Data hiding within obscure energy regulatory documents reveals that housing energy efficiency regulations have succeeded in reducing household energy demand.

The Housing Industry Association fought tooth and nail to stop regulations ultimately introduced in 2006 to upgrade the thermal energy efficiency of newly built Australian homes. They were also heavily criticised by the Productivity Commission in a 2005 report, which questioned their likely effectiveness.

Yet our charts of the week, using data from Victorian Energy Utility SP Ausnet, suggests they have indeed been successful in reducing energy demand, at least for Victoria.

Amongst the several hundred pages of SP Ausnet’s regulatory price submission to the Australian Energy Regulator, it reveals that average household gas consumption is 6 per cent lower in 2010 relative to 2003 normalising for the effects of weather (gas usage is higher when weather is colder).

Part of the reason comes down to the introduction of the five star housing energy efficiency regulations. The chart below taken from the demand forecast report, illustrates gas usage for houses and units/apartments built in each of the years from 2003 to 2009 relative to houses built prior to 2003. Gas consumption in dwellings built in 2003, 2004 and 2005 has been greater than that of the older housing stock. Then for homes built from 2006 onwards, when 5-star became mandatory, there is a dramatic drop in gas consumption.

Gas usage of dwellings built in 2003 to 2009 relative to pre-2003 dwelling stock

Source: Centre for International Economics (2012) Gas demand forecasting SPAusNet, 2013-17

According to the Centre for International Economics, which prepared SP Ausnet’s gas demand forecasts,

In 2006, there is a significant downward step in gas use from new dwellings. This likely reflects the adoption of 5-star energy efficiency standards. A dwelling built in 2006 uses about 12.4 per cent less gas than one built in 2005

What is really interesting is that it appears that electricity consumption, not just gas, is also lower in newly built homes within SP Ausnet’s electricity distribution area (which covers a different region to their gas network), as illustrated in the chart below. This is in spite of newer homes tending to be larger than the building stock built more than 10 years ago.

Electricity consumption profile for housing stock of different ages in SP Ausnet distribution area

Source: SP Ausnet data cited in AEMC (2013) Strategic Priorities for Energy Market Development

SP Ausnet’s electricity distribution network services a rural-regional area of Victoria east of Melbourne where a number of towns lack access to natural gas. So they may be more reliant on electricity for heating purposes than the rest of Victoria.

This would explain why 5-star (now upgraded to a 6 star standard) has managed to noticeably reduce electricity consumption in their network. However one should also recognise that energy reductions across this region would extend beyond electricity because a number of homes serviced by SP Ausnet’s electricity network have access to natural gas and some would use wood or LP Gas for heating. For homes that are reliant on electricity alone for heating, the demand reductions from the 5 and now 6 star regulatory standards are likely to be noticeably greater than illustrated in the chart above.

In light of this information if the NSW and Queensland Governments were really as concerned for household energy bills as their rhetoric suggests, they’d match the national 6 star standard. NSW is still to catch-up with 5 star via their BASIX regulations, while Queensland recently pulled 6 star requirements for multi-unit dwellings.

Read more: http://www.businessspectator.com.au/article/2013/4/24/smart-energy/housing-regulations-driving-down-energy-demand#ixzz2RSPmEYwe

Australian electricity demand forecasts through the rest of the decade are in need of a sharp revision, in the order of 10 per cent on the forecasts from last year that were around 10 per cent below the year prior.

The lags on demand are now so strong, so historically unique that few are realising how quickly it is turning the electricity generation sector on its head.

Part of this is due to the long-held viewpoint of a positive correlation between electricity demand and economic growth. That correlation no longer applies in Australia thanks to technology improvements, solar proliferation and an economic shift away from manufacturing.

The graph below tells the most powerful tale. Since the second half of 2010, demand has been trending down, relentlessly.

Changes in electricity generation and emissions

Source: Pitt and Sherry CEDEX index

Contrast this with the forecasts from AEMO illustrated below. Note the red line – actual demand – and the yellow line – expected demand, on a medium economic growth scenario. Demand is forecast to revert back to its early-to-mid 2000s trend (that is, consistently going up) from financial year 2013/14. Already, just six months after the forecasts were released, that appears exceedingly optimistic.

