While the federal government continues to attack anything that supports renewable energy and sustainability, what’s happening in property’s energy efficiency sector? We asked Paul Bannister of Energy Action, Phil Harrington of pitt&sherry, PC Thomas of Team Catalyst, Chris Nunn from JLL and the Property Council’s Charlie Thomas.
The casualties vary from heavy to light, but it seems no one has escaped the impact.
There’s still work on offer but it’s constrained, without the ring of confidence that energy savings are rational choices with pay off in operational and capital value terms. What’s changed is not the logic but the fear of more attacks and undermining.
The latest threat to the property industry is from the review of the Renewable Energy Target where the government has made it clear it wants the target to be ditched or strongly wound back.
There’s also been the review and axing of the Energy Efficiency Opportunities program and, most recently, the Commercial Building Disclosure program that is widely and enthusiastically supported by the industry has been placed under review – or scalpel, depending on your point of view and perhaps the government’s mood on the day.
To some observers, the government’s behaviour on sustainability and climate has no logic beyond that of the “a schoolyard bully” destroying anything the “other lot” did.
Industry leader Paul Bannister says, “The damage they’re creating is as much from the uncertainty as anything else.
“The only light on the horizon is that the NSW government has gone out of its way to thumb its nose at the Feds and set its own environmental targets and requirements.”
Bannister, whose company Exergy was earlier this year acquired by the listed Energy Action, says some of the programs will suffer from a populist problem, which means that despite their value they struggle to appeal.
“The challenge is to turn the RET into a populist issue and CBD is about as sexy as a train accident,” Bannister said.
The CBD program, he says, has had big impact on the difficult to capture second tier stock such as B and C grade because it’s mandated a NABERS energy rating for offices of 2000 square metres or more.
And that is actually a “very deep capture of the market”, because so many of these buildings change hands quite frequently, so that the entire building floor area is relevant, not just a small office that may come up for rent, Bannister said.
“So for tenancies, there’s an awful lot of activity that occurs under the radar.”
The bigger owners conduct energy efficiency as a matter of course, Bannister says. It’s actually the smaller buildings that benefit from CBD.
“It’s the middle ones that the CBD has been effective with in changing behaviour.” His firm has noticed it because of work flow. “There’s been a new stream of work appear from that tier down,” he says.
A lot of the opportunity is in upgrading the lighting.
Upgrading the lighting makes sense for the owner because they can seek higher rents, and at the same time it reduces the load on the base building. It is also an improvement on the rentability of the space.
On the agency side, Chris Nunn who recently joined JLL as director of sustainability, agreed with Bannister’s line of thinking.
A big problem was that that without the incentives the B and C grade tenants find it hard to engage with energy efficiency programs.
“There’s low hanging fruit to be picked but due to reluctance to invest the capital it’s very difficult to convince these buildings to get this stuff done,” Nunn said.
The CBD was “really important” because it was centred on monitoring and had driven healthy competition.
According to Bannister, of the three components of the CBD program – an energy efficiency statement, a tenancy lighting assessment and a NABERS base building energy rating – the TLA part of the CBD program was always going to be difficult to defend.
While the “big end of town” is fully supportive of NABERS, it is least supportive of the TLA because big companies tend to do that kind of work anyway and sees a mandate over the issue an annoyance.
With only two years of data it will be doubly hard to prove in the review that it’s led market transformation.
“It hasn’t had enough time to run to have an impact and my suspicion is it will be very hard to prove it’s had an impact,” Bannister says.
On the other hand there is strong evidence that NABERS has been a great performer. There are two sets of “brilliant data sets” on the CBD website that shows there has been an upwards movement in performance stemming from NABERS.
The energy efficiency statement is less important and would not be missed if it fell away, he says.
A scale back on RET would hurt
On the RET review the government has made it clear it wants the target to be ditched or strongly wound back.
Work undertaken by people such as Nils Kok and IPD show that this will be a direct hit to property owners since buildings with high NABERS Energy and Green Star ratings do significantly better than other low rating buildings.
- See one of our articles on this issue, IPD: post GFC, green property is even more important to the bottom line
The impact of a scaled back RET can hurt in a couple of ways and one is through the subsidies owners may get from solar installations.
As a source from one major property owner said, “Not that we should rely on the RET – but part of the return on investment is that we get a rebate for installing solar.
“So for some, for anyone, even a manufacturing facility trying to offset grid electricity for solar, they would now be thinking twice on the effectiveness of the return on investment.”
Yes, the payback is far less than it used to be but even a small variation in returns and opportunity cost will have an impact.
“As a property owner you’ve got to look at opportunity costs among a whole range of projects,” the source said.
“It’s essentially put renewables off the table again as a form of efficiency.”
The Property Council’s Charlie Thomas, national policy manager sustainability and regulation, said the PCA was pushing hard to keep the RET strong.
