5 October 2012 – Quietly, while hardly anyone was looking, the Victorian government has pushed through one of the most radical energy efficiency programs in Australia’s history. The big question is, why isn’t  every government in the country doing the same?

Under the Victorian program, taxpayers will save around $1 billion in energy bills for their public buildings over the next 25 years. That’s $1 billion for schools, hospitals and so on that might otherwise never have been found.

The program will clock up more than $100 million before the end of the year – and up to $400 million overall – on energy efficiency retrofits to Victoria’s public buildings including Federation Square, the Melbourne Cricket Ground, museums, universities and offices.

  • Photo: The Melbourne Cricket Ground during the recent AFL Grand Final

The radical part of the program is, paradoxically, its arch conservatism. This isn’t about saving greenhouse gasses, it spins on saving money.

The retrofits must be fully paid for by returns on investment with a seven-year pay back period. That’s the deal.

Demonstrating the financial rigour involved, management of the program has been placed in the hands of the Victorian Department of Treasury and Finance.

The people who are close to this program are highly impressed by the scale of achievements.

They say the program has an initial estimated greenhouse gas savings* of 25 per cent, but that achievements are far greater.

In fact, GHG savings average just over 40 per cent, and some are up to 70 per cent.

That’s the kind of greenhouse gas reduction the industry said was unlikely ever to happen.

But it’s happening.

The irony is it’s coming from a government that wears it doesn’t want anything much to do with climate change and sustainability or greenhouse gas savings.

Don’t mention those words.

The name of the program, incidentally, is the Greener Government Buildings program. And it was started by the former Labor government.

The Fifth Estate asked for a comment on the program, or a media release, but there was no response.

[It’s a bit like Zorro masquerading as a kind of Gordon Gekko gone wrong, who is quietly spray-painting the alleyways with “green is good” instead of “greed is good”.]

Either way, this is an impressive program and one that the other states – with the exception of NSW – and the federal government, are struggling to emulate.

The big question is why?

Australian taxpayers are estimated to be forking out

more than $2 billion on energy bills each year

Industry estimates say the Victorian government spends more than $320 million a year on energy, now hiked up to around $400 million after the carbon price, and the NSW government’s energy bill is about $500 million. So collectively, between the states and the Commonwealth, Australian taxpayers are estimated to be forking out more than $2 billion on energy each year – far more than they should if programs similar to the Greener Government Buildings were implemented.

Back to our story.

What do we know about the program?
[We had to cobble together information from a variety of disclosed and undisclosed sources. It’s a sensitive matter, this saving the taxpayer $1 billion in expenditure. You wouldn’t want this kind of news getting into the wrong hands.]

It turns out the program has been running for a little more than two-and-a-half years.

Key are energy performance contracts provided by consultants such as Johnson Controls, Honeywell, Siemens, TES, AGL, AG Coombs, Origin, Ecosave, Dalkia, Schneider, Alerton and Carbonetix.

This means the suppliers guarantee the energy savings. It provides certainty to the client and the rising energy bills ensure that in time, the cost of the work is fully funded.

Among the batch of 26 buildings in the first project are 16 offices with about 83,000 square metres of space.

Worth $12 million in investment, this project, now close to completion, is on track to deliver a 30 per cent cut in emissions. The energy, utility savings and maintenance savings will be $1.25 million a year.

But this is small fry compared to what was on offer.

The project represents about 2 per cent of the total government footprint, so only 2 per cent of the opportunity to save energy and money.

There was obviously another 98 per cent of the portfolio capable of yielding even better results because they included big ticket items such as the state’s hospitals, the Melbourne Cricket Ground, museums, the National Gallery of Victoria, Federation Square and the universities.

Federation Square alone, in a $6.6 million project, is expected to cut emissions by 52 per cent, worth just over $800,000 a year, mostly in energy savings.

Overall about 800 buildings have been committed for retrofit but the overall number could include another 1000.

But it’s a lengthy process. The EPC process can take a year or more. The funding approval takes 4-6 weeks, with much of the time spent determining the scope, auditing, designing solutions, documenting, and planning how the savings will be verified. Tender stage is about 3-4 months, then the detailed facility study can take from 3-6 months or longer in some cases. Review and agreement may be another couple of months.