Annual energy forecasts for the NEM

Source: AEMO 2012 National Electricity Forecasting Report

AEMO boss Matt Zema has noted that the first year demand fell was put down to the GFC, the second down to cooler conditions and so it was only the third year that he said anyone really started to think ‘hang on, there’s a trend here’. All of which means that everyone is still playing catch-up in understanding the game has changed.

Forecast demand change from 2011 to 2012

Source: AEMO 2012 National Electricity Forecasting Report

Large users on the outer

The darkest chapter in the demand story for those in the industry is not even written yet.

What would happen, for instance, if all of Australia’s aluminium smelters shut down in the next decade? It’s not an entirely far-fetched hypothetical.

After the Kurri Kurri closure last year, we have five smelters left in operation, accounting for between 10 and 15 per cent of NEM demand.

Point Henry is as good as gone come mid-2014 unless the government steps in with (further) significant support. Portland could be facing a similar fate when its current bargain basement electricity price contract expires in 2016 (it has another contract through 2028, but not on the same generous terms). Bell Bay in Tasmania is up for sale by Rio and has seen significant losses since the GFC. The Tasmanian government is desperate for it to continue operation, but even the newly signed power agreement mightn’t be enough.

If you lost just those three smelters, over 4 per cent of electricity demand would be wiped out.

Then there’s the Tomago smelter in New South Wales and Boyne Island in Queensland. Both of these are likely on sounder financial footing than the others, which isn’t necessarily saying a lot. Like Bell Bay, they are up for sale and given the industry’s struggles, futures can’t be guaranteed through to 2020.

If they went to the scrapheap as well then the cut for electricity generators would have turned into a gangrenous wound.

Tomago alone accounts for 10 per cent of electricity demand in New South Wales, and approximately 3.8 per cent of NEM demand. Boyne Island, the largest by capacity, would have a similar impact on NEM demand. If they all closed, close to 12 per cent of demand would be eliminated without replacement.

Solar PV

As mentioned in the first part of this series, AEMO’s solar forecasts – released around the middle of 2012 – are already off the mark. Solar may be two years ahead of the ‘medium uptake’ schedule by the end of this year alone.

Rooftop PV installed capacity forecasts for the NEM

Source: AEMO Rooftop PV Information Paper

Predicting solar is fraught with danger as there’s so many factors to take into account. No one, for instance, expected panel prices to decline by upwards of 80 per cent in three years. The policy flip-flops also play a significant role.

But given AEMO has such a low demand forecast in the near-term – 320 MW a year until 2018 (we should be doubling that this year) – it’s a reasonable expectation to think we could further outstrip its forecast by 1.5 GW in the forecast period. As such, AEMO’s expected solar demand by 2020 looks around 2 GW short of where it should be. This equates roughly to 2,600 GW/h, or another 1.4 per cent of demand compared to forecast.

The upside potential is vast, with commercial installations the sleeping giant. Australia is different to much of the world in that residential customers claim almost all of the solar market. If the commercial sector jumped on board, who knows how high demand could rise.

Energy efficiency

Energy efficiency is also underestimated as AEMO largely did not take into account the potential for improvements in the commercial and industrial sectors (outside NSW and the ACT). This was due to a lack of data available, but looking at the chart below and given residential only accounts for 30 per cent of demand, you can see there’s real potential for an enhanced impact compared to expectations.

Annual energy impact forecasts of energy efficiency policy by NEM region

Source: AEMO 2012 National Electricity Forecasting Report

The case can also be made that energy efficiency is already underestimated in terms of its likely impact given the sheer numbers of minor changes individuals and businesses can make that would be incredibly challenging to keep track of. This includes adding solar water heaters, better insulation of new buildings, upgrading any number of appliances – lights, TVs, air conditioners, fridges, washing machines, dryers –the list goes on.

The AEMO energy efficiency forecasts focus on the impact of government policy rather than possibilities surrounding individuals and businesses deciding to upgrade their appliances (to more energy efficient models).

Like solar’s inclusion in AEMO’s forecast in 2012, this energy efficiency methodology was a first for AEMO last year meaning there’s still plenty of work to be done to fully assess the impact of energy efficiency measures on demand (an article in Climate Spectator today highlights, for instance, the staggering impact of 5-star housing on electricity demand).

Overall

If you add these impacts up, you are looking at an underestimate of energy efficiency impacts in the order of at least 2 per cent, then 4 per cent for the most vulnerable smelters being subject to closure and 1.4 per cent for solar exceeding moderate expectations.

