed the CHP will not run in parallel with the generators at any time or act as a back up generator. It is also assumed that the CHP will synchronise at the HV circuit breaker in the CHP local

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In summary, the proposed CHP would be 1.3MW. Whilst the project team are currently working through the issue of steam losses, mentioned above, it will ultimately be the responsibility of the Trust’s partner/supplier to determine the sizing of the CHP.

control panel and the G59 relay that is active when the CHP is running will be located in the local CHP control panel The control issues also need to be discussed with the CHP suppliers and EDF will need to approve the size of CHP connected.

It should be noted that the all of the Trust’s electrical switchgear has been sized to enable a 2 MW electrical load and is therefore consistent with the CHP sizing estimate.

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6. WORKFORCE PLANNING AND DEVELOPMENT There are no significant implications for the Trust’s workforce as a consequence of this proposal. There will be some reduction in the workload of the Trust’s Engineering staff as a consequence of the removal of the three boilers (the replacements being maintained by the CHP supplier). However, it is planned to utilise the time saved in maintaining the existing boilers by redeploying these staff to maintaining the existing steam losses, thereby further reducing the Trust’s energy costs. An option to realise the staff savings has been explored, however, the Trust will need to maintain its remaining boilers and the use of external contractors to undertake this role would be more expensive than undertaking this role in-house. There are no implications for any other staff employed by the Trust.

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7. FORMULATION OF OPTIONS 7.1 Introduction The options for the CHP project were developed following a strategic review of the Trust’s energy service including an option appraisal carried out by Troup Bywaters + Anders, which considered the options open to the Trust in respect of; • Renewable Energy • CHP Configurations The options appraisal exercise considered the current performance of the Trust in relation to its energy services and the requirements of it with regard to the future needs and configuration of the Trust. This section describes the options considered, how they were developed and evaluated, and the outcomes of the evaluation process. Section 9 of this Business Case describes the preferred option in more detail. 7.2 Renewable Energy Options In order to reduce annual carbon dioxide emissions, it is becoming more common to introduce renewable energy sources and these have been reviewed and discussed in the previous reports commissioned by the Trust. A summary of the main options and how these compared with the selected CHP option are shown at Appendix 9. 7.3 Combined Heat & Power Plant Options Sizes CHP systems are usually categorised according to the size of the electrical output, the exception being trigeneration systems, with the following terminology for the different sizes commonly used. + Micro CHP: < 5kW + Mini CHP: 5 – 500kW + Small Scale CHP: 500kW – 5MW + Medium Scale CHP: 5MW – 50MW + Large Scale CHP: >50MW Form The plant can take the form of either a packaged of custom solution. Packaged plant is supplied as a complete unit which can be easily connected to the existing electrical and heating systems and has the advantage of being simple to integrate and maintain. Custom CHP systems are designed and built to meet the specific requirements of the site providing more flexibility and better efficiency than that of a packaged solution.

Type/Prime Mover A CHP plant consists essentially of an electrical generator combined with equipment for recovering and using the heat produced by that generator. The generator may be a prime mover such as a gas turbine or a reciprocating engine. Alternatively it may consist of a steam turbine generating power from high pressure steam produced in a boiler.

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The prime mover and its associated generator is the heart of the CHP system, co its correct selection is vital for a successful installation. The three main governing factors to this selection are:

- the fuel(s) available - the grade (temperature) of heat required to the site - the heat to power ratio (the ratio of recoverable heat to electrical output)

As mentioned above there are a variety of prime movers available and these are summarised below. + Gas turbine

These are the most widely used prime mover for modern custom built CHP plants. They are available in a wide range of power outputs and are inherently reliable and have minimal running maintenance requirements. The most popular fuel for a gas turbine is natural gas, although other gaseous fuels can be used such as biogas, landfill gas and mine gas. Many installations use natural gas on the cheaper interruptible tariff, with gas-oil as the standby fuel.

+ Reciprocating Engine

The reciprocating engines used in CHP systems are internal combustion engines that operate on the same principles as their petrol and diesel automotive counterparts. Their efficiency is inherently better than that of gas turbines, and there is very little drop in engine efficiency when operated at part load. Engines and their lubricating oil must be cooled and there is therefore a compulsory supply of heat in the form of hot water up to 120oC. This is produced irrespective of whether of not it can be used. Exhaust heat on the other hand, is available at temperatures of up to about 400oC. There are two types of engine, classified by their method of ignition these being spark ignition or compression ignition. Spark ignition gas engines are virtually all derivatives of their diesel engine equivalents. They generally offer a lower capital cost per kW than a compression ignition type. A wide range of sizes are available with the engine cooling system typically delivering temperatures in the range of 70 – 80oC. Spark ignition engines are suited to smaller and simpler CHP installations, often with cooling and exhaust heat recovery combined to provide low pressure steam or medium / low temperature hot water to the site. Compression ignition engines are typically used for large scale CHP installations and have more complex cooling systems than that of a spark ignition type.

+ Steam Turbines

Steam turbine CHP is usually the technology of choice when cheap, non premium fuel (e.g. waste material) is available that can only be used once the energy it contains has

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been released and turned into steam. It is also particularly suited to sites where the heat requirement is high in relation to the power demand. The number of sites is declining as the use of electricity increases, however steam turbines can be used in conjunction with a gas turbine to increase the total output of electricity if so required. In these ‘combined cycle’ applications, high grade exhaust heat from the gas turbine is fed to a heat recovery boiler, and the steam produced is passed to a steam turbine to generate additional electricity. The lower pressure steam from the steam turbine is then available for site use. Steam turbine CHP only produces significant amounts of power when the steam input is at high pressure / temperature and the heat output is relatively low grade. In order to maximise the power generation, higher steam pressures are frequently selected, increasing both the capital costs of the steam boiler and plant running costs. There is no ‘typical’ steam turbine CHP set as each is very specific to its site conditions.

Fuels Heat from fuel is the main source of energy for CHP plants. This energy is released by burning the fuel with air to produce high temperature combustion gases. If burned in a confined space, some of the energy released pressurises the exhaust gases, thereby providing the power to drive the turbine or engine and generate electricity. The exhaust gases are subsequently released at a lower pressure and temperature and can then be utilised as the main source of heat for on site use. Some fuels can not be burned in gas turbines or engines; these include solid fuels such as coal and wastes, and also those liquid or gaseous fuels containing contaminants that would damage the prime mover. Biomass can also be utilised as a fuel source and is seen as a carbon neutral high efficiency generation process providing the fuel can be sourced and processed from sustainable sources within 25 miles of the biomass plant. Therefore detailed consideration must be given to the energy consumption and carbon footprint associated with transportation of the biofuel to the site, removal of residual waste before utilising this as the main energy source. At this time it is not envisaged this solution to be viable for the Lister project. In general the flexibility of its supply, storage and use, influences the cost of the fuel. Commercial fuels such as natural gas and the lighter oils are of premium quality and value but are generally more expensive to buy but less costly to use. An option appraisal of the main fuel options was undertaken by the project team, which clearly identified natural gas as the preferred option for the CHP.

def


Natural Gas Distillate Oils

(Bio Fuels) Heavy Fuel Coal

Factor & Weighting)

Score Score x Weight




Cost (25) 9 225 6 150 6 150 7 175 Carbon content (25)

6 150 9 225 4 100 2 50

Waste (10) 9 90 9 90 8 80 5 50 Storage (10)

10 100 2 20 3 30 2 20

Supply (10)

9 90 3 30 9 90 9 90

Experience in NHS (10)

10 100 4 40 10 100 2 20

Total 755 555 550 405

Boilers and Heat Recovery The essence of a successful CHP is the beneficial use of the heat produced as a by product of generating electricity. The boiler is an essential component of the CHP installation as it recovers heat from the exhaust gases of either a gas turbine, or in the case of this project a reciprocating engine and, in its simplest form, is a heat exchanger through which the exhaust gases pass and in which heat is transferred to the boiler feed water to raise steam. The cooled gases then pass to the exhaust pipe or chimney and are discharged to atmosphere. It is important to consider heat distribution in conjunction with heat recovery, as the distance between the heat user and the CHP plant, and the form in which the heat is required, will influence the design. In small scale CHP systems an exhaust gas heat exchanger is normally integrated in the CHP package, however due to the nature of the heat distribution across the site being steam a dedicated waste heat boiler has the ability to increase the temperature of the water to produce steam, and / or balance the thermal load. The added benefit is that this type of boiler can provide hot water and/or steam even when the CHP is not running, e.g. planned or preventative maintenance, and reduces the requirement for a standby boiler. It is normal for the CHP plant to be located adjacent to existing central boiler plant with the CHP plant is distributed using the existing site systems. Electrical Output CHP plant can be arranged to operate electrically in two types of mode. These being either parallel mode where the system provides top up and back up power forming an essential facility to ensure security of site power supplies, or in island mode where the plant is installed without an electrical connection to an external electricity system.

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A vital characteristic of any power system is its ability to maintain ‘stability’, that is to remain in full operation when disturbed by conditions such as load changes and system faults. An initial stability study is an important part of any CHP feasibility study and recommended to be carried out during the next stages of the design. This study must take into account any system design features that arise from the requirements of parallel mode operation and must also be based on the actual electrical characteristics of the chosen CHP plant and its associated electrical systems. This study will include a detailed analysis of network equipment, operational sequences, load flows, fault levels etc. It may conclude that specific design requirements and operational constraints will need to be incorporated in the CHP plant. The costs of any works associated with this or modifications required to the Public Electricity Supplier (PES) system will need to be included by the Trust within the CHP project costs. Control Systems Control systems are usually based on high integrity programmable logic controllers (PLCs) and will include all the metering, control and protection systems required for the start up, operation and normal shutdown of the equipment and this needs to be discussed with the relevant parties as described above. Absorption Cooling It uses an evaporator and condenser in the same way as refrigeration by mechanical vapour compression, but replaces the compressor in the conventional system with a chemical absorber and a generator. A pump provides the necessary change in pressure. Absorption cooling when linked with a CHP plant where the prime mover provides electricity, heat and cooling via an absorption chiller is commonly referred to as trigeneration. Converting an electrical load into a heat load in this way has several advantages:

- it reduces the sites demand for electricity - it increases the options for heat use - it can ‘iron out’ some of the seasonal peaks and troughs in heat demand and extend

profitable CHP running time 7.5 Option Appraisal Based on all of the above an overview diagram identifying the proposed choices moving forward in selecting the CHP system for the Lister Hospital site is identified below.

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The recommendation for the CHP configuration at Lister Hospital is to be of a small size, custom configured reciprocating spark ignition type, utilising natural gas as the supply fuel, complimented with a waste heat boiler and an additional steam boiler. We suggest the electrical configuration of the system is in parallel to coordinate with the current site-wide HV upgrade works, with the possibility of connecting a waste heat boiler and / or absorption cooling technology.

