Photo by Achudh Krishna on Unsplash

There are many barriers to energy retrofits in the community housing sector – which needs them most – but here’s a thought: what about combining government funding with private impact-linked private capital to kickstart the economy post-Covid at the same time?

If we continue to rely on government grants to fund energy performance retrofits in community housing dwellings, it will take 36 years to kit out these homes with the basics such as rooftop solar and insulation.

BOOMPower director and co-founder Alex Houlston says that this is unacceptable when the most vulnerable people in our communities disproportionately feel the impacts of sky-high energy prices.

Houlston’s business, which provides a comprehensive software-as-a-service platform for managing solar, storage and energy efficiency projects, has produced a whitepaper alongside Community Housing Industry Association Victoria (CHIA Vic) and other partners, with support from the Lord Mayor’s Charitable foundation, to come up with ways to stimulate energy retrofits in the community housing sector.

A critical discovery, as compiled in the whitepaper provided exclusively to The Fifth Estate, has been that government can’t fund the $22,500 needed to retrofit each community housing dwelling in the country.

Instead of relying on “unreliable” government grants, subsidies and rebates that tend to fall victim to a change of government, Houlston says the sector needs to tap into private sector capital from impact investors and philanthropic organisations.

In the new whitepaper, a “blended” financing model is suggested, where private sector capital is combined with government funding.

“We needed to bring the cost of capital down, so, what if the government committed to no or low interest loans that was matched by philanthropic and impact funding?”

The trick to ensuring taxpayer’s money is used efficiently is linking this funding to “tangible and verifiable outcomes” that are is integral to the impact investment model.

This is where technologies such as low-cost metering technologies and energy project management software and come in.

A lot of work has gone into BOOMPower (which was initially funded by the New Energy Jobs Fund, in collaboration with the Community Housing Industry Association Vic) that is essentially an end-to-end software platform for getting an energy project done from start to finish.

It integrates on-site energy assessments, automated business case reporting, competitive procurement, portfolio-wide analytics, and reporting and verification of the costs and benefits of energy solutions onto one platform. The idea is that using the platform is typically cheaper than engaging several parties for each of these different jobs.

According to Houlston, using a platform like this makes it easy to link finance with outcomes because performance is continuously measured.

But wait, what about the split-incentive problem?

The final piece of the puzzle is solving the split-incentive issue, which sees disproportionate financial benefits flow to the tenant rather than the owner though lower bills, leaving no incentive for the community housing operator to undertake retrofit work.

The split incentive issue blocks energy upgrades in any sector where there’s a tenant-landlord relationship but in the community sector this is exacerbated because community housing providers cannot legally charge more rent to recoup some of the savings.

Through much consultation with stakeholders, the whitepaper recommends establishing a third-party vehicle to implement and manage the energy projects.

The idea would be to have some kind of independent organisation charging tenants for some of the benefits outside of the usual rental structures.

Houlston imagines such an organisation to be self-sufficient and appoint an independent board that’s not reliant on budget bids or political support, with tenants likely represented as board members.

A post-Covid recovery lying in wait

The whitepaper also argues that residential energy retrofits, starting with the community housing sector where energy performance upgraded are needed most, make for ideal stimulus spending to “kick-start” the economy after the coronavirus shutdowns.

Not only does the help tackle big-ticket issues social inequity and climate change, this spending also creates a variety of jobs.

According to the whitepaper, the $2.7 million of solar, battery storage and airconditioning installed on Victorian community housing in 2019 underwrote almost 70 jobs, including project engineers, apprentices, HR professionals, marketers and more.

Appetite for change in community housing sector

It’s no secret that the most vulnerable among us disproportionately bear the brunt of high energy prices.

Not only do these people, who are more likely to be the unemployed or underemployed, spend more time at home with inefficient heating and cooling systems running, but they are disproportionately renters who don’t have the same access to energy performance improving upgrades such as rooftop solar or energy efficient appliances that home-owners do.

Houlston says that the energy retrofit revolution has “been a long time coming” in the community housing sector, with the most movement happening in Victoria and Western Australia at this point. However, the relevant parties have been in discussion with all state governments.

He also says the appetite is promising in philanthropic organisations and in impact investment.

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  1. Hi Daniel, good to hear from you! Yes, totally agree. I’ll share the white paper with you directly. It doesn’t actually say that government can’t fund $22,500 per dwelling. What it says is

    “…including solar, lighting, electric heat pumps for hot water, split-cycle air-conditioning, insulation, draught-proofing and sealing, we anticipate the ~100,000 community housing dwellings in Australia requiring $1.25billion of energy retrofits (refer to the Victorian Case Study herring for a full breakdown), based on work we’ve completed on over 7,000 dwellings to date is likely to need an average $22,500 investment per dwelling. Assuming these retrofits relied solely on government grants, and the support was as generous as the current funding in VIC and NSW, then all properties could be retrofitted in 36 years (assuming those subsidies remain consistent throughout that period). Clearly, this should be an unacceptable timeframe for retrofitting the homes of vulnerable
    people – or any Australian household.”

    The over-riding point being that, due to natural political and budget cycles, government funding has led to a “boom-bust” cycle for energy retrofits, with inconsistent funding. The result is that internal resources, skills and knowledge are often lost in-between those cycles (although our clients retain some of that knowledge, information and know-how via access to the BOOM platform, and far more would be retained through a third-party vehicle focused on energy for and by the sector). Personally, I’d be very happy to see government directly fund those energy retrofits, and those required in the much larger portfolio of public housing, plus support implementation within low-income rental houses too. However, I suspect that’s a long road, if we rely solely on government money (even in community housing).

    Stimulus money may help, but it should also attempt to make up for the vast under-investment in new social housing – in fact, if society had to choose between direct government funding for new houses to decrease homelessness, versus energy retrofits on existing houses, I think I know where the money would (and should) go. If we can leverage private sector funding to accelerate energy retrofits in community housing and beyond (also “community assets”, as per the WA Impact Fund description), with more made available for new homes via direct government funding, then I’d suggest that’s a win-win (although given government budget and departmental silos, it’s also naive of me to think that would eventuate as described!).

  2. This could be a welcome solution to speed up implementation of energy upgrades, and it would be good to read the full white paper. However, I take great issue with your statement that ‘government can’t fund the $22,500 needed to retrofit each community housing dwelling in the country’. Perhaps this is true at the current rate of government investment, but this can and should change.

    It must be acknowledged that many of the problems facing social housing tenants (both public and community – and indeed those on the long wait lists) are a result of under-investment in the sector in Australia. We know in NSW that (in 2012-13 anyway) property sales were being used to meet maintenance costs, and there was still $85 million of delayed maintenance. Appropriate maintenance, and where necessary upgrades to ensure housing “reflects the housing standards of the general community and is designed to cater for the ongoing needs of consumers” (as required by the Housing Act) would go a long way to addressing the problems faced by these vulnerable community members. This is leaving to the side the extent to which many of these issues faced by vulnerable tenants are, at root, caused by inadequate welfare support.

    Private investment may be part of the solution to allow tenants to access the benefits from clean energy and other new tech that are beyond the reasonable standard of housing, but increased government support in this sector is essential. This could be in directly increasing funding for public housing, or by providing additional funding through community housing providers. However, social housing in all forms is a public good, that should be funded appropriately, and is likely to be good value for money.