Around 7.5 per cent all up. Add in further manufacturing weakness, a slowdown in the mining boom, factor in growth not being as reliable an indicator (which is incredibly important for modeling, but can’t be quantified) and you easily get beyond 10 per cent.

Very quickly a case can be made that despite economic expansion and population growth, NEM demand in 2020 may be no more than the levels we see today. A strong case can even be made for it to be lower than it is today, flying in the face of forecasts for an average yearly growth rate of 1.7 per cent through the rest of the decade. If all the smelters closed it would then be catastrophic for generators, if it isn’t already.

Read more: http://www.businessspectator.com.au/article/2013/4/24/energy-markets/special-report-electricity-demand-collapse-part-2#ixzz2RSOq0iHN

15 November 2012

Indoor environment quality is emerging as a new focus for green buildings and environmental upgrades, the Profitable Sustainability conference heard this week.

Keynote speaker John Goins, research specialist, with the Center for the Built Environment at the University of California, Berkeley – which has been leading the world on IEQ – said environmental measures needed to move beyond the focus on design to embrace operational management for the life of the building and that high green ratings in the US did not mean significantly better indoor quality.

The Australian Property Institute/Property Funds Association joint conference also heard that the innovative financing model, Environmental Upgrade Agreements -being rolled out in a number of local councils – can be used to improve any element of sustainability including IEQ.

Energy efficiency can be improved significantly by focusing on the indoor environment, with tenants most commonly complaining about airconditioning (too cold in summer, too hot in winter). In particular, people prefer the temperature inside to follow the seasons, rather than remaining at the same temperature year-round, surveys have found.

It is no wonder then that productivity is affected by sub-optimal environments, with a recent survey by Ernst & Young in Australia finding almost one fifth of an employee’s working day is wasted on tasks deemed to be not productive and a 2008 United States Ginsberg workplace survey showing respondents believe they are more than 20 per cent more productive in a good working environment.

Other studies have shown performance generally decreases 1-2 per cent for every degree above or below 21.6C and that noise affects the speed with which tasks are carried out. But even energy-efficient buildings could have bad outcomes where tenants were not given control or did not know how to use devices to increase indoor comfort.

Goins used as an example a LEED Platinum building in which tenants complained about glare and brought in their own fans.

Goins explained that indoor environment quality, or IEQ is something people pay for, just like a good experience at the movies, whether they know it or not. Exclusive brands tend to use airconditioning liberally in outlets to create a feeling of luxury and, conversely, buildings with deteriorating indoor quality become increasingly obsolete in terms of rental returns and ability to attract tenants.

However, just making a place cooler — to reflect brand status or because of a perception that this increases worker concentration — may not have the desired effect: “In many organisations if there’s a sense that the organisation doesn’t care about energy then employees think, ‘why should I?’” Goins said. As well, this tends to be seen as reflective of a lack of corporate social responsibility in other areas.

In addition to temperature, the other most commonly cited complaints are air quality, noise and maintenance. Where air quality is concerned, people like to feel some air movement, particularly in warm weather. Having maintenance operations to complain or make suggestions to also improves perceptions of the indoor environment.

Interestingly, the Center for Build Environment’s analysis has found air quality is the one variable that improves significantly in buildings with high LEED green ratings in the US. This is perhaps reflective of newer buildings as well as the fact that LEED includes a focus on air quality.

In a panel after Goins’s presentation, Sydney University’s Professor Richard de Dear outlined details of the IEQ lab which he heads and was recently launched, with a three-year research project focusing on the Australian environment.
One issue he highlighted was that leases tended to specify temperatures be set at 21.5C or 22C. These were written by people with little understanding of IEQ, he said.  Instead set temperatures should be programed to drift with the seasons. He said temperature should be adaptive, using as an example Local Government Super’s 120 Sussex Street — the lowest energy intensity building in Sydney’s CBD — which has negotiated the temperature be increased to about 24C.

From left, John Goins, Matthew Clark, Robert Milagre, Richard de Dear and Simon Fox with MC Roger Walker

Robert Milagre, project leader of Green Star Performance for the Green Building Council of Australia, said IEQ had always been a part of Green Star — and was currently worth about 18 per cent of the total Green Star score. But with Green Star – Performance, the GBCA is moving into assessing the operational performance of buildings.

