By Tina Perinotto
15 December 2011 – Keith Gunaratne, chief executive and founder of energy efficiency company EP & T Global, has a way to gauge popular sentiment on climate change and carbon. You could call it the taxi index.
A few years ago he would get into a taxi in Australia and the driver would ask him what he did for a living. When he told them it was energy efficiency, the response was positive; it was a good thing to do.
In more recent times, the taxi index has plummeted. Instead of approval, Gunaratne gets a rant about the carbon tax that will wreck the country.
Jump to the UK. “When I get into cab in London and I tell them what I do, they say, ‘this is what the country needs’.
“You see what happens when you politicise things?”
While Australia’s conservatives lambasted carbon reduction, Gunaratne says, the UK long ago embraced an emissions trading scheme and its conservatives recently endorsed massive carbon reduction targets.
It’s obvious that Gunaratne might think that the world would be a much better place if left to logic and reason, rather than the exigencies of politics.
But even in Australia the wheels are turning. The carbon tax is in place, and E P & T is readying for significant growth in Australia, as well as globally.
His company of about 50 engineers, based on Sydney’s leafy north shore, is growing at the rate of one or two engineers every two months.
This will complement growth in London, where the company has nine people and hopes to boost workload thanks to its first UK contract with the huge British Land for its headquarters York House in 2009.
It’s the job that earned EP & T accolades for operational efficiency from both the Chartered Institution of Building Services Engineers Property Weekly, as well as a public recommendation from the client.
“We thought, we’ve got all these runs on the board and we’ve done all these things in Australia, but they will ask what have you done in the UK?
“British Land valued the project we did and the results were fantastic, they exceeded all expectations, and so British Land engaged us to roll out their technology through all their major assets in the UK in 2010.”
Gunaratne also has help at home. On his board sits Sandy Holloway, former diplomat, high-ranking public servant and chief executive officer of the Sydney Organising Committee for the Olympic Games; Paul Ellis, a former partner and board chairman with Mallesons; and John McCarthy, a former president of the Property Council of Australia.
Gunaratne says the company is also set to grow in Asia, with new recruit Jason Wiltshire starting a Hong Kong operation from next year.
“The Asian market comes with huge opportunities and complexities, and challenges, from IP (intellectual property) issues to business.
When it comes to solar energy, he says China will lead this sector “without a doubt”. “We believe solar will reach grid parity by 2012-2013 … the same cost as coal.”
The issue of energy savings is huge and the Chinese are building carbon neutral cities, Gunaratne says.
There has also been a major contract in Dubai for three city precincts.
A bumpy ride
Encouraging building owners that a lean operational system is worth the effort of achieving it has not been a smooth ride, Gunaratne says.
When he started the company in 1993, it was almost impossible to influence the upper echelons of property investors – those with the purse strings – to take an interest in the decidedly less glamorous sides of their business, such as building management and energy performance.
Typically, he recalls, it was a “set and forget” mentality. The idea was to call in a favoured engineer, get them to tweak the building’s electrical nerve centre … and move on.
The trouble was that buildings are not static, in spite of what their concrete foundations and glass panels might suggest.
“Buildings are so dynamic,” Gunaratne says. “They are changing all the time, and the [air-conditioning] plant has to respond to that. Weather conditions are changing; there could be unusual activity by the tenants; some may want to work on a public holiday or a weekend, and override the settings then forget to put them back.
“They might move a sensor because they are putting in a new partition and it might be near the duct so that there is too much cooling.”
This is what inspired Gunaratne to look at technology that could automate the process of finding the problems and keeping the building’s mechanical systems functioning holistically.
“We started to develop a massive amount of data,” he says. “We went to key clients and said let’s install this technology across your portfolio.
“If you don’t get the savings, we stipulate we will write a cheque for the difference.”
In one shopping centre the energy workout six years ago produced savings of $900,000 a year.
“Today the saving is $1.6-$1.7 million a year because they invested in something, so that’s $6.8 million in savings over the past five years,” he says.
“It’s real money. It’s fantastic when the clients can see it’s real money.”
Today Gunaratne describes the technology as based on “very smart algorithms”, and used in 57 per cent of Australia’s leading property portfolios. That’s all the big companies, and includes those that have topped the Dow Jones Sustainability Index: Stockland this year and GPT in the two previous years.
The technology creates internal savings for EP & T too.
“The staff employment isn’t huge,” Gunaratne explains. “The reason is we use a massive amount of technology.
“What we used to do in 120 hours, we now do in 45 hours because of the technology we have and that’s the whole intention. So there is a massive gain in efficiency.”
