Hospital rethink energy infrastructure spend: 5 notes
Hospitals are increasingly seeking out new financial arrangements for energy management, transitioning capital expenditures into operating expenses, according to a report from Moody’s Investor Services.
“Hospitals and health systems are embracing [Energy as a Service] models to address aging utility infrastructure, enhance energy efficiency and support sustainability initiatives,” the report notes. “EaaS arrangements typically involve long-term partnerships with third-party providers who design, build, finance, operate and maintain energy systems. These models require limited upfront capital investment, allowing institutions to redirect financial resources while gaining access to modern energy technologies and expertise.”
Five takeaways from the report:
1. More health systems are choosing to outsource building maintenance and upgrades because there are predictable operating costs in the outsourced contracts as compared to owning the infrastructure outright.
2. The outsourcing strategy provides improved energy efficiency and lower upfront costs for hospitals, in addition to advanced technologies for energy management. Hospitals can avoid large capital expenditures as a result.
3. Some health systems are using EaaS to make progress on green and sustainability goals to reduce their carbon footprint.
4. Moody’s predicts hospitals will further deploy alternative energy sources to align their financial and sustainability goals.
5. EaaS does have some incremental costs and rigidity, which could lead to higher financing expenses for health systems as compared to traditional debt.
“The credit impact of EaaS projects will vary over time, depending on provider guarantees and financial strength,” the report notes. “As health systems continue to modernize and pursue sustainability, EaaS models are likely to play an increasingly important role, though institutions will need to carefully assess the long-term financial and operational implications of these arrangements.”
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