Another newly emerging area — Environmental Upgrade Agreements — is proving a win/win for building owners and tenants. Following Melbourne’s lead, Parramatta is the first local government area to take up the NSW seeding funding for arrangements whereby very competitively priced financing is secured based on projected future income from the upgrade. At 10 Valentine Avenue, tenants approached the building owner to carry out a lighting retrofit of the ageing building and projections under the EUA put the tenant’s lighting energy use savings at 75 per cent and reduced energy bills by about 25 per cent. The tenants agreed to contribute up to 40 per cent of the cost to realise the substantial savings, thereby contributing to the investment that will also improve the building’s valuation.

Commenting during a panel on case studies of sustainable buildings, Local Government Superannuation Scheme’s property portfolio manager Brian Churchill said because of rising standards and increasing regulations, “the business case for sustainability upgrades [based on energy efficiency] is getting a bit blurry”. He said greener buildings only tended to attract a slight premium and that tenants are not engaged enough.

Churchill earmarked IEQ as the next frontier and predicted its popularity would increase markedly as the number of buildings rated for IEQ increased. At LGS’s 120 Sussex Street upgrade, in addition to achieving the highest possible NABERS Energy rating, IEQ improved considerably. Independent testing by CETEC showed a 4 per cent increase in productivity, representing a gain of $1.05m annually.

28 August 2012 —Office buildings rated by Green Star and NABERS energy four star and above continue to outperform low and unrated assets, Investment Property Databank Australia’s Property Investment Results for the financial year 2012 show.

The company’s research, released in early August, found the stronger returns were currently driven by stability in capital values, which reflected strong tenant demand for sustainable product.

“The results indicate that owners who improve the sustainability attributes of their buildings are more likely to mitigate downside risk in office asset values.”

However the research also found property markets had softened.

“In the year to June 2012 all Australian direct property posted a total return of 10 per cent, 60 basis points below the peak of 10.6 per cent in September 2011.

“The result reflects a general softening across the macroeconomy with the exception of the resources sector. Looking forward, the cooling of the Chinese economy may slow the mining boom and detract from an Australian economic and property market recovery.”

The research also found the industrial sector was steady and “showed a slight moderation in returns declining by 20 bps to post an annual total return of 9.7 per cent”.

“The stable return was supported by favourable space market conditions, mainly due to strength in distribution assets and a lack of prime supply. The Western Australian market was the clear outperformer with strong demand from tenants linked to the resources industry.”

Details: http://www.ipd.com/Portals/1/downloads/countries/australia/

Global sustainability expert Martin Blake – last year named as one of the Top 100 Global Sustainability Leaders of 2011 and best known for his work at the UK’s Royal Mail – recently visited Australia for the International Green Awards and he came with a simple message: businesses need to stop looking at sustainability as a costly exercise.

“The companies that are beginning to emerge as the most profitable are also the ones that are looking to be the most sustainable,” Dr Blake tells Climate Spectator. “And so companies that do not embrace sustainability will not be here in the future because the ones that have been, are succeeding.”

While the gap between Australian companies and the UK, for example, may have shrunk, our firms have a long way to go to get near the successful strategies seen in countries like Denmark. In the meantime, Asia is fast catching up to us and will go straight past if we can’t manage to quell the short-termism that dominates political and business thinking. And the polarising ‘carbon debate’ isn’t helping.

An edited transcript of the interview is below:

– Where does Australia stand?

– Long-term thinking versus short-termism. How far should businesses look ahead?

– What company boards must do to avoid short-termism.

– The world-class example of Marks & Spencer turning sustainability strategies into profit.

– Customers are increasingly demanding sustainability and you can’t escape the supply chain.

– What businesses must do.

Daniel Palmer: You’re out here for the International Green Awards, what is the big message you’re trying to get across to delegates?

Martin Blake: The big thing that organizations need to do now is they really need to move beyond just reporting the big ticket numbers of how much energy did we use this year and how much will we reduce it by, without really knowing where it’s going. Systems, such as Carbon Systems, disaggregate the data and they enable business cases to be created and they enable energy to be performance managed out. So there’s a transition that enables that to happen.

So, at the moment, there’s too much talk in Australia around carbon and carbon tax and carbon this and carbon that. And as a result the real argument is being obfuscated and companies aren’t taking sufficient advantage of the low hanging fruit financially that’s there in terms of energy reductions because they’re too pre-occupied with carbon.

