Putting energy efficiency back into old and outdated buildings may not be as exciting as cutting the ribbon on a brand new ultra-sustainable construction, but according to senior investment manager at EG Funds, Linh Pham, it’s the best way we have to make meaningful emissions reductions.
She explained that three quarters of emissions from buildings are from the construction process, despite new builds making up just 2 per cent of total stock.
“What we’re looking at doing is optimising what’s already there. Yes, everyone needs to invest in new sustainable buildings but at the same time, the 98 per cent of existing buildings also need to be addressed,” Pham told The Fifth Estate not long after she attended the Printed City event hosted by The Fifth Estate with sponsor BVN and contributed to debate through an “audience spotlight” opportunity.
Pham helps operate EG’s High Income Sustainable Office Trust, a specifically ESG fund that operates around $135 million of the company’s $4.3 billion real estate portfolio, comprising two buildings in Canberra, and one each in Sydney and Brisbane.
Through the fund, which launched in 2016 and began acquiring buildings in 2018, the company hopes to set a precedent for reducing emissions associated with all buildings across the development sector.
“Some of the buildings where other managers may just consider them as a development site, we’re proving that there’s actually still a lot of life left in the buildings,” Pham said.
“So, the whole premise of that fund is to improve the energy efficiency of buildings from low energy efficiency to high energy efficiency, and we’re targeting an average 2 star NABERS uplift for each asset that we buy in the portfolio.”
The premise relies on being able to improve the energy efficiency of older buildings, quickly and cost effectively.
“The best example is 42 Macquarie Street in Barton in Canberra. When we acquired this building in 2018, it was 3 star NABERS. It’s currently 4.5. But by the end of the year, we’re expecting that we’ll get to about 5.5,” Pham said.
Pham and her team were able to make the initial 1.5 star upgrade for only around $30,000 dollars, through upgrading to LED lighting and working with consultants to improve their building management strategies
These included live data collection, daily monitoring of energy performance, tuning the building’s HVAC system for better performance and reducing the requirements for heating or cooling unoccupied spaces as well.
“We’ve got one particular building that was operating HVAC 24 hours a day so it’s constantly being cooled or heated. But then if we look into how the building is actually occupied in terms of space, there’s people working in it 24 hours a day, but not the entire building,” Pham said.
“So being able to duct the tenants airconditioning better, being able to set different zones and those sorts of things and making sure that only the area that needs to be cooled or heated, outside of your regular 9-5 remains cooled or heated, and then shutting off everything else actually also has a dramatic impact on reducing the energy load from the air conditioning.”
The next step for Pham’s team involves spending a little more to install rooftop solar panels, at a cost of around $130,000 in the instance of the Macquarie Street Canberra building, but this will also reduce the base building energy load by about 60 per cent.
“So with LED lighting upgrades, typically we see a payback period of about two and a half years. With the rooftop solar it probably sits at around six to seven years.”
Pricing climate in from the start
Pham said that the most effective place to start is to factor energy efficiency and climate related expenses into the price of an acquisition from the very start and ensure investors are aware of your aims and on board for the ride.
“Some of the elements include conducting an energy efficiency audit or conducting a water waste efficiency audit before we actually acquire the assets. That way we can price in the relevant costs into our acquisition model so it doesn’t come as a surprise to our investors later on,” she said.
Pham said that taking a long view is also important, which when looking at the lifespan of a building means factoring in the global effects of climate change.
“If we take into consideration the climate vulnerabilities of each of our assets when we acquire it, we can estimate what is the additional cooling load requirement if the average temperature rises by 2 per cent, for example. So, by making these assessments at the very beginning, we’re actually able to price it into the financial models.”
Having supportive investors helps too and Pham is positioned well, with one of the backers of her fund being The Clean Energy Finance Corporation.
But she says in general, through speaking with other investors and industry contacts, the wave of knowledge and understanding of energy efficiency and importance being placed on ESG was growing exponentially over time.
“ESG in 2016 was just NABERS, was just base building energy, but now it’s much, much broader than that. There are much larger climate change objectives and objectives around water, and waste,” she said.
“And the pandemic has also really highlighted the importance of social cohesion. I guess much of the industry has actually recognised how ‘we people’ work in these buildings and we spend a lot of time in these buildings. So it’s more than just the environmental elements that we need to focus on, it’s also the social elements.”