DESCRIPTION OPTIONS

Size Micro Mini Small Medium Large

Custom PackagedForm

Gas Turbine Reciprocating Steam TurbinePrime Mover

Spark Ignition Compression

Fuel Commercial Alternative

Natural Gas Distillate Oils Heavy Fuel Coal

ParallelElectrical Island

CHP SOLUTION

HEAT RECOVERY ABSORPTION COOLING PLATE HEAT EXCHANGE OPTION

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8. FINANCING OPTIONS 8.1 Introduction There are several approaches to costing and financing a CHP development, however the benefits of investing can only be realised by the appropriate operation of the plant. Combining this understanding of operational and capital investment makes financing CHP projects unique and has led to financing solutions only seen in the CHP sector. Choosing an appropriate method of financing will depend on the Trust’s accounts and also on the degree of risk / benefit they are willing to associate with the project. The main options available are. + Internal Funding

+ Debt Finance

+ Leasing

+ Equipment Supplier

+ Energy Services Company (ESCO Contractor)/Energy Supply Contract

An overview of each of these options is provided at Appendix 10 8.2 Financing Options Appraisal In summary there are three 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;

a) Funding the Scheme through Private Funding The Trust has always assumed that the CHP would be procured through an ESCO arrangement, where a private sector contractor would design build and operate the CHP. This would avoid using restricted capital resources and potentially be off balance sheet, therefore not counting against the Trust’s Prudential Borrowing Limit. In determining the likely treatment of an ESCO type arrangement a number of key factors lead to the conclusion that an ESCO scheme is likely to be on balance sheet and to lead to the Trust requiring to pay for the asset and hence the arrangement would count against the Trust’s PBL. These are as follows: • The Trust is likely to have to guarantee a level of energy to the CHP contractor; • It is unlikely that the CHP contractor would sell on energy to other customers

(particularly not NHS customers); • The CHP contractor would deliver the scheme on request of the Trust rather than

independently; • The Trust would in effect be paying for the asset through the additional cost of the

energy provided to the Trust

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It is unlikely that the Trust could deliver a scheme through an ESCO which did not reflect these factors and give an off balance sheet position. The CHP scheme is anticipated to deliver significant savings to the Trust (£370,000 per annum before capital related costs, potentially circa £170,000 after capital related costs are accounted for) and the ESCO contract could be set up so that the Trust buys gas through HSMC and sells it on to the private sector contractor. These elements would have an impact on the key financial ratios that are used in defining the Trust’s Prudential Borrowing Limit, which would be expected to marginally increase as a result of the CHP. Developing the scheme through ESCO also helps manage the Trust’s cash position and would not be threatened by any unavailability of treasury capital. b) Funding the enabling costs for a CHP through Trusts funds but funding the actual CHP through an operating lease. In this option the Trust would look to disaggregate the costs of the CHP into two parts. The enabling costs to enable a CHP plant to be installed would be funded by the Trust (circa £1 million) , the actual CHP itself would be installed by a private contractor. The same financial arrangements as the ESCO would be made, although the price of fuel would potentially be cheaper as the contractor would have to cover a smaller amount of capital outlay. This would have the affect of only 50% of the total capital cost initially hitting the Trust’s Prudential Borrowing Limit. However it would be dependent on the contractor charging a lease cost which was less than 85% of the value of the asset to ensure that the asset was treated as an operating lease and off balance sheet. Therefore the Trust would need to make a careful judgement on the life of the contract (by necessity less than the life of the asset, possibly 5 years) to ensure the most cost effective financial arrangement and an off balance sheet position. It is extremely likely that new accounting guidance will be introduced in the next 2 to 3 years which will mean that in future all leases will be treated as finance leases and therefore on balance sheet. However there is likely to be dispensation for NHS Trusts which allows for this change in accounting policy in relation to the future calculation of its PBL. This option would still rely on investment from the Trust’s internal resources of circa £1 million c) Funding the scheme from Trust funds; The Trust could look to fund the CHP from its own resources, this will generate a better revenue position (circa £300k per annum savings after capital charges) but relies on the Trust finding £2 million capital. The PBL is unlikely to be improved in this option, as the income for the Trust will not increase.

Impact Upon the Trust’s Prudential Borrowing Limit All the options stated above, will put pressure on the Trust’s prudential borrowing limit. However as a result of the investment the Trust will be stronger financially, and therefore a strong case could be put to Monitor to extend the Trust’s PBL to cover this essential investment. This would allow the Trust to consider each of the options in relation to the one that delivers the best financial position rather than the one that delivers the least impact on the Trust’s PBL.

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On the basis of the analysis the Trust should look to deliver the CHP though option 1 which has least impact on the Trust’s immediate cash position and delivers the CHP through a well developed arrangement with little risk. The Trust, as part of this development, should apply to Monitor to extend its PBL to cover this additional investment. or look to fund through operational capital with the additional surpluses generated used to repay the capital programme over the following 5 years.

8.3 Preferred Financing Option

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9. PREFERRED OPTION This section describes the preferred option for the CHP configuration at Lister Hospital, i.e. a small size, custom configured reciprocating spark ignition type, utilising natural gas as the supply fuel, complimented with a waste heat boiler. The electrical configuration of the system is in parallel to coordinate with the current site wide HV upgrade works, with the possibility of connecting a waste heat boiler and / or absorption cooling technology. 9.1 Introduction Combined Heat and Power (CHP), also known as co-generation, is the simultaneous generation of both usable heat and electrical power in a single process from the same source. A CHP plant consists essentially of an electrical generator combined with equipment for recovering and using the heat produced. The heat generated during this process is supplied to an appropriately matched heat demand that would otherwise be met by a conventional boiler. CHP systems are highly efficient, making use of the heat which would otherwise be wasted when generating electrical or mechanical power. Typical CHP Plant Arrangement

ENGINE GENERATOR


EXHAUST GAS HEAT EXCHANGER OR WASTER HEAT

BOILER

HIGH TEMPERATURE HEATING CIRCUIT



COMBUSTION AIR

FUEL

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As this is a highly efficient way to use both fossil and renewable fuels it can make a significant contribution to the Trust’s sustainable energy goals, carbon reductions whilst bringing environmental, economic, social and energy security benefits. In 2004, the Greater London Authority set out a strategy for increasing the amount of electricity and heat generated by CHP by 2010, through a document called the London Plan. Although the Lister Hospital site does not fall within the recommendations of this document it is our understanding that the main philosophies are being adopted by a number of local authorities and the soon to be released 2010 Building Regulations. Part of the strategy concentrates on carbon reduction and this is depicted in the following diagram which is recommended to form part of the project strategy moving forward.

An additional option to be considered when investigating the CHP system technology is the introduction of absorption cooling, commonly known as tri-generation. The process of cogeneration as set out above produces heat and power, however during the summer months the heat generated may not be fully utilised and it is often that at this time cooling demand reaches its peak. This technology, at its simplest, is a one that allows cooling to be produced from heat rather than electricity, i.e. utilising the CHP rather than having electricity based chillers. A site with a large and continuous cooling demand, such as the Lister Hospital, lends itself to replacing conventional electricity based cooling systems with absorption cooling and Troup Bywaters + Anders are currently producing a separate feasibility study to identify its suitability.

1. Use Less (Be Lean)

2. Supply Energy Efficiently

(Be Clean)

3. Use Renewable Energy

(Be Green)

Building Regulations

2006

Energy Efficiency Measures

CHP

20% Renewable Target tCO2

savings

savings

savings

tCO2 tCO2 tCO2 tCO2

Lean Clean Green

Final CO2 Emissions

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9.2 Recommended System Proposal There are different ways of achieving this base load via different CHP configurations, such as one full size unit or two smaller units. The chosen option will depend on the finance options available and programme constraints; the provision of one fully sized unit is the preferred solution at this moment in time. Due to the nature of the existing site services and the differing project elements being considered, such as electrical upgrade and absorption cooling it is proposed to utilise a custom type solution in lieu of a packaged option. 9.3 Outline Design & Location (Estate Solution) It is important at this stage when assessing the feasibility of implementing a CHP on an existing site to consider its location and integration into the existing engineering services infra structure. At this stage it is proposed that the new CHP will be located within the existing central boiler room. This will mean the need to strip out / relocation of existing plant and services which will need to be considered in greater detail during the next stages of the project. At this stage the Trust has included a level of finance to cover for the strip out of three existing steam boilers and diversion / strip out of their associated services Taking into consideration the nature of the existing site services and the initial size of CHP plant, it is proposed that a reciprocating engine of the spark ignition type is the most suitable prime mover for the plant, which has been supported through initial discussions with manufacturer’s, however this will still need to be verified with plant manufacturers throughout the next design stages. The CHP would be treated as the lead boiler, supported by a waste heat boiler, backed up by two new gas fired steam boilers and the two existing refurbished steam boilers. This will mean engineering the controls so that the CHP engine runs at full load with the other boilers not being allowed to put heat into the system until the CHP can not meet the load demands. This approach will enable the CHP to run for longer periods at full power, thus providing the best efficiency. The fuel of choice for the system is natural gas, again based on the existing site services. With this type of fuel there are two supply tariffs; the higher ‘firm’ tariff where the customer requires a continuous supply of gas, and the lower ‘interruptible’ tariff where customers are prepared to accept interruptions in the supply during periods of peak demand, and to switch to an alternative fuel. The Trust is currently on the latter tariff and it is not envisaged this would change at this stage. With respect to fuel cost savings, these will be dependant on the type of procurement the Trust opts for. 9.4 Dedicated Waste Heat Boiler The boiler is an essential component of the CHP installation as it recovers heat from the exhaust gases of either a gas turbine, or in the case of this project a reciprocating engine and, in its simplest form, is a heat exchanger through which the exhaust gases pass and in which heat is transferred to the boiler feed water to raise steam. It is therefore proposed to introduce a dedicated waste heat boiler to serve the CHP located adjacent to the plant within the existing boiler room. This has the ability to increase the temperature of the water to produce steam, and / or balance the thermal load, which lends itself to the Lister site distribution.

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The added benefit is that this type of boiler can provide hot water or steam even when the CHP is not running, e.g. planned or preventative maintenance, and reduces the requirement for a standby boiler, however as identified above these will still be provided in accordance with the Trust’s standby philosophy. As discussed earlier as part of the site redevelopment the Trust have commissioned the upgrade of the site HV infra structure. These works (£5.1million investment) are currently being installed on site and it is the intention for the proposed CHP plant to be connected onto the new generator switchboard (located within sub station S3), as detailed in section 4.2.1, above. This configuration is based on a parallel mode operation thereby allowing the CHP plant to operate in conjunction with the local distribution network by having the electrical switchgear connections between the CHP plant, the site and the local distribution network all closed, with the CHP plant and the local network operating electrically locked together. For the CHP to operate in this mode there are certain important features that must be incorporated in the design of the both the CHP plant and the site electrical distribution system, these being:

- The CHP generator(s) must be equipped with synchronising equipment, so that the phasing of the power from the alternator can be matched with that of the local supply system before it is connected. Connecting the generator in an unsynchronised situation may cause serious and expensive damage to electrical equipment, as well as causing a prolonged period without power supplies.

- The generator, and the switchgear through which the site is connected to the local distribution network, must be equipped with suitable protection equipment, so that the generator is automatically and instantaneously disconnected in the event of any system instability. This protection equipment typically monitors conditions such as voltages, peak currents and the positions of automatic switches and circuit breakers.

- The combined equipment of the site and the generator must not be capable of causing excessively high peak currents in the event of a major system fault, such as accidental damage to the cabling or switchgear.