My view is that if you disaggregate the data and you know what you are spending and where, and you go through a process of building business cases for intervention then you can find ways for saving money and not it costing you money. That’s what organisations like mine, working in conjunction systems like Carbon Systems, do.

DP: So do you feel Australia is behind the rest of the developed world?

MB: Depends on which part of the world.

DP: Compared to countries like UK – and America?

MB: I wouldn’t benchmark against America. You might actually be ahead of them. But I would suggest the gap is closing. I notice with great interest over the last few weeks that I’ve been working with companies in Australia that increasingly more and more of them are beginning to develop marginal cost abatement curves. They’re beginning to go through a process of looking how much energy is costing and I think they are closing the gap with the UK.

In terms of closing the gap with countries like Denmark, there’s a significant way to go. Denmark is going to be a carbon neutral country by 2050 and that’s probably an unattainable goal for a country like Australia with its energy program. But you’re certainly closing the gap with countries like the UK.

But interestingly other countries are progressing faster. So countries in Asia are actually working more quickly and more deftly than Australia and I think there’s a real risk that Australia isn’t going to be overtaken… because of cheap labour and cheap energy. If they’re going to be overtaken, they’ll be overtaken is because (Asia) is actually doing it better. They’re doing it quicker, cleaner and their absolute intention is to be world leaders in the sustainability arena.

So it is a competitive global village and I think it would be very good for Australia to continue its journey. And forget this demeaning debate about carbon and just focus on getting energy savings strategies in place and seeking ways to innovatively make renewable cheaper. Because then it reflects through the rest of your infrastructure.  And if they focus on cost-effective renewables, and stimulating the renewables market, and cost-effective energy reduction, then it’ll happen.

You don’t need to talk about carbon for those two things. Avoid it, reduce it and then replace. If you follow that mantra of avoid, reduce and replace and you performance manage the energy and performance manage renewable into the economy and the rest will take care of itself.

DP: Long-term thinking versus short-term. Many businesses seem caught up in the short –term…

MB: It’s not just businesses it’s governments. That’s the problem with the democratic process, they only think for a three or four-year cycle.

DP: How far ahead should businesses (and politicians) be looking?

MB: Let’s take a world-class example. Singapore is investing in a 50-year strategy. They’re investing in a 50-year strategy. They’re buying IP on a 50-year horizon. And they’re doing what’s best for Singapore based on the deployment of a 50-year strategy. Sadly democracy has a number of issues with it and the democratic cycle has a number of issues with it. So that’s at the government level.

And of course companies do take a short-term view. They take a short-term view because chief executives tend to come and go. And they may say ‘I’ll do three or four years here and I’ll get my bonuses and share options and move onto the next biggest job’. So there is sadly a degree of short-termism which prevents the playing out of the most efficient long-term strategic plays.

DP: What can boards do to prevent this short-termism?

MB: Well the answer is ‘why do they have those short-term views’. And that’s because the reward and recognition that they’ve been given encourages it. So the view is the institutional investors need to be requiring companies to take long-term views, and then it would happen. And if you paid chief executives for taking long-term views and you rewarded companies for taking long-term views, then they would. Then the answer is in the hands of institutional investors.

DP: Major changes come from the top, but is there much risk in the filtering down of new messages? Are there some leading communication strategies?

MB: I don’t know that either top-down or bottom-up is right. I think that good communication strategies are essential.

For me, I’ve always found that the most change comes engaging at board level. I’ve always found that if you go into an organisation at the middle management level, they’re either not high enough up the organization to make a difference or they’re high enough up the organisation to be frightened if they get something wrong. As a result they tend to do stuff that is risk free and enables them to remain employed, keep their pension plan, and maybe get promoted. So they don’t tend to be agents of change.

Therefore often you need to get up to the board level where they can see the benefits of something and make a decision accordingly. So strategy needs to be set at the board. That’s their job; they have a fiduciary duty to do it.

DP: It wasn’t long ago that terms like CSR and triple bottom line were bandied about regularly in the press and by business leaders, but it seems such terms have fallen off the radar. Do you feel it slipping from companies’ focus?

MB: I think that people have got CSR fatigue and carbon fatigue and sustainability fatigue because of the demeaning political debate. So when you’ve got Julia Gillard and Tony Abbott at basically diametrically opposed positions on the debate, what do we expect the people in between to do – apart from just get tired of it?