Already about $60 million has been funded, but another $40 million or possibly $50 million is in process, so that’s $100 million at least by the end of this year. Another $140 millioin is in process. so that’s a total of $240 million.

See what we mean?

Sam Burke

Rob Murray-Leach, chief executive officer of the Energy Efficiency Council, says a key driver of these outcomes has been Sam Burke in the Department of Treasury and Finance, who has managed the program (Burke would not comment to The Fifth Estate).

But Murray-Leach says the story is much better than direct energy savings.

A huge benefit, he says, is that the program is giving a level of certainty to industry that is not normally available from the private sector – and the industry is using this to make an unprecedented investment in upskilling, both its technology and humans.

So in the end, the benefits will be multiplied across the property sector.

Another big benefit of the Victorian work, Murray-Leach says, is that other states are looking to replicate some of the model and the processes.

The NSW story

NSW is furthest along.

The Fifth Estate already reported the headline program to retrofit a swathe of buildings to achieve annual savings of $5.8 million.

Program manager for the NSW work is Treasury Loan Fund and sustainability specialist Scott Nicholson.

Nicholson says much of the work on smaller buildings – such as police stations – is already completed and the focus is now on the bigger buildings, such as hospitals, which will progressively go to tender.

Other states are lagging, but interested:

Rob Murray-Leach

How did it happen?
Murray-Leach reckons the reason the program is ticking over so well in Victoria that a robust set of best-practice principles for retrofitting government buildings has been developed and is proving to be effective.

Coincidentally, he says, near identical guidelines were separately arrived at by two sets of people – namely his team at the Energy Efficiency Council and experts within the Victorian government.

Murray-Leach’s constituents, his members, are “all the guys doing the work”, he points out.

“Back in 2009 and 2012 we developed a set of best-practice principles,” Murray-Leach explains.

The jewel promised by the work was that the behemoths of property occupiers and owners, governments, were big and bold enough to create a critical mass of work that could provide the industry with enough “scale of investment”, and enough certainty to invest in upskilling.

“This is [now] $40 million a year that the industry can bank on and can underpin investment. Whereas with the private sector

“This is [now] $40 million a year that the industry can bank on and can underpin investment. Whereas with the private sector, you don’t know how much you’re going to get each year,” Murray-Leach says.

And the industry came up with a set of numbers and a blueprint that he says is stunning.

“We looked around the world and worked out what defines good programs; we looked at what worked.”

The best work underway was in Germany and the United States, he says.

The methods around the various constituencies vary, but the ones that did best used some key elements.

And if just one of the four key pieces of the puzzle is missing, he says the impetus falls apart.

  • Financial model – One of them is that you need to get the financial model right, and that means more than using an energy performance contract (EPC), Murray-Leach says. [Governments can’t use environmental upgrade agreement models because, as owners, they don’t pay council rates on which the EUA models depend; however as tenants, they can use EUAs.]
  • Whole of government – You also need a whole of government process that sets out clearly the role of government agencies, Murray-Leach says. This overcomes the problems where individuals or departments don’t have the expertise. “If you set up a protocol on how you engage experts, it makes life easier,” he says.
  • Project administration – A project facilitation group is essential; it sets forth set mandates on agencies, “or they won’t do it.”
  • Targets – Murray- Leach says it’s not good setting targets of 20 per cent or 30 per cent energy savings. What’s possible will vary from building to building and portfolio to portfolio. Better targets are a percentage of  floor space. Victoria’s target is 20 per cent of its sites by 2012, which was achieved, and 90 per cent by 2018. Energy savings were anticipated to be 25 per cent but in fact some buildings have doubled that outcome and the average is 42 per cent.

The way the Victorian government approached the financial issue was that it said it would invest in anything that had more than a 12 per cent internal rate of return (IRR) and an eight year payback. This was was adjusted last year to 14 per cent – a seven year payback.

“They’re finding they’re investing more and getting better returns; they’re getting 50 per cent savings,” Murray-Leach says.

This has allowed the program to go “deeper”, that is, to penetrate into more ambitious programs, at greater investment and greater returns.

The rising energy prices have also helped the business case.