His office includes a bank of large monitors where staff track building performance for clients in real time.
Understand your market
The way in which Gunaratne achieved the turnaround in the business is a useful lesson in understanding your market. He studied electrical engineering, then air-conditioning, but, sensing the difficulty of breaching the boardroom door, he then added information technology and business management.
This was key to getting the ear of senior management, the “Cs”, as he puts it: the chief executive, the chief financial officer, the chief operating offer.
History helped as well. An interest in sustainability started to emerge. The federal government and the NSW Government seized the opportunity, with the development and commercialisation of first the Australian Building Greenhouse Rating, or ABGR, and then NABERS, the National Australian Building Energy Rating System.
Soon competitive branding and marketing between the property giants created a virtuous circle of energy efficiency and sustainability, Gunaratne says.
“NABERS made a major contribution to energy efficiency. There is no doubt about it.”
As more companies jumped on the ABGR bandwagon, the scheme changed and improved, he says, thanks to significant “proactivism from the people running the scheme”.
In Gunaratne’s view, the government had a game plan.
“The government was very smart. They kept it as a voluntary scheme. They said, let the market fix itself then we’ll start intervening.”
When they found the rating scheme administrators and business were working in a reasonably harmonious way, they decided to give preference to 4.5 star buildings in their rental program, a powerful incentive given that the government is by far the biggest property tenant in most markets.
Up to this point there would not have been sufficient high-rated stock available to make such a policy, Gunaratne says.
“Forward thinking companies were thinking, the government is the major renter; we can get an advantage by getting 4.5 star stock,” he says.
When a reasonable level of more highly rated stock became available, the government decided to mandate the minimum standard for its tenancies.
“And then the next tier of property companies started to scramble.”
Today the Australian system ranks very highly internationally, and a key to its performance has been its ability to normalise or adjust the rating to reflect the energy intensity of a building, rather than a simple, absolute use of energy.
“So if the building is in use 24/7, the use is normalised so that the building is not penalised for pattern of use of the tenants,” he explains.
Other countries have performance tools but they vary significantly. The UK, for instance, has a normalising mechanism in its ratings, “but not to the same extent as here. They are going through a process of changing and modifying their rating system.”
However, what the UK lacks in technical finesse it makes up for in broad targets, Gunaratne says.
The UK Government has targeted a 30 per cent reduction in carbon emissions by 2020 and by 2050, the target is 50-80 per cent.
Look at Australia’s carbon tax in this context – with a mere 5 per cent reduction target – Gunaratne says, and note that the UK 2020 target was approved by the Conservatives, and you might start to wonder what all the fuss was about in Australia.
So what is his view on how such a target was achieved in the UK?
It’s simple, he says: “They don’t have a fossil fuel lobby.”
A new world … and Australia looks good
Today the world has changed. Not only is there the mandatory disclosure of NABERS energy rating through the commercial building disclosure program for larger offices, but there is the cold, hard reality of rising energy prices.
The premium end of the property market, however, has been well ahead of the curve. It has enthusiastically embraced energy efficiency as part of a broad sustainability agenda that has made waves internationally, Gunaratne says.
Gunaratne points out that two Australian companies have topped the Dow Jones Sustainability Index for three years running – GPT for two years and, this year, Stockland. And in the Global Real Estate Sustainability (GRES) Benchmark Report, six of the top 10 companies were Australian.
That’s even more impressive if you look at what GRES covers, Gunaratne says: buildings valued at US$1.6 trillion dollars.
[The 2011 survey https://www.thesustainabilityreport.com.au/australian-property-funds-top-gresb-list/1021/ covers over 21,000 commercial buildings, with a combined floor area of about 356m square meters, with an estimated aggregate emission of 34m tons of carbon/year. Respondents spent an aggregate US$5bn on energy in 2010, the report shows.]
- See related article Integrated sustainability reporting is set to change the accounting world _
It’s good for his business. About 57 per cent of Australia’s leading real property funds use EP & T systems, and five of the top 10 funds in the GRES report also use them, Gunaratne says.
Australia’s carbon tax will only stimulate the interest further, and there is a lot of activity stirring among the big real estate investment trusts (REITs).
“We believe that at least three or four large REITs in Australia by 2012-2013 will have average four to five star NABERS ratings across their portfolio,” he says.
There are some major portfolios “doing some really serious work”.
“Now we are living in a six-star world, which is exciting.”
And in future?
There is a big announcement on technology due soon, and a turn-key product.
On lighting, Gunaratne says: “LED is the way to go. But it’s like what happens with the solar.
“The problem has never been technology, it’s political will.”