So they need to focus very clearly on what counts, which is business, in order to be sustainable – and I’m talking in terms of economically sustainable – they need to make a financial difference. And you can do that by reducing your energy costs, your water costs and sending less waste to landfill. So the International Green Awards, where I’ve just been looking at best practice, the companies that are beginning to emerge as the most profitable are also the ones that are looking to be the most sustainable. They are absolutely managing their housekeeping in terms of energy, waste and water and the way they look after their staff in world class ways. And they’re winning.

Marks & Spencer is a classic example. When they began to set up their sustainability function and they thought they would do it under plan A, they expected plan A to be a cost centre. Now plan A represents 10 per cent of profit. It’s earning them 150 million a year, just by being sustainable. That’s how much the value of that program is. Ten per cent of net profit is a big number.

DP: Particularly for a large company.

MB: Yeah, so over the weeks here we’ve seen companies surviving, and prospering and growing because they’ve reduced their costs and they’ve increased their efficiency through a sustainability agenda. The more they keep bantering about carbon, the less likely people will do the right thing. Just focus on cost effective, good housekeeping and let energy efficiency, water efficiency, waste reduction strategies be hygiene factors.

DP: Do you think companies got held up a little with ‘greenwashing’?

MB: That’s old-fashioned. If they did they won’t be for long because it doesn’t work.

DP: Do you feel customers are looking for sustainable companies?

MB: Increasingly. Because you can’t escape the supply chain. So if you’re in a business and you’re looking to reduce your environmental and social impacts – in terms of negative impacts – then you will ask your suppliers to give you products that have low impact as well and they will in turn have to ask their suppliers. So the power of the supply chain is far reaching. It is a global web and you can’t escape it. And so companies that do not embrace sustainability will not be here in the future because the ones that are, are succeeding. It (a sustainability agenda) is not an impediment, it is an advantage. It’s giving them competitive advantage. So we will see companies become followers rather than leaders. And we will see some that don’t follow and they will exit.

Bottom line, you can’t manage what you can’t measure. Organisations need to be data-centric. That brings with it complexity, which is why I always say using a cloud-based host for all of your sustainability data and managing the program as you would manage sales or you would manage HR is the correct way to do it. You need granularity in your data and you need the ability to be able to dynamically model. If you can’t dynamically model and manage you can’t meet your goals and targets.

Martin Blake is the owner of Blake Advisory, the Founder and Chair of Carbon Zero Solutions, Director of Sustainable Development at IndustryRE, a Director of The Green Asia Group, a Non-Executive Director of Sabien Technology, Ecologic Transportation, and Amida Recruitment, as well as a Strategic Advisor to the Boards of CarbonSystems, MOSS (Models of Success and Sustainability) and The Upcycle the Gyres Society.

Australian electricity demand has been flat-lining across Australia since 2007-08 yet we have great difficulty determining the precise causes. Unfortunately the electricity authorities – the Australian Energy Market Operator, Western Power and NT’s Power and Water – do not publish electricity demand data to a level of detail and in a manner readily interrogated by the general public that would enable us to isolate potential causes relatively easily.

The unexpected and large drop-off in electricity demand growth has major implications for electricity prices, energy infrastructure investment, government policy and greenhouse gas emissions. Given its large importance, Climate Spectator has run several articles analysing potential causes and implications. Analysis by Ric Brazzale and Hugh Saddler have pointed towards the potential contribution of greater energy efficiency of buildings and appliances as well as increased penetration of solar PV. In addition, Roger Dargaville has pointed out that mild weather has unlikely to have been a major factor in reduced electricity demand.

More recently Climate Spectator published a piece by Keith Orchison, which, drawing on data from the Energy Supply Association of Australia (ESAA), suggested that challenging economic conditions and declines in business activity were the predominant driver of the drop-off in demand growth. Orchison felt that residential demand was not ‘flat-lining’, and queried the importance of greater energy efficiency and solar PV.

Below Hugh Saddler provides an alternative take on the ESAA data.

Demand for electricity – has the paradigm truly changed?

The recent publication of the ESAA’s statistical annual, Energy Gas Australia, provides another year of data on Australian electricity consumption. Because electricity industry businesses use a consistent definition of a residential customer, the ESAA data can be used with reasonable confidence to separate residential from business consumption of electricity over time.

