Victorian Premier Daniel Andrews

Comment: All eyes will be poring through the federal budget after Tuesday night, but for Victorians in the energy efficiency industry all eyes were on the state budget last week, wondering why the Greener Government Buildings Program wasn’t mentioned.

Disappointing, to say the least. Again.

What problem exactly does the Victorian government have with saving energy and saving carbon on a grand scale? Not to mention improving the value of its major health and education assets with better maintenance and underpinning if not bolstering the state’s AAA credit rating since credit rating agencies do reward risk mitigated well maintained assets.

Because that’s the opportunity the Vic gov continues to miss.

Sure the state budget had good news on energy efficiency – $24 million in total – but after the $10 million deducted for much needed upgrade to public housing, what’s left is slim pickings once it’s spread around the balance of empty buckets crying out for some significant support.

For those who have not been bushwhacked by the previous government’s axing of this program and therefore don’t have every detail seared into their brains, the GGB is a quite remarkable program started in 2009 that looks medium term to recoup energy efficiency investments in major assets such as hospitals, educational institutions and places such as the Melbourne Cricket Ground, to create highly impressive savings.

A complete “no brainer”, as so many frustrated people in the industry have said.

According to the sums, meticulously prepared for the former state government, since that government was not exactly enamoured of energy savings or any other form of climate action, total savings from the GGB were expected to be about $2 billion.

That’s taxpayer money folks, enough for Victoria to buy its very own sub if it wanted (well 48.1 per of one to be precise using our no doubt far less meticulous calculations of 12 subs @ $50b) Either that or enjoy investing $2 b on something actually useful such as better health and education, or public transport.

But not only did the GGB create direct benefits for taxpayers but the industry told us at the time it did the amazing thing of stimulating confidence in the industry, encouraging consultants and suppliers to invest in their own technology and skills that have all sorts of synergies and spinoffs for everyone else. (Just like defence investments).

So who has been whispering into Premier Daniel Andrews ear?

Surely someone who doesn’t know how to do his or her sums anywhere near meticulously as the GGB people.

In this respect Daniel Andrews’ government, which has been notching up ticks on a range of areas, is going down the same dismal road of its predecessors. Turning away lucrative savings, more efficient public hospitals and educational institutions in favour of …what exactly?

There are many that hoped for more dramatic achievements from Mr Andrews.

Yet maybe it’s not to late for him to shine and risk outperforming his peers in NSW and elsewhere.

Hope now rests on the Energy Efficiency Statement due in coming weeks. It could be the GGB has been saved for that. It would make sense.

Because it’s clear that there is a strong contingent in the energy and finance sections of government that very much “get it”.

(Long may this lot get the whispering gig.)

In its submission to the Economy and Infrastructure Legislation Committee Inquiry in 2014 the Energy Efficiency Council nominated these key benefits of the GGB:

  • Savings for the health sector estimated at $14 million to $21 million a year
  • $2 billion in operational savings over two decades (Given that wholesale gas prices are projected to more than double from $3.50 per Gigajoule to over $11 per Gigajoule, this figure is likely to be a significant under-estimate
  • A positive impact on the Victorian State budget, with a modest short-term increase in debt, a longer-term reduction in debt, an immediate positive impact on surplus and an immediate positive impact on the balance sheet
  • Reduction of the government’s greenhouse gas emissions by 30 per cent, substantially reducing its exposure to any future national or global carbon price
  • Attraction of investment in Victoria and for support several hundred private sector jobs
  • Improvement in the quality of government facilities, boosting comfort and productivity
  • Agencies investing in the program expected to reap Internal Rate of Return of more than 12 per cent, based on then current energy prices.
  • Helping to build the capacity of the energy efficiency sector

Oh and it was noted that the GGB was a world’s best-practice energy efficiency program that has enjoyed cross-party support.

It was also recognised as a leader in Australia with government agencies from other states seeking advice on how to set up similar programs in their patch.

Bottom line request? A $30 million yearly investment across the whole of the Victorian Government.

And here’s a few technical details on the GGB that might help the anti-energy efficiency whisperer do his or her sums better, from the EEC submission:

Agencies can borrow funds under Section 37 of the Financial Management Act from the Public Account to invest in these energy efficiency programs. It is critical that agencies have access to finance to invest in energy efficiency programs. Without access to finance, investment in energy saving projects would drop substantially. The vast majority of agencies are not allowed to borrow funds from the general market directly, and have to borrow from the Public Account which is administered by the Department of Treasury and Finance. As a result, the GGB Program has a positive impact on the Victorian Government’s budget on almost all important metrics.

Guaranteed Internal Rate of Return – the GGB Program is structured so that energy efficiency experts deliver a guaranteed IRR of at least 12 per cent, based on energy savings at existing tariffs. However, the IRR will actually be closer to 20 per cent, as many assets (for example air handing units, chillers, boilers, lighting) already need to be replaced and energy tariffs are projected to increase

Reduction of Outgoings – the DTF’s initial cost-benefit study for the GGB Program estimated that it would deliver over $1 billion in energy and maintenance savings over 25 years. However, savings to date have been substantially greater than previously estimated, and DTF now believes that the GGB Program will deliver over $2 billion in savings.

Increased Surplus (Operating Statement) – the reduction in outgoings from the GGB Program is more than double the increase in depreciation. This significantly increases the Government’s surplus on the annual operating statement.

Net debt – Projects funded under the GGB Program result in a short-term increase in net debt (years 1 to 6), and a positive impact from years 8 to 15. Although the GGB Program increases short-term debt, the benefits to all other financial metrics mean investments of this type are generally viewed positively by ratings agencies.

Balance sheet – A project funded under the GGB Program would have net zero impact over the contract period (Year 1 to 7), as the uplift in the building value nets out the initial cost of the upgrade, and net positive impact from the end of the contract period until the end of asset life (Years 8 to 15)

A reduction in activity under the GGB Program would increase the Victorian Government’s outgoings, reduce the surplus and have a negative impact on the balance sheet.

Energy costs in the health sector (from the EEC submission)

The Victorian Auditor-General’s report “Energy Efficiency in the Health Sector” from September 2012 (Report 2012-13.5) found that Victorian heath services spent nearly $70 million on energy in 2010-11 alone. The Victorian health sector’s energy costs will have risen since 2010-11, largely due to increases in electricity distribution costs, but also due to the carbon tax.

The Victorian Department of Health has identified the opportunity to substantially reduce the health sector’s energy bill by implementing energy efficiency upgrades.

Conservative estimates suggest that Victoria’s public health service could reduce its energy bill by around 20 to 30 per cent, but recent detailed assessments have identified much larger savings at specific facilities. Therefore, an effective energy efficiency program would save the Victorian health service a minimum of $14-21 million, and likely far more if the increase in energy costs since 2010-11 is factored in.

In 2012 the Victorian Auditor-General stated simply:

“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.” (p.vii)

The Auditor-General went on to strongly recommend that Department of Health invest significant effort to “upgrade its strategic implementation plan for the GGB Program.”

The Council notes that the Department of Health has subsequently expended significant effort to improve its implementation of the GGB Program, and last year released a schedule of tenders for upgrades to health agencies.

In moving for the establishment of this Inquiry, DM Davis, Minister for Health, stated:

“Some will argue, with legitimacy, that there should be energy-saving measures and that they make perfect sense. They make good business sense because they lower the cost of health services’ energy production, and the government would certainly support those measures”