The technical requirements that must be met if a CHP plant is to be operated in parallel with the local area supply system will be defined by the public electricity supplier (PES) that owns and operates the system. These requirements will depend on the design and operating characteristics of both the local area system and the CHP plant, and are designed to protect equipment on either side of the connecting point from the effects of a fault occurring on the other side. All of the above has been considered during the design process associated with the high voltage electrical upgrade works, however with these works progressing on site the size of the CHP and how the controls are to interface are critical and need to be agreed and coordinated with both the Electrical Contractor (Southern Electric Contracting) and the Electricity Supplier (EDF Energy). 9.5 Supporting Services Requirements & Solutions There should be no impact upon other departments/divisions within the Trust. The project can be entirely managed within the resources of the Trust’s Estates function. The proposed location for the CHP is situated well away from clinical areas, therefore any noise pollution from the planned works would be negligible.

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There should be no effect on the Trust’s clinical activity as a result of the installation of the CHP plant. Energy supply will be maintained to users as at present. Similarly, there should be no impact upon the patients.

It is planned that the CHP plant will be acoustically treated and being situated within the existing plant room, the levels of noise produced by the CHP should be negligible and is likely to be less noisy than the current boilers. 9.6 Lifecycle and on-going Maintenance – Financial The on-going maintenance costs for the new CHP will be circa £140,000 per annum. Dependent upon the financing option that is eventually selected, the maintenance of the CHP will be undertaken by the service provider. 9.7 Fit with Estates Strategy/masterplanning The proposed solution is consistent with the site plan set out in the DQHH business case which was part of the submitted Outline Planning Application for the whole site’s development control plan. The proposal is consistent with the current upgrade to the Trust’s electrical infra structure. The Trust’s site development plan requires the Trust to have achieved a BREEAM “excellent” rating, as the CHP plant will enable the Trust to meet this obligation, the proposal is entirely consistent with the Trust’s overarching Estates strategy. The CHP proposal does not require any other departments/services to vacate any space, there are no enabling works required for the installation to be undertaken. Consequently, this project could be undertaken as a stand-alone project with no impact upon the rest of the Trust. 9.8 Implementation

As part of the HV upgrade design consideration has been given to the future connection of the CHP onto the network. As identified in the electrical diagrammatic layout the switchboard to which the CHP is to be connected has been sectionalised so that the CHP section is dedicated, allowing it to be commissioned off line without interrupting the normal electrical supply operation to the site. However, it will eventually need to be tested in its final state and it is therefore proposed that local LV generators are located at individual sub stations to provide the normal electrical supply whilst this is being carried out. 9.9 Implications for Service Users, Patients and Staff

In fact, by installing the CHP plant, there should be an improvement in the service provided, given the increased resilience to the Trust’s energy supply that the CHP plant will provide. The installation will comply with current electrical regulations and ensure full compliance with Health and Safety issues. Outside of the Estates function, there would be no impact upon the other staff employed by the Trust.

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9.10 Benefits The benefits of the preferred option are; • Carbon Reduction commitment will be met (reduction of 3,029 tonnes of CO2 per annum) • Energy savings of circa £370,000 per annum • Ability to comply with BREEAM (a requirement for all public sector capital developments) • Reduction in backlog maintenance costs (£320,000)

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10. FINANCIAL APPRAISAL 10.1 Introduction The economic benefit of installing a CHP unit arises out of the relationship between annual operating cost savings and capital outlay, the latter being dependant on the procurement method chosen as identified below. The annual cost savings must be sufficient to meet the requirements for return on the capital investment by the owners of the plant whether this is the Trust or an ESCO Contractor. Payback on a CHP scheme is defined as the period at the end of which the cumulative cost savings equal the capital cost. It is often referred to as ‘simple payback’ as it does not require any assumptions about the project in terms of timing, lifetime or interest rates. The only complication is whether it is measured from the beginning of the project or from commissioning / completion. This type of calculation method is widely accepted and used for this stage of a project however more detailed appraisals will need to be carried out as the project progresses at FBC stage. A CHP unit will provide energy cost savings per kWh due to the ability to generate power and utilise the heat released at a cost below imported power costs. These savings are obviously dependent upon the relative prices of fuel and power and moderated by the additional maintenance costs. 10.2 Current Financial Position The table below shows the overall financial position for the Trust;

2008/09 £000

Income from activities 274,241 Other Operating Income 34,833 Operating Expenses (299,072) Operating Surplus (deficit) 10,002 Profit/(Loss) on disposal of fixed assets 0 EBIT 10,002 Net Interest receivable/(payable) 133 PDC dividends payable (8,065) Retained surplus/(deficit) for the year 2,070

10.3 Baseline Revenue Costs The tables below summarises the 2008/09 revenue costs in relation to the Trust’s energy expenditure.

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Electricity

Gas

For 2015, the energy expenditure, for the Lister site on a like for like basis (i.e. without the CHP) is predicted to be; Utilities for Lister Site £ KWH Gas 1,507,563 46,219,000 Electric 2,360,934 19,943,609 Total 3,868,497 66,162,609

10.4 Proposed Costs The project team have requested outline costs from a number of potential suppliers. To date, the most comprehensive cost estimates received have identified the following cost estimates in order to enable the construction of a Public Sector Cost Comparator. Capital Costs Item Cost Estimate (Public Sector Comparator) 1.3MW CHP £800,000 Waste Heat boiler associated with the CHP £150,000 Distribution pipework to plantroom D1 (basement under tower block)

£250,000


£50,000




£80,000


£90,000


Site £ KWH GJ Tonne Carbon Lister 1,073,152 9,065,277 32635 4,868.6 QEII 829,094 6,910,833 24879 3,711.2 HCH 27,003 140,277.7 505 85.5 Totals 1,929,250 16,116,387 58,019 8,654.5

Site £ KWH GJ Tonne Carbon Lister 837,535 25,677,222 92,438 4,750 QEII 415,866 13,413,055 48287 2,481 HCH 15811 501,388 1805 92.8 Totals 1,269,214 39,591,665 142,530 7,323.8

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Item Cost Estimate (Public Sector Comparator) Absorption Cooling associated with the above CHP, including any distribution pipework

£500,000




10.5 Proposed Energy Savings From the information received from the manufacturers approached the following budget annual savings can be seen. Additional Expenditure on Gas (£890,000) Savings on Electricity £ 901,000 Savings on Heat Energy (Gas) £ 458,000 Net Saving (Cost) £ 469,000

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10.6 Public Sector Comparator

Economic Analysis Year1 2 3 4 5 6 7 8 9 10 112009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Capital Expenditure (excludingVAT) -1,840

StaffTemporary Staffing (projectmanagement) -30 -30Funding Specialist Consultant -20Engineering Consultant -30 -30

CHP and UtilitiesGas - additional costs - 890 - 890 - 890 -890 - 890 - 890 -890 -890 - 890 - 890Electricity – savings 901 901 901 901 901 901 901 901 901 901Heat – savings 458 458 458 458 458 458 458 458 458 458Climate Change Levy savingCRC savingMaintenance -92 -92 -92 -92 -92 -92 -92 -92 -92 -92

Income

Net Cashflow -1,920 317 377 377 377 377 377 377 377 377 377Opportunity costsResidual ValueTotal Cashflow -1,920 317 377 377 377 377 377 377 377 377 377Discount Factor 3.5% 0.97 0.93 0.90 0.87 0.84 0.81 0.79 0.76 0.73 0.71 0.68Net Present Value 1,118 -1,855 -1,559 -1,219 -891 -573 -266 30 316 593 860 1,118

Cumulative cashflow -1,920 -1,603 -1,226 -849 -472 -95 282 659 1,036 1,413 1,790

Rate of Return 13.92% Payback period 7 years

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Income & Expenditure 1 2 3 4 5 6 7 8 9 10 112010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

StaffTemporary Staffing (projectmanagement) -30 -30Funding SpecialistConsultant -20Engineering Consultant -30 -30

CHP and UtilitiesGas - additional costs - 890 -890 -890 -890 - 890 -890 - 890 -890 - 890 - 890Electricity – savings 901 901 901 901 901 901 901 901 901 901Heat – savings 458 458 458 458 458 458 458 458 458 458Climate Change LevysavingCRC savingMaintenance -92 -92 -92 -92 -92 -92 -92 -92 -92 -92

Financing CostsLeaseCapital Charges -221 -215 -209 -203 -197 -191 -185 -179 -173 -167

Total Revenue Costs -80 246 312 318 324 330 336 342 348 354 360

Note: Analysis excludes reduction in Backlog Maintenance costs (£320,000) and further savings as a consequence of the likely increases in theClimate Change Levy

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At present the Climate Change Levy costs the Trust £12/tonne (a saving of £36k per annum). Whilst the CCL and the associated savings from the CHP are relatively minor at present, it is more likely than not that these charges will increase. Please note, the CCL has been included within the gas and electricity savings shown in the financial analysis, above.

10.7 Grants, Loans & Other Funding Support There are a number of grants available at the present time, depending upon the financing option, assist in the funding of the project;

• Department of Health Energy Efficiency Fund • Enhanced Capital Allowances (ECA’s) • Interest Free Loans • Low Carbon Building Grant • Carbon Trading Schemes

As part of the project plan is proposed to engage a funding specialist to advise the Trust on which options would be available to the Trust, the aim being to have definitive position on the funding support options by the time the FBC is presented. Appendix 11 provides an overview of the grants and other funding support that may be available. 10.8 Carbon Reduction Commitment (CRC) The Trust will be registering with the CRC in August 2010. This scheme (Trust-wide rather than site specific) places a limit on the level of emissions for an entire organisation. The proposed CHP plant will assist the Trust in reducing its CO2 emissions by 3029 tonnes.

10.9 Sensitivity Analysis Key to the economic viability of the CHP proposal is the relationship between gas and electricity prices. The CHP proposal is viable because the price of electricity is so much greater than the prices of natural gas. If the relative price difference were to deteriorate in the future, it would bring into question the viability of the project. With this in mind the project team have sought projections of future energy costs. Each year the Department of Energy and Climate Change (DECC) publishes updated energy projections (UEPs), analysing and projecting future energy use and carbon dioxide emissions in the UK. The projections are based on assumptions of future economic growth, fossil fuel prices, UK population and other key variables. These projections, shown in the table below, are the most up to date and most reliable figures available. They are consistent with the most recent UK budget announcements and include all firm and funded environmental policy measures. They are used to inform energy policy and associated analytical work across Government departments. To best reflect prices obtained through large purchasing bodies such as PASA or OGC Buying Solutions (hence, the NHS procurement route) we should be looking at gas and electricity prices projected for the industrial sector.

These forecasts indicate that not only will the price differential between electricity and gas be maintained, but also the difference in price will increase, further supporting the future viability of the CHP proposal.

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2019

2020

2021

2022

Year

p/ kWh




Low GasPrices

Central GasPrices

High GasPrices

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With a payback period of less than seven years, the proposed CHP project will provide the Trust with savings of circa £1.8million over a 10 year period and with a life expectancy of 15 years in total, the CHP provides a potential saving of circa £3.7million over the lifetime of the asset.

