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No upfront capital, no problem: A unique approach to energy upgrades

Hawaiian health system partners with Metrus Energy

Honolulu’s Kuakini Medical Center was looking at having to spend an enormous amount of money to upgrade its energy systems when a golden opportunity came along.

As part of its participation in the Better Buildings Challenge -- a joint initiative of the White House and the Department of Energy to make commercial buildings 20 percent more efficient by 2020 -- energy efficiency financing firm Metrus Energy and its partners presented the 114-year-old nonprofit hospital with a proposal: Metrus Energy, et al, will finance and implement $5.8 million in energy upgrades to the hospital without the facility having to pay any money upfront.

[See also: Hospitals save money by ‘going green’]

The benefits of partnering with the San Francisco-based Metrus on this project were huge, said Donda Spiker, manager of marketing and public relations for Kuakini.

“The project enables Kuakini to fulfill several business initiatives, like improving our infrastructure, reducing energy costs, reducing expenses, and becoming more environmentally friendly,” she said.

After the project is complete in September, the hospital will pay Metrus a monthly amount based upon a percentage of its savings, Spiker said. If the hospital doesn’t achieve any savings, then it pays less. Maintenance and servicing of all the equipment is also provided free of charge by Metrus.

The $5.8 million in energy upgrades to the hospital will include a new central cooling and heating plant, lighting upgrades and energy management and control systems.

The completed project will generate approximately 3.5 million kWh of electricity savings and 11,000 therms of natural gas savings. This translates into an expected annual savings of more than $1 million for the hospital.

While developing energy projects like this is part of Metrus’ main business, this is the first hospital project the company has financed, said Bob Hinkle, the firm’s president and CEO.

However, because hospitals are such high energy users and many need energy system upgrades, the hospital market is “a key market for us,” he said. The company already has several similar projects under development.

The project is ultimately a win-win for both the hospital and for Metrus, said Shel Horowitz, an ethical/green marketing consultant and author.

“For the hospital, it’s a no-upfront-cost way to slash energy costs and carbon footprint while gaining positive press and public opinion – and having someone to take over the worries around choosing the right design, supervising the construction and operation, etc.,” he said. “For Metrus, it’s a long-term large contract that will be quite profitable.”

While it could ultimately cost the hospital less to build and operate the system on their own, in this situation, their partner has both the technical knowledge and infrastructure, and the capital to make it work, added Horowitz.

“Consider it in the same category as lease-to-own or software-as-a-service. The hospital outsources all the risk and retains a significant percentage of the benefit,” he said.