The current gas crisis has highlighted the urgent need for the property sector to accelerate the switch from gas to electric appliances, energy efficiency and renewables. Here’s what some of the sector’s leading experts told us.
The recent surge in the price of gas makes the business case for removing gas from buildings and switching to electric appliances more compelling than ever.
Property owners, lobby groups and advisors are searching for solutions or advocating action –from a return on investment standpoint, even before the logic of environmental benefits and the 2030 targets of many property owners kick in.
“The market forces are actually propelling this forward, where it’s not a voluntary proposition to go electrification, it’s a resilience measure, a measure to protect an asset from these very real impacts,” Lisa Hinde, head of sustainability at Colliers told The Fifth Estate.
Ms Hinde said that her company is seeing a surge in inquiries from property owners about electrifying their buildings, off the back of the uncertainty in the market around gas prices.
“That’s certainly playing into the sentiment around investors and occupants in terms of wanting to occupy a building that’s electrified, just to guarantee price stability,” Ms Hinde said.
“We’ve had occupiers walk away from leases where the landlord hasn’t been able to establish an electrification plan for their assets. These are becoming real issues now for landlords and investors.”
Paolo Bevilacqua, general manager at Frasers Property Australia’s wholly-owned behind-the meter energy retailing business Real Utilities, told The Fifth Estate the big impacts are yet to flow through in terms of the adoption of batteries and on-site renewables.
- READ MORE: “Green power for the price of brown” and reliable too – can green developers, like Frasers, become the clean energy giants of tomorrow?
“Things are changing week to week at the moment. It’s phenomenal and I think no-one has ever seen what’s happening in the electricity and gas markers in Australia before. There’s a lot of instability,” Mr Bevilacqua said.
“It is a matter of how long this is sustained for, because it is so unusual, and so that makes it harder for businesses to make longer term investment decisions, because there is no precedent to what’s happening at the moment.
“It is probably the biggest market signal for renewables we’ve ever seen. And so I think it will result in greater uptake of solar, wind and batteries and whatever other technologies can fill the gap as we transition away from coal and gas.”
Short term impacts of surging energy prices
For many businesses, both in the property sector and in the broader economy, the immediate short-term impacts of surging gas or electricity prices will be tempered by longer-term 12-to-24-month power purchasing agreements.
Francesca Muskovic, national policy manager for sustainability and regulatory affairs at the Property Council of Australia, said that many of her organisation’s leading members have signed PPAs with renewable energy providers as part of their net zero commitments.
“Increasingly, a lot of them are viewing that 2030 [net zero] date as an absolute backstop. So many of those companies would expect to meet those objectives significantly earlier. A lot of that’s been enabled by falling costs for renewable electricity over time,” Ms Muskovic said.
“A lot of those large users have already entered into longer term PPAs or the procurement arrangements that effectively sees them hedged against the current price increases.
“So if they’ve already acted to basically procure most of their electricity from renewable generators, they’re not doing too badly at the moment.”
Assuming the high prices for energy continue, businesses in the broader economy that have long-term PPAs and energy contracts that are tied to gas or coal are likely to see large price surges as those contracts expire. That has the potential to make the switch to renewables in their buildings critical.
According to Fraser’s Paolo Bevilacqua, “if you locked into an energy contract 12 or 24 months ago and you’re about to come out of that, let’s say over this winter, you’re potentially going to see a 50 per cent cost increase.
“So the business case will improve once that hits, or as it’s close to hitting. I expect we’ll see more people focus on self generation behind the meter. The awareness is increasing.”
Price rises will generate more interest, but “until that moment, maybe it’s not as real for people, particularly if you’re a business that has negotiated rates”.
The biggest short-term impacts are likely to be felt by industrial energy customers that make heavy use of brown energy, as well as residential customers that don’t have long-term energy agreements in place.
Residential customers are likely to see increase of anywhere between 5 per cent and 18 per cent, Mr Bevilacqua said.
Building electrification makes environmental and financial sense
Even before the latest surge in gas prices, there was already a strong environmental case for property owners with net zero targets to reduce the amount of gas combusted within their buildings and switch to all-electric appliances, Colliers’ Lisa Hinde said.
“When you’re also tying that into net zero targets and net zero projections for your portfolio, ensuring that your property is only consuming one fuel source, which is electricity, means that you can decarbonise with the grid. That reduces the risks in terms of how you’re aligning with your own policies to net zero.
“Electricity is becoming the lower emissions intensity energy source.” Having gas in your property no longer necessarily equates to a better NABERS rating, Ms Hinde said.
And while removing gas from large commercial buildings won’t happen overnight, the property and real estate industries could reduce both their financial and environmental risks by accelerating electrification.
“You’re getting a triple whammy with the gas market at the moment, where it’s impacting the ability for properties to achieve that net zero status – it’s blowing up in terms of costs and the emissions associated with it are higher now.
“You’re kind of like looking at [gas], going ‘well, you’re not the friend that we thought you were anymore. You’re quite bad for us’.”
The more progressive funds and more progressive investors are looking at a less intensive energy profile for their buildings, which includes electrification and removing gas.
Cheap gas? Not any more
From a risk management perspective, the Property Council’s Francesca Muskovic said it’s not immediately evident that gas prices will be cheap again.
“I would fully expect to see an acceleration of some of these strategies on electrification. The price signals in the market are to transition away from gas sooner, because if you’ve got existing gas use left in your buildings and you want to make net zero claims against those, you’ll need to purchase offsets. And those aren’t going to be getting cheaper anytime soon, either.”