Victorian Auditor-General's Report 
12 September 2012 
Energy Efficiency in the Health Sector 
Audit summary
Victorian public sector facilities account for around 1.5 per cent of Victoria’s total electricity and gas consumption. The sector's largest users are healthcare providers—health services and hospitals—which account for around 26 per cent of its total energy consumption. 
Most metropolitan hospitals and some regional hospitals are large facilities that have high levels of energy use. This is because of their continuous operating requirements, use of energy intensive medical equipment, infection and temperature control, and on‑site services such as kitchens and laundries.
After Victoria’s water entities, public hospitals are the second largest emitter of greenhouse gases, accounting for around 20 per cent of public sector emissions. 
With large facilities and specific operating requirements, health services spend significant amounts on energy. In 2010–11 alone, Victorian health services’ energy costs totalled nearly $70 million, $51 million of which was spent on electricity. 
Energy costs in the health sector, while a small part of the total health budget, can have an impact on the financial sustainability of the health system. This is particularly so where funding pressures exist. Energy costs are also rising, partly as a result of the carbon pricing mechanism. Without additional funding or further energy efficiency initiatives, health services may need to allocate more of their budget to energy supply costs, or reduce other healthcare services.
This highlights the significance of energy efficiency across the whole health system. Given the large number of health services across the state, this necessitates a statewide planning approach to the problem.
Conclusions
The Department of Health’s (DH) approach to statewide planning for energy efficiency is inadequate. It does not have a documented policy or plan and lacks a strategic focus and a coordinated approach. It also does not align with health services’ local planning. 
While there have been improvements in energy efficiency across the health system over the past seven years, the lack of an adequate planning approach has potentially limited the gains that could have been made. Specifically, DH's planning approach limits its ability to demonstrate whether it is appropriately allocating resources to areas of greatest need or highest risk, and whether it is sufficiently prepared for emerging challenges.
DH believes that individual health services should be responsible for their own energy efficiency planning. However, this approach is not conducive to optimising and driving outcomes at a system level. Despite this stance, DH undertakes a range of ad hoc centralised activities. These activities include estimating cost pressures on health services to inform future planning activities and investigating the feasibility of expanding cogeneration energy supply—the simultaneous generation of two forms of useful energy—to selected metropolitan and regional hospitals. These activities confuse whether planning for energy efficiency is a statewide or health service level activity. 
Findings
Energy efficiency performance measures
Implementing relevant and appropriate performance measures of energy efficiency is challenging in a healthcare environment because each health service differs in terms of its clinical services, patient activity and use of floor space.
DH combines three separate measures to assess health service energy efficiency performance at the statewide level. These measures cover energy consumption ‘intensity’ by considering floor area, bed days, and separations, which is a measure of an episode of care. These three measures collectively give an indication of health services’ energy efficiency. 
However, there are deficiencies in each measure that limit the reliability and usefulness of DH’s reported energy performance information. These deficiencies mean that DH cannot reliably compare the energy efficiency of health services. DH acknowledges these limitations and is working to improve how it benchmarks health services’ energy efficiency.
Statewide energy efficiency performance
Despite the deficiencies with the performance measures, DH and health services’ reported performance shows improvement in energy efficiency. Between 2005–06 and 2010–11, the total volume of health services’ energy consumption increased by around 1 per cent, or approximately 30 000 gigajoules. This is a positive result given: 
·	the total floor area across all health services increased by 6.3 per cent, or 149 000m2
·	the total number of bed days increased by 7 per cent, or 311 000
·	the total number of separations increased by 16.4 per cent, or 216 000.
Over the same period, health services’ energy costs have increased by around 25 per cent. This can be attributed primarily to increases in energy prices, as well as increases in energy use arising from health services’ increasing demand for their services. 
Health services’ total greenhouse gas emissions have also increased by 7 per cent since 2005–06, mainly due to an increased share of electricity use.
A range of initiatives have contributed towards improving statewide energy efficiency. They include changes to energy supply arrangements, the installation of energy efficient products, sustainable infrastructure design and the outsourcing of energy intensive functions.
DH has estimated the total impact of the carbon pricing mechanism on health service expenditure will exceed $13 million in 2013, increasing each year until it reaches nearly $19 million in 2020—around $132 million in total. DH has also projected that health services’ total energy consumption and greenhouse gas emissions will continue to increase over this period.
While DH and health services have improved energy efficiency over time, continuing this trend will be a significant challenge.