10.10 Return on Investment The above analysis shows that in relation to the preferred option, for a capital investment of £1,840,000 savings of £377,000 (before capital charges) have been identified, giving a return on investment of 13.92%. The position in economic terms, allowing for non-recurrent costs is illustrated below; Investment £Capital Cost 1,840,000 Non-Recurrent Costs 140,000 Total Investment 1,980,000 Savings per annum 377,000 Economic return on investment 13.92%

10.11 Overall Affordability In the context of the Trust’s long-term financial model, the Trust is satisfied that the overall affordability of the development is robust.

10.12 Conclusion The above analysis shows that the investment in the CHP delivers savings over and above the cost of the investment. The size of the unit is considered to be optimal for the level of demand anticipated over the next fifteen years.

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11. RISK ASSESSMENT AND MANAGEMENT 11.1 Risk Assessment Methodology The process of risk assessment is; Risk Identification – develop a risk register covering key risk areas and individual risks within these areas Risk Assessment – each of the options must be assessed against the risk register, evaluating the impact, probability and exposure using a scale of one (low) to five (high). The overall exposure to risk is then a product of the impact of risks and the likelihood of them occurring. Any risk with a total score of twelve or above is worthy of consideration. Risk Monitoring – the process of regularly reviewing all risks to ensure effective control, mitigation and action planning. Developing a risk management plan – a plan to manage all the risks identified in the risk register for the preferred option, including persons responsible and a monitoring mechanism. 11.2 Risk Identification & Assessment The existing risk register established by the project team was used as the basis for an initial assessment. These risks were analysed to highlight the key project risks and to identify other risks that should be included for assessment. A further meeting of the project team together with key stakeholders was convened to work through each of the risks in turn and to verify the risk assessment scoring. As a result of this process a number of additional risks were included on the risk register, which is shown at Appendix 12. Mitigating actions have been identified for the key risks and these have all been incorporated into the risk register, together with the assignment of a risk owner. 11.3 Risk Monitoring Integral to good risk management practice is the requirement for each risk to be assigned a review date to ensure appropriate monitoring, mitigation and assurance. The CHP project team is continually communicating with risk owners to ensure timely review and update. This will also take place through fortnightly project team and monthly exception reporting of risk to the CHP Project Board. Overall risk management performance in this regard will be monitored by the programme board. 11.5 Risk Management Plan The aim of a risk management plan is to maintain optimum risk management performance and one is in place. It consists of a continuous process of risk review, assessment and escalation, where required. To this end the project risk register is now a permanent agenda item on the CHP Project Board, the DQHH project co-ordinating team and the DQHH project board.

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12. PROGRAMME AND PROJECT MANAGEMENT This section describes;

• The project structure and key personnel for taking the scheme to completion • The proposed project timetable • The arrangements for post project evaluation

12.1 Project Structure The project forms part of the DQHH programme, the structure of which is shown below;

The project is managed through the governance structure established for the implementation of DQHH. The Trust DQHH Programme Board is responsible for strategic leadership and authority to ensure the delivery of the consolidation of acute services onto the Lister Hospital site, of which this project forms a part. It consists of the Trust’s executive team, PCT and SHA representatives. The CHP Project Board, supported by the Trust Programme team, will take responsibility for the implementation and delivery of the project brief, including the preparation of business case, design and procurement processes and communication.

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12.2 Key Personnel The Trust personnel leading this project all have a significant amount of NHS, Estates and Energy Management experience. CHP Project Board Dean Goodrum - Project Director Scott Woodrup - Project Manager Richard Harman - Strategic Director of Estates Robert Jones - Property Manager Tim Pearce - OCH Finance Consultant Advisors Tim Pearce - Finance Consultant Alan Newman - Troup Bywaters + Anders – Consultant Engineers Tony Lambert – consulting – Trust Authorised Person (HV/LV) Peter L Dymoke – Price Waterhouse Cooper John Streeton - HSMC Resources It is envisaged that the project can be completed within the current resources of these key personnel. However, it would be wise to budget for some additional temporary project management support during the period from business case approval until the unit becomes fully operational, so as to ensure that the senior Estates Managers have sufficient time available to manage the provision of the routine service requirements of the Trust. Specifically some additional expert resource is required to advise the Trust with regard to funding sources that may be available. The financial model for this project has made an allowance of;

2009/10 2010/11 2011/12 Project Management £20k £30k £0k Funding Specialist £0k £20k £20k Consultant Fees £35k £30k £60k Enabling works £15k £20k £70k Total £70k £100k £150k

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12.3 Project Timetable



Apr 2010 Dec 2010




Sep 2010 Sep 2010




Prepare contract

Feb 2011 Mar 2011







12.4 Post-Project Evaluation (PPE) The Trust is committed to ensuring that a thorough and robust post project evaluation is undertaken at key stages in the process, to ensure that positive lessons can be learnt from the project. The lessons learned will be of benefit when undertaking future similar projects. Post project evaluation (PPE) also sets in place a framework within which the benefits realisation plan can be tested to identify which benefits have been achieved and which have not – with the reasons for these understood in a clear way. Recent NHS guidance on PPE has been considered and the proposed approach will accord fully with this during the various evaluation stages. The key stages that will be evaluated are;

• Implementation • Shortly after the new facility is fully operational • Once the service is well established

The plan for evaluation at each of these stages is set out below. This section will also set out how these arrangements will be managed, how information will be disseminated and over timescale.

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The evaluation will be overseen by the Trust DQHH project board who will act as the evaluation steering group. Implementation The objective of this evaluation is to assess how well and effectively the project was managed from the business case process through to implementation, including the enabling building works and installation phase. It will be undertaken using a 360º view of the process using internal and external stakeholders. It is planned that this evaluation will take within three months of the opening of the new facility and will examine;

• The effectiveness of the project management of the scheme – viewed internally and externally

• Communications and involvement during the project • The effectiveness of the advisors used on the scheme

Evaluation of the project in use – shortly after the facility is fully operational It is proposed that this stage of the evaluation be undertaken between six and twelve months after the new facility is fully operational, in order that many of the lessons learned are still fresh in the minds of the stakeholders. The objective of this stage is to assess how well and effectively the project was managed during the Trust’s operational commissioning phase and into the actual operation of the new facility. Again, the objective is to use a 360º view of the process using internal and external stakeholders. The evaluation at this stage will examine;

• The effectiveness of the Trust project management of the scheme – viewed internally and externally

• Communications and involvement during commissioning and into operations • Support during this stage from other stakeholder organisations, as appropriate • Overall success factors for the project in terms of cost, time and quality • Extent to which it is felt that the facilities meet users’ needs – from the point of view of

service users and staff Evaluation once the service is well established It is proposed that this evaluation is undertaken approximately two to three years following the establishment of the new facility. The objective of this stage will assess how well and effectively the project was managed during the actual operation of the service. Again, the objective is to use a 360º view of the process using internal and external stakeholders. The evaluation at this stage will examine;

• The effectiveness of the working arrangements

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• Extent to which it is felt that the facilities meet users’ needs – from the point of view of service users and staff

Management of the evaluation process and resources to deliver The process will managed by the project director for the DQHH programme, working through the Trust DQHH project board. All evaluation reports will be completed within three months of completion of the data collection. The results of each report will be made available to all participants in each stage of the evaluation and to the Trust Board. The costs of the post project evaluation are not included in the costs set out in this business case, as it is assumed that this work will be undertaken in-house as part of the Project Director’s role.

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13. PLANT & EQUIPMENT STRATEGY 13.1 Introduction For the purposes of this business case the equipment requirements for the CHP project have been identified separately and are clearly set out within the costing of the project. The main element of equipment will be the CHP system itself and the associated connecting infrastructure.

13.2 Manufacturers

There are a large number of manufacturers who provide CHP solutions. We have utilised the ‘Combined Heat and Power Associations’ website to select a number of companies suitable for small scale CHP solutions, to discuss the scheme at this stage. At this stage we have selected the following three companies.

+ Aircogen CHP Solutions (Dresser-Rand) + Cogenco Ltd + ENER-G Combined Power (this manufacturer has been involved in providing options

to the Trust direct previously)

13.3 Legislative Considerations

Numerous standards and codes of practice have been issued by national and international bodies to provide a benchmark in terms of detail and content for the material, design, manufacture and supply of any product or service. In general terms, the British Standards available cover virtually all aspects of the design and installation of CHP plants. For packaged CHP systems, the standards and codes of practice covering the above are more relevant to the manufacturers and installers of the units rather than the end user. An overview of the main legislative considerations is provided at Appendix 13. Therefore the onus in general, is on the supplier of the CHP plant to meet the requirements of the applicable British Standards that cover the components and materials involved. The Equipment Strategy will be cognisant of these legislative requirements in the selection criteria for the preferred partner to the Trust. 13.4 Environmental Considerations

Installing a CHP system usually increases the heat and power plant on site and the effects this has on the local environment of such an expansion needs to be addressed at an early stage, as part of the planning and evaluation process. The type and size of installation will determine whether any consent is required under the Town and County Planning Acts however as the plant is to be sited within the existing boiler room we do not envisage any conditions being applied. Notwithstanding this we plan to make an early approach to the Planning Department to support this.

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Some projects may need a detailed environmental impact assessment (EIA) carried out to consider combustion product dispersal, noise, liquid effluents disposal, visual impact, containment and storage and this will also be discussed with the Local Authority at an early stage. An overview of the main environmental considerations is presented at Appendix 14. 13.5 Conclusions In summary, the plant & equipment requirements for the CHP project have been identified and discussions have been held with a number of the main CHP suppliers. Additionally the Trust’s project team are cognisant of the legislative and environmental considerations associated with the installation and operation of a Combined Heat & Power plant. The cost of the plant/equipment is estimated to be in the order of £1,840,000.

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14. PROCUREMENT STRATEGY 14.1 Introduction Due to the significant amount of time, resource and money the design and implementation of a CHP involves, it is important from the start to have a clear idea of the various options available for the purchase, installation and ongoing operation. Essentially there are three broad approaches: + Design and Manage

This is where the Trust would seek to maximise their involvement in the design, procurement, installation and management of the project. This route would mean the Trust would need to finance the purchase of the plant, manage the design and procurement procedures plus manage the plant after installation. Ownership of the plant would also be by the Trust. This approach demands a high level of both resources and operational and management expertise be it by in house staff or specialist consultant.

+ Turnkey Contract

A turnkey project is one in which a single Contractor (sometimes but not necessarily an equipment supplier) assumes responsibility for implementing the whole project, from detailed design, through purchasing and installation, to commissioning and testing. The Trust would have a limited responsibility for ensuring that all the plant items worked together and met the specified requirements. In turn this would limit the time and resource the Trust would need to provide during the plant design and installation process. The Trust would again need to finance the procurement of the plant through this option. On completion, the plant would be handed over to the Trust who would pay for it and then own it. In most cases the Trust would operate and manage the plant, thereby assuming responsibility for plant performance and reliability and also retaining any cost savings.

+ Integrated Energy Services Contract (ESCO)

The scope of an ESCO option can vary widely. In some instances a contract can be set up with an ESCO by which they design, install, own, operate and maintain the CHP plant. This means they would provide the Trust with metered electricity and heat. In other cases the operation and management of the CHP is sub contracted to the ESCO, however the design and installation has been carried out via one of the two earlier options outlined above. The ESCO can also be responsible for fuel purchase, operation and maintenance of boilers (and other energy plant) and site energy systems. Adopting this solution would allow the Trust to benefit from a CHP whilst limiting its financial outlay to the managerial and legal input in setting up the necessary detailed contract documents. It should be noted that because the ESCO is responsible for finance and ongoing plant operation, the net savings to the Trust will be lower than if financing and operating the CHP itself.