Murray-Leach dismisses suggestions that the Victorian government doesn’t want to promote its good works.

This is not the case, he says, and that the program has “full bipartisan support”.

“It’s about saving money.”

The program, he says, “may be called Greener Government Building, but this is a really sensible fiscal measure to save money. It’s cost-effective.

“If it doesn’t save the government money, they won’t do it.”

“If it doesn’t save the government money, they won’t do it.”

The federal government, on the other hand, is rather a more difficult nut to crack.

It just “doesn’t understand”, Murray-Leach says.

Partly this is because so much of its property ownership and tenancy is Defence-related, and Defence is “doing some good work but in general, “the Australian Government is the furthest behind.”

He suggests: “They don’t understand the financials.”

Queensland has, in the past, had a reasonable energy efficiency program but under Campbell Newman’s government that program has lost most of its staff.

South Australia announced last year it would embark on a program, but so far has not acted.

In Western Australia the Auditor-General has released a report that shows the state is well “behind track”.

But once the full impact of the savings in energy bills permeates through the system, it’s hard to see how anyone can resist this proposition.

*Clarification. Previously this read “energy savings”

Table: Victorian government energy performance contracts.

Source theVictorian government procurement website

Project nameStatusContracted GHG SavingsSuppliers Invited to TenderContracted supplier
Treasury office buildingsFinal stage works29%Johnson C, Honeywell, TES, SiemensJohnson Controls
State-wide traffic lighting upgradeInstalling70%N.A. (not EPC)N.A. (not EPC)
Melbourne Sports and Aquatic CentreInstalling29%Honeywell, TES, AGLTES
South West TAFE InstituteInstalling30%ECS, TES, EcosaveTES
Kangan TAFE InstituteInstalling15%AG Coombs, Origin, TESAG Coombs
Federation SquareInstalling52%ECS, Honeywell, SiemensSiemens
71 primary and secondary schoolsInstalling24%ECS, Ecosave, AG CoombsECS (Schneider)
Parks VictoriaDetailed Facility StudyEcosave, Honeywell, ECSEcosave
RMIT City campusDetailed Facility StudySiemens, Johnson C, AG CoombsSiemens
RMIT Bundoora & Brunswick campusesDetailed Facility StudyHoneywell, TES, ECSHoneywell
Central Highlands WaterDetailed Facility StudyDalkia, Honeywell, SiemensHoneywell
Box Hill TAFEDetailed Facility StudyDalkia, Johnson Controls, AG CoombsJohnson Controls
Coliban WaterDetailed Facility StudyHoneywell, TES, Johnson ControlsHoneywell
Western WaterNegotiating DFSHoneywell, TES, Johnson ControlsHoneywell (preferred)
Grampians Wimmera Mallee WaterDetailed Facility StudyCarbonetiX, Schneider, HoneywellCarbonetiX
Latrobe UniversityNegotiating DFSOrigin, Johnson C, Siemens
Melbourne Cricket GroundNegotiating DFSOrigin, Johnson C, Siemens, AG Coombs
Department of Primary IndustriesNegotiating DFSAGL, TES, Ecosave
Ballarat UniversityEvaluating tendersTES, Siemens, AG Coombs
Sunraysia TAFENegotiating DFSSchneider, Alerton, TES
Barwon WaterEvaluating tendersHoneywell, Dalkia, Schneider
Austin Health – Heid. Repat and Royal T.Request for ProposalHoneywell, Siemens, AG Coombs
Holmesglen TAFERequest for ProposalAlerton, TES, Johnson C
Museums VictoriaRequest for ProposalTES, Siemens, Honeywell
Metropolitan Fire BrigadePlanning RFPSiemens, Ecosave, TES
Chisholm TAFEPlanning RFPEcosave, AG Coombs, Johnson C
Public High-Rise HousingEvaluating tendersCarbonetiX, TES, Alerton, AGL, Dalkia
Monash UniversityPlanning RFP
Northern Melbourne Institute of TAFERequest for ProposalDalkia, Johnson Controls, AG Coombs
DOJ – Supreme Courts ComplexEOI closed
DOJ – Magistrates CourtsEOI closed
DOJ – Prisons: Beechworth, Loddon, MAPEOI closed