Statewide planning and implementation
While DH is responsible for statewide health planning, its role in planning for energy efficiency in health services has been limited. This, in part, reflects its devolved accountability model, which allocates responsibility for planning to the health services —a position at odds with the activities it undertakes.
Despite the significance of the energy consumption and associated emissions of Victoria’s health services, DH has not adequately planned to address the issue. It does not have a policy or plan for energy efficiency. Rather, it has sustainability principles, not all of which directly relate to energy efficiency. The principles serve as high‑level guidance for improving energy efficiency in health services, and include:
·	providing support and advice to service partners to assist them and the broader community to adapt to the health implications of a changing climate
·	improving environmental performance by integrating sustainability implications in business operations and striving for continual improvements in the management of environmental impacts
·	promoting the application of the sustainability actions within broader government policies and programs as they relate to improving the health and wellbeing of Victorians.
With the exception of the sustainability principles and several high-level diagrams showing its sustainability activities, DH has only started to document its efforts to plan more strategically very recently. In June 2012, DH developed a framework for energy management in the health sector, following preliminary feedback from VAGO on its lack of a strategic planning approach. The framework builds on, and updates, DH’s broader sustainability direction. 
However, it is unclear how DH plans to operationalise and report against the new framework. It is a high-level document and does not include key elements of an effective strategic approach.
DH is taking other actions to improve energy efficiency in health services. The Department of Treasury and Finance’s (DTF) Greener Government Buildings program (GGB) requires all departments to improve the energy efficiency of all of their facilities, which for DH are its health services. GGB is now one of DH’s key energy efficiency initiatives.
DH has taken a pilot-based approach to implementing GGB in health services. This approach allows DH to adapt the program to a healthcare environment and lower the risks associated with its wider rollout. However, it has taken DH nearly three years of planning to reach the request for tender stage of the pilot project, and the project is around 12 months behind schedule.
While DH considers this approach essential, it cannot be assured that the time and expenditure spent to date will lead to improvements in energy efficiency. This is because DH’s actions do not have the full support of DTF—the funder and administrator of GGB—and DH has not actively consulted with the energy service contractors and DTF on its proposed changes to the program’s contractual documents. Consequently, there is a risk that DTF may not approve DH’s proposed approach. 
Health service planning and implementation
Health services are responsible for planning to meet the needs of their local communities. In the absence of an adequate documented statewide planning approach, they need to develop their own plans for improving energy efficiency. These plans should outline goals, actions and monitoring arrangements that will drive continual improvements. 
The three health services audited—Austin Health, Eastern Health and St Vincent’s—demonstrated adequate planning for energy efficiency at a local level. They used a combination of environmental management strategies and Environment and Resource Efficiency Plans. However, their reporting does not enable the progress of initiatives to be assessed.
Recommendations
Number	Recommendation	Page	
1.	The Department of Health, in consultation with health services, should improve the measures it uses to assess health service energy efficiency performance.	16	
2.	The Department of Health should adopt a more focused and strategic approach to planning for energy efficiency in the health sector to:
·	support consistent planning at a health service level
·	align with statewide goals for health services.	26	
3.	The Department of Health, in consultation with the Department of Treasury and Finance and health services, should update its strategic implementation plan for the Greener Government Buildings program to incorporate:
·	the approved program rollout to 20 health services
·	learnings from the energy performance contract delivered at the Peter MacCallum Cancer Centre.	26	
4.	The Department of Health and the Department of Treasury and Finance should agree on which healthcare facilities are to be included in the Greener Government Buildings program going forward.	26	
5.	The Department of Health, after consulting the Department of Treasury and Finance and approved energy service companies, should assess the risks associated with:
·	the Department of Health’s modified approach to delivering energy performance contracts in health services
·	the industry’s capacity to deliver energy performance contracts in line with the Department of Health’s planned rollout under the Greener Government Buildings program.	26	
6.	The Department of Treasury and Finance should strengthen its governance arrangements for the Greener Government Buildings program to:
·	better protect its investments through the program
·	influence departments’ participation by clarifying roles and responsibilities and its required involvement in delivering and scheduling energy performance contracts
·	clarify departments’ performance reporting obligations
·	encourage information sharing between departments.	26	

Submissions and comments received
In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994 a copy of this report was provided to the Department of Health, Austin Health, Eastern Health, St Vincent’s, the Department of Treasury and Finance and the Environment Protection Authority with a request for submissions or comments.
Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments are included in Appendix A.