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“Any transaction with an ESCO contractor involves a long-term commitment by the organisation. The organisation’s audited accounts should contain a summary of this commitment. Evidence will also be needed to satisfy the organisation’s auditors that the arrangement is an operating lease and not a finance lease. If ownership transfer to the organisation is implied or stated in the contract, the arrangement must appear on the organisation’s balance sheet.” – Department of Energy & Climate Change

14.2 Procurement Strategy The proposed procurement strategy for the CHP is to enter into an ESCO arrangement whereby the CHP and supporting infrastructure are financed by the supplier. The Trust will then purchase energy via the supplier at an agreed rate. Whilst this will reduce the annual energy savings to the Trust it will avoid the necessity for the Trust to finance the initial capital investment. As the CHP will not belong to the Trust, potentially it would not appear on the Trust’s balance sheet. However, as set out in section 8.2 above, there are a number of factors that will determine whether this will be the case. The objective of the procurement strategy will be to seek responses and costed proposals from potential suppliers/partners against a range of financing options, which will be analysed for the value for money that each presents as part of the FBC process. All of the potential suppliers/partners that have been approached to date have said that they would be happy to operate the CHP as an ESCO arrangement. Notwithstanding the procurement route, all quotations received will be analysed for specification compliance and competitiveness. Each tenderer will be asked as part of the process to put forward alternative bids, where they see an opportunity to offer better value for money. In calculating the Guaranteed Maximum Price (GMP), the selected suppliers’ quotations will be identified and where appropriate, adjusted to include allowances for any known outstanding issues of design development or incomplete scope. For each service/trade, copies of quotations and any proposed adjustments will be forwarded to the Trust for audit in advance of establishing the GMP. 14.3 Procurement Schedule A procurement schedule has been developed for mutual agreement, setting out the strategy by which each trade package will be procured. The services of supply chain members may be secured through nomination by the Trust via existing contractual agreements, single source negotiation, competitive tender or OJEU tender. Only suppliers with a proven capability will be considered for the project. Details of the procurement schedule are shown in section 12.3 above. 14.4 Risk As the scope of procurement requirement is established and the design developed, project risks will be identified by all members of the project team. Any additional procurement risks

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that are identified will be added to the risk register, recording each issue that has been identified. As with other risk issues, procurement risks will be considered and allocated between the various members of the project team as appropriate, in order that wherever possible these risks can be managed out in advance of establishing the GMP. Where it has not been possible to manage out project risks, issues will be both priced and included as a fixed cost or a provisional allowance may be included. Concurrent with this exercise, consideration will be given to the wider project implications should any risk occur.

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15. BENEFITS REALISATION 15.1 Introduction The Benefits Realisation Plan (BRP) describes the objectives and benefits of the project. It ensures that the change programme is designed and managed in the right way to deliver quality and value benefits to the Trust, its patients and staff. The BRP will also define how and when outcomes and benefits are measured. 15.2 Objectives & Benefits The measures of success for this project are; • A significant milestone in enabling the Trust to show a reduction in its carbon emissions

and to achieve Government set targets - an estimated reduction of 14% in carbon emissions

• A reduction in the Trust’s overall energy expenditure, and specifically a significant

contribution to the elimination of penalty payments due to the present over use of electricity above Maximum Demand level by the Trust

• A reduction in the Trust’s backlog maintenance liabilities of circa £320,000

• Provide a major instrument in the achievement for BREEAM (Building Research Establishment Environmental Assessment Method) level of excellent in the new developments including Phases 2 and 4 of the Trust’s “Our Changing Hospitals” plan. The Department of Health now require, as part of an Outline Business Case approval, that all new builds achieve an “excellent” rating and all refurbishments achieve a “very good” rating.

15.3 Benefits Realisation Plan The BRP, illustrated in the table below, is a high-level assessment of the benefits and outcomes to be achieved. The DQHH project board has overall responsibility for this process.

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Objective /Benefit Measurement Success Criteria

Timescale Responsible Owner

A reduction in the Trust’s carbon emissions and achievement of Government set targets

KW/H

An estimated reduction of 14% in carbon emissions

By Apr 2012

Dean Goodrum – Head of Estates

A reduction in the Trust’s overall energy expenditure, and specifically a significant contribution to the elimination of penalty payments due to the present over use of electricity above Maximum Demand level by the Trust

Expenditure on energy compared with “do nothing” option.

Overall Energy expenditure £350,000 per annum lower than at present

By Apr 2012


A reduction in the Trust’s backlog maintenance liabilities

Value of backlog maintenance @ 2010 values

Reduction of backlog maintenance liabilities of circa £320,000

By Apr 2012


Achievement of BREEAM level of excellent in the new developments including Phases 2 and 4 of the Trust’s “Our Changing Hospitals” plan.

BREEAM Assessment

Achievement of excellent rating

By Apr 2012


The delivery of the project within the requisite timeframe

The degree to which the project met the timescales outlined in this business case

The new CHP is fully operational by March 2012.

By Apr 2012


The delivery of the project within the agreed budget

The degree to which the project was delivered within the budget outlined in this business case

The facility is fully operational within its capital budget and revenue budget

By Apr 2012


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16. CONCLUSIONS AND RECOMMENDATIONS The proposal to install a CHP has a number of significant benefits that concur with the Trust’s strategic direction and objectives. Specifically, the CHP project offers;

• Financial savings (reduction in energy costs of circa £370,000 per annum with a pay-back period of under 7 years{subject to procurement/financing route})

• No capital outlay (depending upon procurement route selected)

• A potential off-balance sheet solution (depending upon procurement route selected)

• A reduction of 3,029 tonnes per annum in the Trust’s carbon emissions, enabling the

Trust to meet national and international obligations

• A reduction in backlog maintenance of circa £320,000

• Achievement of BREEAM “Excellent” rating for the Trust (a prerequisite for the approval of any capital development projects within the NHS and the public sector)

The project will be managed using a structured project management approach. The project team are confident that all project risks have been identified and that there are appropriate mitigating strategies to deal with these. There are no anticipated adverse implications arising from this project that are likely to impact upon patients, staff or service users. The experience and qualifications of the project team provide confidence that the project can be delivered within the proposed timescales and within the budget framework identified. In conclusion, you are recommended to approve this outline business case to implement a Combined Heat & Power Plant for the Lister Hospital. This will allow the project team to progress with the OJEU process with a view to commencing competitive dialogue.

COMBINED HEAT & POWER PLANT


APPENDICES

May 2010

APPENDIX 1 LISTING OF ALL NHS TRUSTS CURRENTLY OPERATING CHP PLANTS 2gether NHS Foundation Trust

Barking, Havering and Redbridge University Hospitals NHS Trust Basingstoke and North Hampshire NHS Foundation Trust Bedford Hospital NHS Trust Blackpool, Fylde and Wyre Hospitals NHS Foundation Trust Bradford Teaching Hospitals NHS Foundation Trust Bro Morgannwg NHS Trust Bromley Hospitals NHS Trust Buckinghamshire Hospitals NHS Trust Calderstones Partnership NHS Foundation Trust Cambridge University Hospitals NHS Foundation Trust Cambridgeshire and Peterborough NHS Foundation Trust Cardiff and Vale NHS Trust Carmarthenshire NHS Trust Central Manchester University Hospitals NHS Foundation Trust City Hospitals Sunderland NHS Foundation Trust Conwy and Denbighshire NHS Trust Dorset County Hospital NHS Foundation Trust East Kent Hospitals University NHS Foundation Trust East Sussex Hospitals NHS Trust Gateshead Health NHS Foundation Trust Gloucestershire Hospitals NHS Foundation Trust Gwent Healthcare NHS Trust Harrogate and District NHS Foundation Trust Heart of England NHS Foundation Trust Hereford & Worcester Ambulance Service NHS Trust Hull and East Yorkshire Hospitals NHS Trust Isle of Wight NHS PCT James Paget University Hospitals NHS Foundation Trust Kingston Hospital NHS Trust Leeds Teaching Hospitals NHS Trust Mayday Healthcare NHS Trust Mid Cheshire Hospitals NHS Foundation Trust Mid Staffordshire NHS Foundation Trust Mid Yorkshire Hospitals NHS Trust Milton Keynes Hospital NHS Foundation Trust Moorfields Eye Hospital NHS Foundation Trust Norfolk and Norwich University Hospitals NHS Foundation Trust North Bristol NHS Trust North Glamorgan NHS Trust North Tees and Hartlepool NHS Foundation Trust

North West Wales NHS Trust Northampton General Hospital NHS Trust Northern Lincolnshire and Goole Hospitals NHS Foundation Trust Northumbria Healthcare NHS Foundation Trust Nottingham City Hospital NHS Trust Oxford Radcliffe Hospitals NHS Trust Oxleas NHS Foundation Trust Pembrokeshire and Derwen NHS Trust Pennine Acute Hospitals NHS Trust Pontypridd and Rhondda NHS Trust Poole Hospital NHS Foundation Trust Poole Hospital NHS Foundation Trust Queen Elizabeth Hospital NHS Trust Queens Medical Centre, Nottingham University Hospital NHS Trust Royal Bolton Hospital NHS Foundation Trust Royal Devon and Exeter NHS Foundation Trust Royal Free Hampstead NHS Trust Royal Liverpool and Broadgreen University Hospitals NHS Trust Salisbury NHS Foundation Trust Sandwell and West Birmingham Hospitals NHS Trust Shrewsbury and Telford Hospital NHS Trust South Devon Healthcare NHS Foundation Trust South Staffordshire and Shropshire Healthcare NHS Foundation TrustSouth West London and St George's Mental Health NHS Trust South West Yorkshire Partnership NHS Foundation Trust Southampton University Hospitals NHS Trust Southport and Ormskirk Hospital NHS Trust St George's Healthcare NHS Trust Surrey and Borders Partnership NHS Foundation Trust The Christie NHS Foundation Trust The Dudley Group of Hospitals NHS Foundation Trust The Hillingdon Hospital NHS Trust The Newcastle upon Tyne Hospitals NHS Foundation Trust The Queen Elizabeth Hospital King's Lynn NHS Trust United Lincolnshire Hospitals NHS Trust University College London Hospitals NHS Foundation Trust University Hospital Birmingham NHS Foundation Trust University Hospital of North Staffordshire NHS Trust University Hospitals Bristol NHS Foundation Trust University Hospitals Coventry and Warwickshire NHS Trust University Hospitals of Leicester NHS Trust West Suffolk Hospitals NHS Trust Winchester and Eastleigh Healthcare NHS Trust Wirral University Teaching Hospital NHS Foundation Trust

APPENDIX 2 MARKET EVALUATION Having reviewed a number of NHS Trust websites and information portals, we have found the following CHP schemes at various different stages Guy’s and St Thomas’ NHS Foundation Trust (London) The Trust has become one of the 1st Trust’s in London to produce its own electricity and heat through the use of CHP. There have been units installed at both Guy’s Hospital and St Thomas’ Hospital, with each system producing enough electricity to meet half of the Trust’s requirements. The waste heat generated, in the form of steam and hot water is collected and used for the hospitals heating and hot water. It is reported that overall the CHP units will reduce CO2emissions produced by the Trust by almost 11,300 tonnes per year and save the Trust more that £1.5million in annual energy costs. The units were funded by a £10m grant from the Department of Health’s Energy and Sustainability Fund. The Shrewsbury and Telford Hospital NHS Trust A 1150kWe CHP installed at the Royal Shrewsbury hospital in 2007 was commissioned by the Trust following an audit in 2004 showed the energy consumption of the site being almost double than that of the recommended NHS target. The unit installed has enabled the hospital to save more than £78k a year, simultaneously shrinking its carbon footprint by some 2,000 tonnes annually. In addition a 700kWe absorption chiller was installed as part of the CHP scheme following the introduction of a dedicated chilled water main which linked the numerous chilled water plants across the site. The scheme was helped by a Community Energy Grant of £547k, the largest achieved within the NHS. Heart of England NHS Foundation Trust A 1165kWe CHP installed at Birmingham Heartlands hospital is cutting emissions of CO2 by 1627 tonnes per year. The unit has been installed in a purpose built energy centre connecting to the existing hospitals steam heating system and connected to a 300kWe absorption chiller to produce chilled water from the waste heat in the warmer months, allowing the existing electrical chillers to run much less frequently. The £5m programme has been financed around a PFI contract and includes a £403k grant from the Carbon Trust under the Government’s Community Energy Programme.

