The Cogeneration Option: Saving Money and the Planet
Jerome T. Levy
Peter Funk, Jr.
The cost of fuel, combined with environmental concerns, is motivating many healthcare facility operators to implement energy conservation measures. An important one is to install on-site generation. One option that healthcare institutions are increasingly implementing is installation of a cogeneration system—“cogeneration” because it produces at least two forms of energy, electricity and heat (as hot water or steam), from the same power source.
For healthcare facilities, cogeneration systems are especially practical. That’s because hospitals and nursing and adult-care facilities tend to have favorable load curves, meaning that they often use around the same amount of electric energy all day long. In apartment buildings, by contrast, energy consumption tends to spike in the evening, when people return home from work. Because cogeneration systems produce electric energy all day long, these systems are most efficient in steady-use environments like healthcare facilities.
The major conservation benefit of cogeneration is that it conserves energy by recovering thermal energy produced by the generation of electricity, and then uses it to make hot water and heating for the facility. Such systems can save as much as 40% a year in energy costs.
Building owners who install cogeneration systems also are often eligible for subsidies or tax breaks from federal, state, and local governments. In New York, for example, which has among the largest number of healthcare facilities in the country, the New York State Energy Research and Development Authority offers monetary incentives for on-site generation, including breaks in the interest rate on loans. Moreover, a major portion of the cost of installing the systems may be reimbursed through Medicaid. Sometimes, healthcare facilities are also able to use the cogeneration system or the additional backup generator to make money by selling power, or “curtailment,” in the wholesale market. Overall, between the energy savings and government benefits, these systems can pay for themselves in one to three years.
Installing new energy systems in healthcare facilities poses special challenges. Consider that electrical systems in these facilities are truly mission critical, with the potential for catastrophe should power fail. While heat, hot water, and electricity are important everywhere, in healthcare facilities, a loss of energy can literally be a matter of life and death. For that reason, even with cogeneration systems, healthcare facilities still need a back-up generator.
Like other major construction projects, the installation of a cogeneration system in a healthcare center first requires governmental approval. But the good news is that, because cogeneration is aimed at conserving energy, attempts to install one aren’t as likely to be mired in paperwork. In New York State, for instance, energy conservation projects that cost less than $3 million are exempted from full review—a process that typically takes nine months to one year. Instead, the state only undertakes a limited prior review, which often can be accomplished in a matter of weeks.
In addition to complying with specific statutory requirements, healthcare facilities also need to be sure they have a plan that will ensure patients’ or residents’ safety while keeping disruption to a minimum. A facility undertaking such a project will need to secure and monitor the area to make sure patients don’t accidentally wander into a construction site. If any patients or residents are cognitively or visually impaired, the facility needs to take those limitations into account when devising a safety plan. If residents have to be moved for the construction, the hospital or nursing care center needs to have a plan for that as well.
| The Park Gardens story
The Park Gardens Rehabilitation and Nursing Center, a 200-bed rehabilitation and nursing care facility in the Bronx, New York, took the plunge into cogeneration last year when it installed a system to produce heat and hot water from the same power source. The center spent $300,000 to install a 110-kilowatt engine, which provides a portion of the facility’s electric power needs, furnishes hot water for the entire facility, and heats two of its seven floors.
The installation process ended up taking almost eight months, but before work could get started, Park Gardens spent nine months obtaining approval from New York City’s Department of Health and Department of Buildings.
Once the cogeneration system was in place, rescheduling certain services helped the facility achieve greater efficiencies. For example, the center arranged for the laundry service personnel to change their hours. Previously, the laundry was being done during the daytime hours, but the cogeneration system made it more efficient to wash the laundry in the early morning. The center made the change because cogeneration systems create the same amount of hot water each hour of the day. Therefore it makes sense to stagger hot water use so that the laundry isn’t done when people are taking showers.
Already, the decision is paying dividends for the center, says CEO Sol Abramczyk. He estimates that Park Gardens is saving several thousand dollars in energy bills every month. One clear example of the efficiencies is that water now gets heated to 180 degrees Fahrenheit, so the dishwasher no longer needs a booster. Previously, the center had to use a booster to heat the water above 140 degrees, the old maximum.
The total payback period is estimated at three years but, Abramczyk says, it’s too soon to know if that will prove true: “Changes in the price of energy make it very hard to know how much I’ll actually save over three years.” But, he adds, the potential is there.
To address these factors, on a practical level, the facility’s energy utilization should be evaluated and audited, and it should hire an experienced engineering consultant in connection with the installation of all power supply equipment.
A single cogeneration engine rated at between 100 and 400 kilowatts will typically require a space at least five feet wide, eight feet long, and six feet high. Many facilities will install such systems in basement boiler rooms, but they can also be placed on rooftops, setbacks, or even in generator sheds located adjacent to or near the main building.
In operation, cogeneration systems are not loud but do make noise, and are often placed inside insulated cabinets. Some building owners have dealt with the noise by constructing rooms out of cinderblock within boiler rooms, specifically to house the cogeneration system.
Two final caveats: Manufacturers of equipment and utilities may have limited or no liability for any damages that result from a power outage, and facilities should seek expert consultation on protective steps to take. Additionally, if the hospital or nursing center chooses not to enter into a maintenance contract with the installer, the facility will have to tap qualified contractors to handle maintenance.
Taking all these factors into consideration, a growing number of facilities are attempting this option with indications of success.
Jerome T. Levy is a partner in the area of health law at Duane Morris and previously served as general counsel to the New York State Department of Health. He can be reached at 212.692.1013 or JTLevy@duanemorris.com. Peter Funk, Jr. is a partner in the energy, environment and resources, and construction practice groups of Duane Morris. He is an affiliate member of the American Energy Engineers Association and is a former chair and current member of the New York State Bar Association Committee on Public Utility Law. He can be reached at 212.692.1075 or PVFunk@duanemorris.com. Kathleen Cheney is a partner in the area of health law at Duane Morris, representing a full-range of providers in structuring transactions and achieving regulatory compliance. She can be reached at 212.692.1097 or KCCheney@duanemorris.com.