How emerging energy laws & regulations could affect hospitals’ bottom lines
To avoid dangerous impacts from climate change, the world must urgently and drastically reduce carbon and other greenhouse gas emissions. According to the United Nations, the energy supply sector is the biggest contributor to global greenhouse gas emissions, with about 35% of total emissions. Sustainability goals not only help hospitals reduce greenhouse gas emissions, but also make them more resilient in the event of an energy crisis.
Many states are adding surcharges to energy supply bills to subsidize renewable sources such as wind, solar and biomass. Renewable portfolio standards (RPS) set a target for a state’s renewable energy mix. If a company is not buying renewable energy, a surcharge is applied. Hospital leaders must consider how these changes will affect their business models and ensure that their sustainability goals align.
State jurisdictions establish energy bill surcharges
States are leading the charge and addressing it differently, with traditionally Democratic states acting the most aggressively. “Some states have set some pretty lofty goals,” says Bill Miller, Director of Strategic Account Integration, HealthTrust, and an energy expert on the inSight Advisory—Energy team. For example, statewide, Arizona uses a high level of solar and nuclear energy. Meanwhile, Illinois is pursuing hydrogen as a renewable energy source and plans to phase out all energy from carbon sources by 2050. This means it will put an end to all coal plants and gas fire plants.
As for healthcare facilities, many are already using solar energy. For those that don’t, a surcharge is added to their energy supply bill based on their current RPS. “Customers in Massachusetts, Connecticut and New Jersey, for example, likely spent $8 million or $9 million each last year in surcharges to meet the state mandates for RPS,” says Miller. The RPS subsidy collected from businesses goes to developers to finance and build more renewable energy projects.
Financial institutions set reporting standards
Third-party companies are trying to determine how companies will report progress on renewable energy usage. They include the Task Force on Climate-related Financial Disclosures and the Value Reporting Foundation (VRF), a company recently formed by a merger of The International Integrated Reporting Council and the Sustainability Accounting Standards Board. “The VRF is working on international standards to create the template for what companies will have to report from a sustainability perspective,” says Zoë Beck, Director of Sustainability, HCA Healthcare. These institutions are looking at how carbon-based products are affecting financial risk.
At this point, reporting is voluntary, and hospitals can choose the organization to which they report. As international standards boards solidify their requirements, companies may soon have to report their emissions, if their investors have not already demanded this level of transparency. While hospitals are behind the curve in sustainability reporting, and there hasn’t been much guidance, there are very clear ways hospitals can get started today. “Right now, hospitals are paying every month for renewable energy because of the RPS,” explains Beck. “They need to initiate their own emissions reporting and think about how to start using renewable energy.”
How to fulfill requirements & get ahead of future legislation
In order to get ahead of upcoming legislation, a good place for hospital leaders to start is by reviewing their organization’s current energy usage and looking at what changes can be made to operations now to comply with current state reporting requirements.
“One way to advance your efforts is to look for opportunities to procure renewable energy for your organization,” says Miller. “When you bring in renewable energy, the surcharge you are paying on your energy bill will start to go down. It will become a financial incentive. When a hospital goes to Wall Street to ask for money, its investors will want to know about the sustainability plan and may charge a higher interest rate and withhold money. It’s already happening.”
Alternatively, you can take on a power purchase agreement and participate in a large-scale renewable energy project in your area. Another avenue to explore is how to make your healthcare facilities more energy efficient since the less power you use, the less renewable energy you’ll need to bring into the mix. “States offer different incentives to help you transition into renewable energy,” says Beck.
On Wall Street, many large investment firms are asking for all their portfolio companies to have sustainability goals. “Before they invest in your company, they want to see what you’re doing now and what your plans are for the future,” adds Beck. “They have actually divested in companies that aren’t complying.” Credit rating agencies like Moody’s and Fitch are incorporating environmental-themed risks into ratings. “They’re looking at hospitals from a sustainability perspective. Part of a comprehensive approach to sustainability is making sure your energy sources are diversified so that you can pull from a different source, should there ever be a need.”
Sustainability for risk management
Last year, the state of Texas experienced an unprecedented snowstorm and was wholly unprepared for the mass power outages and chaos that ensued. It was the worst energy infrastructure failure in state history. As a result, more than 4.5 million homes and businesses were left without power, and at least 700 people died. Damages from the storm and cold snap were estimated at $195 billion.
ERCOT, which stands for the Electric Reliability Council of Texas, matches electricity supply and demand. “Texas is kind of an island in that it’s not interconnected with other states,” says Miller. “Texas doesn’t allow other states to pass power into it, so when its electricity went out, it couldn’t ask neighboring states to send electricity. In other areas of the country, states help each other out if they have high demand; for example, Pennsylvania could help New Jersey.”
“Sustainability is about running a business for the long term and mitigating risks,” says Beck. “So if you’re in Texas, and there’s a disaster and you have no access to energy outside of state lines, that’s a business operations problem.”
Guidance on starting a program
Accountability for sustainability goals and environmental, social and governance (ESG) reporting generally falls to the chief financial officer, who should involve an organization’s chief operating officer and facilities leaders. “Many hospitals don’t have a sustainability team at this point, but if you have a sustainability leader, it would be smart to involve them to capture what you’re doing accurately from a sustainability perspective,” notes Beck.
HealthTrust’s inSight Advisory-Energy team can provide member organizations with an analysis of their current renewable energy portfolio and offer recommendations for diversification.
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