APPENDIX 3 EnCO2de Calculation Method Appendix 2 within HTM 07-02: EnCO2de sets benchmarks for energy and carbon dioxide usage in new and refurbished healthcare accommodation. The benchmarks have been derived from historical information received from Trusts in terms of their total energy / carbon usage and the fossil fuel / electrical usage percentages that make up the total. The base date for this data in the UK is 2003 / 2004, with data collected from a range of new and old stock, classified into a range of different types of accommodation. For the average Acute in the UK the energy performance is shown as being 72 GJ/100m3/annum, with 73% being fossil fuel (typically natural gas) and 27% being electrical energy, all as identified within Table 1 earlier within the report. However, whilst historic data shows electrical energy on average to be only 27%, new acute hospitals delivered under Private Finance Initiative (PFI), with current technology and improved patient comfort are actually achieving more like a 50/50 split. This change has a major impact on energy usage due to the difference in carbon ratings of both gas and electricity, as can be seen from the table below derived from the Building Regulations.

It can therefore be seen that electricity has more than twice the carbon content of gas. Therefore unless the hospital being assessed has a gas / electricity split which reflects that set out in EnCO2de, the benchmark figures cannot be achieved. In fact, it has been identified

that energy usage needs to be approximately 20% below the EnCO2de target to achieve the carbon target when based on a 50/50 split. Another factor when calculating energy usage is the size of the space classed as the building volume. The dimension recognised within EnCO2de is 2.7m; however 4.0m is generally used within new PFI projects. Although by changing this dimension the figures can be manipulated the actual energy usage can not be different.

APPENDIX 4

EXISTING SITEWIDE ENERGY USAGE SUMMARY

2006/2007 A B C D E F G HUtility Total

Occupied floorarea

SiteHeatedVolume

GJ/Annum GJ/100m³/Annum EnergySplit [%]

kWhrs/Annum CarbonEmission Factor[CO²/kWhr]

Annual CarbonEmissions[kg/m²]

[C Total/ Bx100] [D Total x277.7777778]

[F x G / A]

Gas 84729 74 23535833 0.194 73.50Electricity

62119 14759529388 26 8163333 0.422 55.46

Total 114117 77.32 Total 128.96


Occupied floorarea

SiteHeatedVolume





[F x G / A]

Gas 100512 73 27920000 0.194 86.60Electricity

62549 14861637734 27 10481667 0.422 70.72

Total 138246 93.02 Total 157.31


Occupied floorarea

SiteHeatedVolume





[F x G / A]

Gas 82185 74 22829167 0.194 70.81Electricity

62549 14861629020 26 8061111 0.422 54.39

Total 111205 74.83 Total 125.19

Note: Energy Data based on the Trust Estate Return Information Collection (ERIC) report for 2009.

APPENDIX 5 ELECTRICAL AND STEAM LOAD PROFILES 2008 & 2009

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

kW

1 2 3 4 5 6 7 8 9 10 11 12

Month


0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

kW

1 2 3 4 5 6 7 8 9 10 11 12

Month


0

500

1000

1500

2000

2500

3000

3500

4000

kW

1 2 3 4 5 6 7 8 9 10 11 12

Month



0

500

1000

1500

2000

2500

3000

3500

4000

kW

1 2 3 4 5 6 7 8 9 10 11 12

Month



(Note: base load figure for electricity is that which will not be exceeded for 80% of the year and for heat (steam output) the minimum load during summer months)

APPENDIX 6

MAIN AREAS OF STEAM LOSSES

HWS Distribution Losses

Hot Well Blow-Down Cycle

Steam Distribution Losses

Condensate Losses

Other Losses

Base Heat Load

STEAM LOAD

1,380kW

This relates to the heat load required to make up for the temperature differential between the HWS flow and return.

This is the process relating to the flushing of the boilers to remove build up of particles.

This relates to the condition of the steam pipework, insulation and traps associated with the system. The Trust is currently having a survey carried out to identify the system condition.

Condensate pipework from the receivers is routed back to the energy centre where it is stored in a tank for re-use.

This covers areas of unknown losses and where the systems are being used inefficiently.

This relates to the main HWS base load.

As part of the existing site steam load there is currently a process load associated with the HSSD, however this will not form part of the CHP load.

HSSD Load

APPENDIX 7TRUST MAXIMUM DEMAND PROJECTION

East & North HertsNHS Trust Lister Hospital

Maximum Demand ProjectionKVA

Revision11

Phase Development

Spatialarea ofdepartmentm2

SubS7(A)

SubS5(B)

SubS2(C)

SubS6(D)

SubS4(E) Total Notes

T10 T5 T6 T7T1 &T2

T8 &T9 T3 & T4

existing 220 410 270 700 100 1700

rationalisation ofSub (S5)B followingupgrade 220 400 400 400 180 100 1700

Currentessentialload forTower Blockcurrently fedfrom SubS2(B)redistributedfrom SubS5(B)

1 CT Scanner -120 300 300 480

1 Upgrade Cath Lab 250 250Stage BDesign

2 New Maternity 3265 -60 -60 -60 911 731

Final designwhichincludes

existing MatUnit

3 New Car Park 250 250Stage BDesign

4

Existing Tower BlockWard refurbishments; no significantchanges; no A/C 75 75 75 225

Isolation unit level11; new A/C etc 200 200

4/5

Phase 4 enablingschemes ; minorchanges 25 25 25 75

4/5A & E rationalisationand new block 3530 300 253 553

Stage Bdesign

UCC/ Radiology/Fracture Clinicless omission ofexisting -60 -60 -120

4/5(3 storey ) ClinicalWard Block 5100 484 484

Stage Bdesign

less omission ofexisting OH -30 -30

k

4/5Endoscopy &Theatres 2830 480 480

Stage Bdesign

4/5 Replace PEADS for -50 -502 New Theatres 2500 500 500

4/5 Mortuary 50 spaces 285 150 150

total additional afterPhase 4/5 130 580 483 390 480 1204 911 4178

diversity factor 0.85 111 493 411 332 408 1023 774 3551

total new load afterPhase 4/5 331 893 811 732 588 1123 774 5251

substations diversity0.8 4201

total after GrowthFactor Allowance25% 5251

Existing EDF IntakeSupply 331 331

New EDF IntakeSupply 893 811 732 588 1123 774 4921

Note:1. Does not includethe ISTC

APPENDIX 8 NOTES ON SIZING OF CHP Maximum size of CHP All of the circuit breakers that form the sub station S3 switchgear are rated at 630A and with 600/1 current transformers fitted the maximum theoretical size CHP is 11,430kva. In practice the size of the current transformers fitted to the CHP circuit breaker would limit the size. We had originally allowed 100/1 for a CHP of 800 to 900kva. Going up to a CT ratio of 200/1 will permit a CHP up to 3800kva to be connected. We will adjust the protection relay to suit the final size selected. The planned CHP T5 transformer space on the new sub station S3 concrete deck can accommodate up to 2000kva size EDF load swing issues Before an order for the CHP can be placed EDF will need to approve the size of the unit. The main concern for EDF is that if a CHP trips whilst carrying a significant amount of load, this has to be instantly pick up by the EDF network. For a 2000kva size CHP, this would cause a sudden load swing onto the EDF network back at the primary sub station. In urban areas with a robust network and a primary sub station rated at several MW this may be acceptable but EDF need to carry out a detailed system study to give their written approval. We would advise, if not already in progress, to write to EDF to set out the proposals for CHP size and await their reply. Control issues The size of CHP selected will need to be taken into account for the purpose of integrating the control systems. There are basically two levels of control integration that need to be considered set against the pattern of load demand on the site. Small size CHP, fixed output operation If the CHP is of relatively small size in relation to the site thermal and electrical load it can run at a fixed maximum output to obtain best efficiency. A timer could be used for start/stop if the unit runs from say 7am to 12 midnight. For example if the site electrical load were 2000kva as a day time peak and this falls to 900kva at night, an 800kva CHP could run at full output with no risk of power export. The only control interface between the gensets and the CHP is to have a “test on load” signal and a true mains fail/ mains returned signal. This “test on load” will shut down the CHP if the gensets are operated using the test key facility. A mains fail “G59” event will also shut the CHP down but the starting and running of the gensets should not be seen by the CHP as a signal the mains has returned or it could attempt to synchronise to the generators and share load with them. The CHP should only re start when the normal mains is restored and the generators have shutdown after load transfers back to mains. A signal from the mains incomer VT output needs to be run over to the CHP to give a true mains fail/return signal. Larger size CHP, varying output operation If the CHP is of larger size in relation to the site thermal and electrical load this results in a step change in the level of controls integration required and a higher degree of complexity. If the future peak daytime load were, say, 3000kva we would expect the night load to drop to around 1350kva. If a 2000kva CHP were installed, this will be able to run at full power for the daytime peak load but as the electrical load drops off in the evening a point will be reached where power would begin to be exported which is not permitted by EDF.