“We’re doing a big push on the RET target at the present,” he said.
Another issue significant to PCA members was the impact of a scaled back RET on GreenPower.
- See our separate story recently, Threats to RET bad for GreenPower and possibly NABERS
EUA and the big motivation question
On the topic of transformation and incentives, Bannister says there is a reason that environmental upgrade agreements have been so slow to take off. These programs make it seemingly easy to borrow money for upgrades to save environmental costs such as carbon intensive electricity with easy pay back loans, yet they have struggled to leap forward.
In Bannister’s view there’s a common mistaken impression that access to funding is the biggest barrier to take up of energy efficiency programs.
It’s not, he says.
“Everyone rushes to assume that the failure of a uptake in energy efficiency is finance. But every program with the exception of the Green Building Fund program has been undersubscribed.
“Money is not the problem; it’s motivation.”
And there are two great motivators, Bannister argues – “One is market forces and the other is regulation.”
The majority of Energy Action’s work is procurement and supply contracts plus a “small sustainability team” that can come under Bannister’s stewardship.
There’s been a bit of churn since the move but overall the numbers have remained roughly the same – about 140 people altogether with 40 in Bannister’s team.
“We are all part of the same entity when it comes down to it – we’re 100 per cent owned by energy action.” The full merger will be complete when the new accounting system is in place.
Demand remains steady, Bannister says.
“Work demand is there at present and it keeps chugging along.”
There’s a “fair amount of nervousness in the industry” stemming from the negative policy moves from the federal government and now with the review of the RET and the CBD program.
The mood of the market
Another well regarded industry stalwart is pitt&sherry’s principal consultant and manager Phil Harrington who engaged in some intensive policy work and modelling for energy efficiency programs in the industry. He was also key to the draft strategy on energy efficiency and was seconded to thePrime Minister’s team in the last government as well as on the master plan for Sydney climate action.
Harrington says he does wonder about why certain decision have been made on energy.
The company specialises in “hands on” energy efficiency and investment facilitation and in the industrial area, typically with co- or trigeneration and heat recovery engineering.
Harrington says, “Business is definitely declining and the market is very soft down the east coast at present. It’s the same in every state. It’s very, very quiet and I’m concerned. I think the policy uncertainty is a key reason.
It could also be a weaker economy, which is down in the past 12 months. And yes, the business has needed to downsize by about 30 people out of 200 losing their jobs, spread across the states.
Team Catalyst director PC Thomas said his company counts itself luck that it hasn’t had to cut staff. Although at one point early in the year the prospects were looking not so good.
“Some have had to decimate their workforce,” Thomas said. “But nobody talks about these things. I guess it’s the uncertainty that kills business.”
In the first months after the federal election, Thomas says, the company “didn’t have one request to bid for business”.
Things are now turning around, though.
“We’re now seeing some good projects around.”
Some are quite large, including potentially a big job in Brisbane and another in Melbourne.
Thomas would be surprised if the CBD program was wound back in any way. It’s a program that plays directly into the government’s Direct Action program to help it achieve its aims.
“If Greg Hunt is serious about direct action, it’s the last thing I would have thought he would touch.”
Energy Action’s Paul Bannister says on his part, demand and business is “steady, not ebullient”.
“We’re still finding plenty of work going on and getting a lot of demand for independent commissioning work for new buildings to get them working properly.
“There’s still reasonable demand for energy audits and for NABERS and CBD, there’s still signs of demand for commercial scale photovoltaic work, which we’ve inherited form Energy Action.
This includes a more than 60 kilowatt system in Canberra with a number of similar contracts under way.
With the impact of the RET, it’s important to differentiate between big and small scale systems, Bannister says.
Large scale wind farms will be badly impacted if the RET is removed, he says.
“On the other side of the fence, to be adding photovoltaics on the roof of your buildings, even if you took the RET subsidies away, it’s moderately economically attractive.”
The system Bannister is currently installing is on a shopping centre. Another is on Mirvac’s Sirius building at Woden.
“Retail is a huge opportunity” for solar, Bannister says. Likewise clubs and even chicken farms, which have “lots of roof” space and need a lot of energy.
“In many ways you could shut down the small scale side of the RET but the horse has bolted. If the coal industry thinks it’s going to reverse the demand side of the sector it’s got another thing coming.”
Ironically a factor working against PV is that it will continue to get cheaper – so people are holding off waiting for prices to fall, he says. The demand is not going away.
Bannister himself has as much PV on his roof as he is legally allowed to have – 9.8kW.
“You can’t do any more with the thickness of the wire, or you’d need to put in three phase power.”
The system has 3.8kW “going straight to the grid”.
“I don’t get electricity bills. I get credits, and I transfer the balance to the gas and water bills.”