On a cold Winter evening the site thermal load may still be calling for full output but the output of heat and electricity cannot be individually regulated. The basis of the CHP control system would be a comparator that looks at thermal demand from the heat exchanger/ pipework sensors and the electrical load from the mains incomer CB. It then always takes the lower of the two signals to set the actual output. To be able to reduce electrical output the CHP controller has to be able to monitor the load on the mains incomer CB via the mains controller we will be installing for the gensets and it therefore has to be interconnected into the data cable network that links the generator controllers and the mains controller. The CHP controller needs to be of the same type to permit future integration. The mains controller will have an export level programmed into it to avoid power export. If this is set to, say, 100kva, when the site load reduces below this level, the CHP will be commanded to throttle back to reduce output. At a load of, say, 1600kva, the export level holds the load drawn from the mains at 100kva and the 2000kva CHP is throttled back to 1500kva. The CHP can reduce to around 50% of its rated output. If the night time minimum load falls below that which the CHP can reduce to then it needs to be switched off using a timer well before this level is reached or it could overheat and trip out. Similarly, during the load rise in the morning, the export control holds the load drawn from the mains at 100kva and the CHP is throttled back until the load rises. For a 2000kva CHP, and an export level of 100kva, as soon as the load reaches 2100kva the CHP goes to full output and further load increase then is drawn from the mains. The mains controller works with the CHP controller as a distributed control system ( DCS). On a very hot Summer day if the thermal load from the CHP cannot be absorbed the thermal control side will throttle back the CHP to reduce output even though the electrical demand may be for full output. If the future CHP size will need to have a varying output to match the minimum site load, we will need to make provision in the control unit data cable links for a future connection to controller No 6 in the CHP.

APPENDIX 9 RENEWABLE ENERGY OPTIONS Geothermal Energy (Ground Source Heat Pumps)

This technology makes use of the energy stored in the Earth’s crust. Essentially, heat pumps take up heat at a certain temperature and release it at a higher temperature. This is achieved by the means of either vertical or horizontal ground collectors (coils) in which a heat exchange fluid circulates and transfers heat via a heat exchanger to the heat pump with the cycle driven by the temperature difference between the ground and the circulating fluid. The closed loops can be incorporated within the building piles or installed independently, however, much depends on the on the available land, soil conditions and excavation costs. There is also the option of open boreholes, however, this application requires a separation distance between the extraction and rejection wells and may need an extraction licence from the Environment Agency From initial investigations carried out as part of the Phase 4 LIFT schemes, it has been confirmed that the soil conditions surrounding the Lister Hospital site are chalk and recent desk top studies have highlighted that to provide approximately 1000kW of heating and 950kW of cooling would require 150m deep holes and a land area of 2150m² at a considerable cost. On this basis for the known schemes proposed for the site the use of ground source heat pumps are not deemed feasible at this moment in time, however this will need to be challenged as technology and new schemes become known. Biomass Boilers This option has been touched upon in both of the previous reports commissioned by the Trust. Biomass is an alternative solid fuel to the conventional fossil fuels and has an impact on carbon emissions that is close to neutral. Various types of biomass are in use, the most common being the wood based biomass i.e. wood chips or pellets, which includes forest residues such as tree thinning, and energy crops such as willow rotation coppice. Biomass is converted into a manageable form that can be directly fed to the heat or power generation plant, thus replacing fossil fuel. For building applications, the fuel usually takes the form of wood chips, logs and pellets. Wood pellets are essentially compacted high-density wood with low controlled moisture content, thus having a high calorific value per unit or weight.

The main benefit of biomass technology is the significantly reduced level of carbon emissions owing to the fuel carrying zero (or very close to zero) carbon burden. Over their lifecycle, biomass fuels sourced and processed from sustainable sources within 25 miles of the biomass plant can be regarded as being carbon neutral. It is not envisaged this would be the case for this site. However, the NOx emissions from a biomass boiler are considerably higher than that of a gas fired boiler and subsequently BREEAM credit POL 4 could not be considered achievable and this would need to be factored into any pre assessments carried out for all new projects. As discussed in the previous commissioned reports, the Trust have been recommended to focus on provision of a Combined Heat and Power plant (CHP) to drive down energy usage across the site. This is further discussed later within this section of the report.

At this time, the Trust are currently progressing an Outline Business Case for implementing this whilst reusing their existing steam distribution system and utilising a number of the existing boilers as back up. Due to this, it is not envisaged that biomass boilers will be taken further, however, the Trust may wish to consider this option in the future should the CHP option not materialise. However the Trust are committed to improving the efficiency and NOx emissions of the two existing boilers identified as remaining out of the original five steam boilers installed when the hospital was first built in the 1960’s. As part of the Trust plans to incorporate a CHP on the site, three of the existing boilers would be stripped out as at present only two run at any one time to meet the site demands. Whilst the boilers are well maintained, in very good condition and operate well without any fault/failures, due to their age, they do not run efficiently and produce high NOx emissions. Both of these factors have an impact on the energy and environmental performance of the site and will particularly effect any new developments with respect to Building Regulations and BREEAM. The current efficiency of the boilers is approximately 75% which is some way below the efficiency of modern boilers, which would be expected to be around the 85-90% mark. This figure also falls short of Building Regulations Part L2a requirements of 84%, which is crucial to all new build developments across the site as they must meet these requirements. To achieve at least 1 credit under the requirements of BREEAM, the boiler NOx emissions should not exceed 100mg/kWh. The emissions of the current boilers have been estimated at 125mg/kWh and therefore do not provide any opportunity to gain any credits. As new build developments are required to achieve a BREEAM rating of ‘Excellent’, something that is very difficult on an existing site, any credits that can be achieved are vital. With this in mind the existing boilers being in such good condition there is the opportunity to upgrade them and discussions have been held with the boiler manufacturers with a view to replacing the burners on the remaining two boilers. This is currently subject of a Trust Outline Business Case with early indications that if implemented the improvements would achieve the efficiency required under BREEAM. Biofuel Generation

Biofuels are mainly derived from biomass or bio-waste and provide low carbon emissions. Energy can be generated from organic plant matter / waste through various conversion processes including combustion, gasification and pyrolysis. The most important feature of biomass is that it is a renewable source of energy unlike other natural resources such as coal, petroleum etc. This has been discussed in previous reports and can be implemented onto the site, whether associated with the existing boilers or proposed CHP, however detailed survey’s would need to be undertaken to identify the modifications works required to existing distribution systems and plant to ensure suitability with the new fuels characteristics. Consideration would also need to be given to the carbon footprint associated with delivery and storage compared to that of the existing gas supply currently used as the main fuel.

At this time as with the biomass boiler option identified above, due to the site wide philosophy moving forward the Trust are not currently pursuing this option, but again may need to reconsider in the future should the CHP option not materialise. Combined Heat and Power (CHP) Tri-Generation CHP has been the main focus of the Trust since the completion of the initial report by Cynergin back in 2008, which recommended its introduction. Since then it has been further championed by the Trust’s Energy Strategy 2008 – 2015 document, produced by EC Harris. CHP can be an efficient way of using both fossil and renewable fuels and can therefore make a contribution to the Trust’s sustainable energy goals. This involves the generation of electricity at point of use, where the waste heat is used directly for space, water and process heating on the site. The option to have a Tri-Generation CHP means the waste heat can also be utilised to provide cooling to the site via absorption chillers. This will assist in minimising the increase of electrical usage on the site and subsequently keep the energy split closer to EnCO2de guidance. As this is the preferred option, further details are within section 9 of this Business Case. Photovoltaics

Photovoltaic (PV) cells convert the suns energy directly into electrical energy using semi conductor technology. The cells can be made from a number of materials, however silicon based cells are most commonly used, with three main types all differing in their efficiency capabilities. The actual power generated will depend on weather factors such as temperature and cloud cover, as well as design factors such as exact orientation and position of modules. This although discussed briefly within the previous reports was discounted due to expected payback associated with system costs even when taking into account grant schemes available. Solar Heating / HWS Active solar heating refers to solar heating systems that harness incoming solar radiation to heat air or water and utilising this for space or water heating within buildings. There are two main solar collection technologies for this type of purpose, these being:

+ Flat plate collectors, which utilise a flat back absorption plate with copper tubing bonded to the back.

+ Evacuated tube collectors, consisting of highly efficient heat conductors (perhaps solid or containing a fluid) within evacuated glass tubes.

Although it is recognised that flat plate collectors are more suitable where there is less space constraints (reflective of the roof space available at the hospital) a comparison study is considered essential when investigating this option in more detail. Although touched upon within the previous reports in general terms no clear decision on whether this should be considered as an option for the site was made. Since then however, with the increased focus on the Trusts preferred option to incorporate a CHP onto the site, the introduction of solar heating is not deemed suitable at the moment as it would take away from the site wide base load and minimise the impact of the CHP.

Fuel Cells A fuel cell operates similar to a battery; however it does not run down or require charging and will produce energy in the form of electricity and heat as long as fuel is supplied. At this moment in time fuel cells are not considered to be economically viable in a healthcare environment, there are many other uses for fuel cell technology; the most widely known is within the transportation market.

Wind Power

Taking advantage of any natural wind across the site and the large expanse of roof available, the possibility of introducing a wind turbine(s) is there; however a detailed analysis will need to be carried out to assess weather patterns and levels of electricity that could be generated, which will set the economics of this. The structural implications associated with the weight of equipment would need to be assessed in detail if mounted a number of small turbines were to be considered mounted on roofs locally rather than one large central turbine. We understand from discussions with the Trust the new Multi Storey Car Park is to be provided with a wind turbine solution and therefore details will need to be considered by the Trust within there overall energy philosophy as this will have any impact on site demand, albeit small. However, it is unlikely that this solution will be suitable to serve the entire site due to the spatial and structural constraints and would also minimise the impact of the CHP and therefore is not envisaged to be taken forward as a site wide strategy.

APPENDIX 10 FINANCING OPTIONS - OVERVIEW + Internal Funding

With this option the Trust will need to provide the capital for the complete CHP procurement and installation. In so doing they would retain full ownership of the project and reap the maximum potential benefits. However, at the same time the trust would bear a considerable element of technical and financial risk, although a degree of this risk can be managed out through the different procurement methods detailed above.

+ Debt Finance

A large capital purchase is often funded by a new debt plus some internal funding. As with full internal financing, the residual technical and financial risk would remain with the Trust, apart from those that lie with the suppliers and Contractors. At the same time the Trust would retain full benefits from the installation.

+ Leasing

This is a financial arrangement that would allow the Trust to use an asset over a fixed period, with three main types of arrangement being hire purchase, finance lease and operating lease. Under a hire purchasing agreement the Trust would become the legal owner of the CHP plant once all agreed payments had been made. The basis of the finance lease arrangement is the payment by the Trust of regular rentals to the leasing organisation over the primary period of the lease. This allows the leasing organisation to recover the full cost of the equipment. Although the Trust would not own the equipment it would appear on their balance sheet as a capital item and they would be responsible for the maintenance and insurance. At the end of the primary lease period, either a secondary lease with a much reduced payment can be taken out or the equipment can be sold with the leasing organisation retaining most of the proceeds from the sale.

+ Equipment Supplier

An equipment supplier may, as an alternative to outright purchase, offer a leasing package to the Trust. They would normally design, install, maintain and sometimes operate the CHP plant. A common commercial arrangement is for the energy to be supplied at a price that incorporates agreed discounts on the open market. The Trust would pay for the fuel and agree to buy the electricity and / or heat generated at the agreed price. To assure the equipment supplier of a continued income from the sale of utilities, the Trust throughout its contract period (usually 5–10 year) may be required to make a commitment in the form of a substantial standing charge, lease payment or a high price per volume of the energy supplied. This arrangement transfers most of the technical risk from the Trust to the equipment supplier; however the Trusts savings would also be significantly lower than under a capital purchase agreement. The Trust would also retain the risk relating to fuel price fluctuations.

+ Energy Services Company (ESCO Contractor)/Energy Supply Contract

This option relates to an ESCO arrangement and these can vary widely as discussed within the procurement section earlier. From a financing point of view, the basis of an agreement of this type is to transfer the CHP plant capital and operating costs, together with all the technical and operating risks of the CHP from the Trust to the ESCO Contractor. The Trusts savings when funding a CHP plant through an ESCO arrangement would normally be less than under a capital purchase arrangement because the ESCO Contractor would need to recover the cost of the capital investment, operating costs, overheads and profit. This can be the reverse in some instances where electricity can be exported and sold, however this is not an option under this proposed project. Different ESCO Contractors may produce widely different proposals depending on the Trusts requirements and the ESCO Contractors objectives and this would therefore need to be investigated in greater detail during the next stages of the project. In order to achieve an off-balance-sheet financing option, the scheme would need to be financed under an energy supply contract.

APPENDIX 11 OVERVIEW OF GRANTS & OTHER FUNDING SUPPORT OPTIONS Depending on the finance option taken forward by the Trust there may be options available for achieving a grant to assist in the funding of the project. Below is an overview of those available; + Enhanced Capital Allowances (ECA’s)

This would enable the Trust to claim 100% first year capital allowances on their spending on qualifying plant and machinery, of which CHP is. The Trust can write off the whole capital cost of their investment in these technologies against their taxable profits of the period during which they make the investment. The ECA scheme is a key part in the Governments programme to manage climate change and the Trust would need to claim a part of their normal corporate or income tax return.

+ Interest Free Loans

Following the April 2009 budget the Government, in partnership with the Carbon Trust, announced £51.1m being made available in new interest free loans to help public sector bodies take advantage of energy efficient technology. These loans are offered on a first come first served basis and available through ‘Salix’ finance. The minimum amount available is £5,000.00 per application with no upper limit providing the project can be completed within 9 months of the agreed application. Loans will be repayable from the beginning of March 2011 over 4 years in 8 equal instalments and should be covered from the energy savings achieved by the projects, with all savings generated once the load is repaid being kept by the applying organisation.

+ Low Carbon Building Grant

This relates to grants for the installation of heat micro generation technologies within the public sector managed by the Energy Saving Trust. Unfortunately the date for all new applicants was closed on 3rd February 2010 and therefore will not be applicable moving forward.

Carbon Trading Schemes The objective of such schemes is to motivate organisations to reduce their carbon emissions and the consequential environmental impact of their Estate(s). The trading schemes have been introduced to increase the cost of using fossil fuels for those companies that fail to improve their performance. By having a system of permits and limits it is expected that users of fossil fuels will change their usage patterns and energy mix.

APPENDIX 12

EXTRACT FROM RISK REGISTER FOR CHP PROJECT

ID Assurancesources

Description RiskSubtype

Controls inplace

Opened Consequence(current)

Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

3445 CHP Risk: Risk thatthe size of theCHP couldalter financesand carbonreductionestimates

Cause: Designteam do notspecifyrequirements

Consequence:Failure tosynchronisewith EDFmains; failureto generateown electricity

ConstructionRisk

Reviewed byDeanGoodrum on4/5/10.

4/5/10 - Thedesign teamregularlymeet withEDFregarding selfgenerationand supplyteams. Thiswill bemonitored viathe OCHProgrammeBoard.

22-Apr-2010

MAJOR POSS 12 HIGH 28-May-2010

DeanGoodrum

3442 CHP Risk: Risk ofbeing unableto secure offbalance sheetaccountingtreatment

Cause:Accounting

FinanceRisk


22-Apr-2010


DeanGoodrum

ID Assurancesources


Controls inplace


Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

practice meanswe cannothave thisscheme onbalance sheet

Consequence:Scheme wouldneed to befunded usingTrust capital

3443 CHP Risk: Risk ofoverdesigningCHP

Cause: Failureto accuratelydefine Trustbaseload;insufficient /poor Trust data

Consequence:Incorrect sizingof CHP

CommercialRisk


4/5/10 - Thedesign teamarecalculatingthe CHPrequirementsand ameteringstrategy isbeingimplementedto capture thesum of thebaseload.

22-Apr-2010


DeanGoodrum

ID Assurancesources


Controls inplace


Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

3447 CHP Risk: Risk ofdelay inachievingfinancial close

Cause: Notaffordable;agreement forlease notsigned;contractors donot acceptterms whichallow Trust tosecure an offbalance sheetopinion

Consequence:Delay toscheme

FinanceRisk


4/5/10 - Thiswill beaddressed aspart of theOJEUprocess.Legal andfinancialadvice to besought.

22-Apr-2010


DeanGoodrum

3452 CHP Risk: Risk thatnegotiationswith preferredbidders cannotsecure a longterm tariffagreement

Cause:

Consequence:

CommercialRisk

22-Apr-2010


DeanGoodrum

ID Assurancesources


Controls inplace


Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

3450 CHP Risk: Risk ofchanges in theLister siteenergydemands

Cause: Thedemandsdetailed in theEstatesStrategy arechanged

Consequence:EnergyStrategy to beupdated

BusinessRisk


4/5/10 - Thedesign teamare reviewingthe phase 4changes toensure theenergycalculationsare accurate.Programmedeliveryallows time toconfirm exactbaseloadrequirements.This will bemonitored viathe OCHProgrammeBoard.

22-Apr-2010

MOD POSS 9 MOD 28-May-2010

DeanGoodrum

3451 CHP Risk: Risk ofscheme beingunaffordableand not valuefor moneyagainst otheralternatives

FinanceRisk


4/5/10 -Include indata

22-Apr-2010


DeanGoodrum

ID Assurancesources


Controls inplace


Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

Cause:Changes inelectricity andgas tariffs

Consequence:Financialimpact

modelling andcontractclauses.

3454 CHP Risk: Risk ofcontractorinsolvency

Cause:Externalmarket forces;economicdownturn

Consequence:Delays toscheme;financialimpact

CommercialRisk


4/5/10 - Thiswill beaddressed aspart of theOJEUprocess.

22-Apr-2010


DeanGoodrum

3441 CHP Risk: Risk ofprivate partnerbeing unableto accesscapital

Cause: Thecurrent climateis making itharder to

CommercialRisk


4/5/10 - Thiswill beaddressed aspart of theOJEU

22-Apr-2010


DeanGoodrum

ID Assurancesources


Controls inplace


Likelihood(current)

Rating(current)

Risklevel(current)

Reviewdate

Manager

access capital

Consequence:Delays toscheme

process.

3444 CHP Risk: Risk ofcontrolsystemsconflict

Cause:IncompatibleCHP / HVcontrolssystems

Consequence:Failure /unable to runCHP

CommercialRisk


4/5/10 - HVsystemutilising openprotocol toensure it iscompliantwith EDF.This will beaddressed aspart of theOJEUprocess.

22-Apr-2010

MAJOR UNLIKE 8 MOD 28-May-2010

DeanGoodrum

APPENDIX 13 LEGISLATIVE CONSIDERATIONS The onus in general, is on the supplier of the CHP plant to meet the requirements of the applicable British Standards that cover the components and materials involved. However, the following guidance must be considered by the designer and manufacturer when developing the project through the next stages. + CIBSE Application Manual AM12:1999 – Small Scale Combined Heat & Power for Buildings + CIBSE Knowledge Service KS14: 2009 – Energy Efficient Heating and Overview + BSRIA Guide BG2: 2007 – CHP for Existing Buildings, Guidance on the Design and

Installation + HVCA Technical Report TR/37: 2008 – Installation of Combined Heat & Power, Guide to

Good Practice In addition to the regulations associated with the components and materials, there is legislation relating to the combustion processes and control of pollution. Environmental regulation in the UK is based on a number of Acts of Parliament enacted for the benefit of the UK, together with legislation designed to meet EU environmental requirements. The Environmental Protection Act 1990 (EPA) was introduced as the main legislation controlling atmospheric emissions and other types of pollution in the UK and will need to be adhered to in respect to the combustion process. In relation to pollution control the regulatory system takes no account how the heat is recovered. The degree of environmental regulation that applies to CHP plants depends on the size and type being provided. CHP plant rated above 20MW has to comply with the Pollution Prevention and Control Regulations (PCC), however those that are below this threshold, as is the case with this project are required to comply with general legislation on pollution control, in particular the Clean Air Act and the remaining sections of the EPA which cover nuisance to neighbours and the public. Guidance on CHP was included in the 2002 edition of the Building Regulations Approved Document L2 (conservation of fuel and power in buildings other than dwellings) as a way of contribution towards compliance with the overall building carbon emissions standards, however compliance with the latest 2006 edition will need to be met. Notwithstanding this by the time this project is introduced the 2010 edition will apply as discussed earlier within the report.

APPENDIX 14

MAIN ENVIRONMENTAL CONSIDERATIONS FOR CHP

+ Combustion

The combustion products from any industrial boiler house or CHP plant can represent a toxic hazard to the local environment if the installation is not correctly designed and operated.

Environmental legislation requires the installation must minimise the production of airborne pollutants, and those that are released must be adequately dispersed within the atmosphere. It is envisaged at this stage that the new CHP plant will utilise the existing boiler room chimney to release pollutants into the atmosphere, however suggest this is reviewed against current legislation to identify compliance.

+ Noise

In common with most other plant and machinery, CHP systems act as a source of noise into their immediate environment and, more remotely, through the exhaust systems. Noise levels that damage health, or are a nuisance, are classified as ‘statutory nuisances’ under the Environmental Protection Act 1990, and Local Authorities have a duty to investigate any complaints. In most cases, CHP plants are designed to ensure that ambient noise levels immediately adjacent to the unit are below the levels that, on a long term exposure basis, are considered safe. As the new plant is to be sited within the existing boiler room we do not envisage noise being an issue.

+ Liquid Effluents Disposal

A CHP plant does not generate large quantities of liquid effluent, however, the following effluents can cause environmental damage if not controlled, and appropriate account should be taken of these at the system design stage.

- Boiler blow-down and drain effluent contain suspended solids and quantities of the chemicals used for treating boiler feed-water. The total water content of the boiler needs to be drained through the system for maintenance and inspection purposes.

- Effluent is generated by plant cleaning procedures such as turbine washing systems. Where periodic washing and system regeneration has necessitated the installation of water treatment plant, this would also give rise to effluent.

- Pipework flushing and the chemical cleaning of equipment during installation and commissioning produces effluent.

Disposing of any liquid effluent to a public sewerage system or into the environment must have approval from the appropriate authority. Some form of treatment may be required for these effluents and this will need to be reviewed in line with existing Trust systems, policies and procedures to identify if any new provision is required.

+ Visual Impact

As the proposed CHP plant is to be sited within the existing boiler room we do not envisage any implications associated with the visual impact of the plant on the local environment.

+ Containment and Storage

A range of potentially environmentally damaging materials is used in operating CHP plant and auxiliary equipment. Precautions must therefore be taken both at the design stage and during operation to prevent accidental releases. The numerous design and engineering standards and codes of practice cover this issue and will need to be followed throughout the life span of the project and operation of the plant.

Documents

TRUST BOARD – 26 May 2010 Combined Heat and Power Outline ... · Combined Heat and Power Outline Business Case ... 1. Introduction ... with the Trust’s Strategy as set out in