Unfortunately, ESAA data is not perfect, and discontinuities mean that consistent time series have to start from 2003-04. This is sufficient, however, to show the key changes in trend.

A previous examination of residential electricity consumption, extending to 2009-10, showed that growth in consumption has slowed significantly since 2006. Consumption per capita has actually been falling. With the possible exception of WA, this was the case for every individual state.

Addition of data for 2010-11, shown in the first graph for the NEM as a whole, shows that the trend is continuing. Moreover, non-residential consumption, accounting for about 70 per cent of the total, shows a similar trend.

In Queensland, 2010-11 was an annus horribilis, with business activity and normal life massively disrupted by floods. This shows up as a sharp drop in electricity consumption for the year, shown in the next graph.

However, removing Queensland from the data does not greatly change the trend for the wider NEM, as the next graph shows. Remember that these numbers are total electricity consumption, not consumption per capita or per $ of GDP/GSP, so, since both the economy and the population have continued to grow, the economy is clearly becoming less electricity intensive, while residential consumption is declining per person and per household.

Unsurprisingly, WA is different, as the final graph shows. It is not hard to see that WA is where business is booming. However, for residential consumption, the difference may have more to do with the previous Labor government’s insistence on blocking increases in residential electricity prices than on real differences in consumer behaviour.

Should we expect residential electricity consumption to start growing again in Queensland? Premier Newman may be constructing an interesting reverse experiment, to test the effectiveness of price as a policy for restraining demand growth and encouraging more efficient use of energy.

Updated July 17, 2012 00:22:29

A new survey of the manufacturing sector has found a doubling of businesses focusing on energy efficiency over two years as costs continue to climb.

See the full article here:

http://www.abc.net.au/news/2012-07-16/energy-efficiency-vital-for-businesses/4134906?section=business

The Total Environment Centre is presenting a powerful business case in support of retrofitting low-grade office buildings based on six real life examples where an environmental upgrade boosted the value of an asset or significantly lowered operating costs.

The Sydney-based case studies include a selection of B, C and D-grade office buildings where the owners embarked on capital works and improvements to boost the NABERS ratings of their assets.

The majority of the buildings achieved an increase of 3 to 4.5 NABERS stars based on a low initial rating.

The Total Environment Centre’s business sustainability arm, Green Capital, prepared the report as part of the Lessons and Tools from Existing Office Building Leaders Project with funding from the NSW Environmental Trust.

Project leader, Matt Fisher, said the landlords were motivated to upgrade their office buildings based on commercial imperatives with most seeking to boost the value of their asset. He said others were looking to attract government or corporate tenants, increase their rental income, avoid energy price rises, meet mandatory disclosure requirements or boost their reputation as responsible corporate citizens.

The majority of the buildings achieved an increase of 3 to 4.5 NABERS stars based on a low initial rating.

The report found the building owners increased the life and return from their asset and often achieved this within realistic economic constraints.

“But it did take careful planning, help from experienced consultants and contractors, and a desire to investigate options for improving their asset,” the report said.

However, Mr Fisher said most landlords in possession of low-grade office buildings continue to ignore the benefits of an upgrade in favour of short-term gains.

He warns that neglecting the maintenance of an asset while holding out for ever-decreasing rental income or improvements in a property’s value will prove a false economy in the long-run.

In many cases, simple actions such as recalibrating a building management system (BMS) provided significant energy savings. Based on the performance of their newly upgraded buildings, some of the landlords who took part in the study expect to see a return on their investment within three years of undertaking works, according to Mr Fisher.

The project interviewed the managers of six buildings that have recently undergone an upgrade and eight technical property experts.

The Australian Unity-owned RPAH Medical Centre in Camperdown, Sydney boosted its NABERS rating from zero to four stars through a project that delivers energy savings of more than $61,000 in the first year following the upgrade. Managed by Colliers International, the $185,000 upgrade included items such as power correction equipment, new building management system, replacement of the cooling tower, installation of high efficiency air conditioner package units, carbon monoxide sensors and variable speed fans for car park ventilation.

Based on the performance of the building it is expected the project will provide a return on investment within 1.8 to 2.4 years.

Mr Fisher said when a building’s heating, ventilation and airconditioning (HVAC) equipment is in a serviceable condition small modifications or “building tuning” can achieve significant energy and monetary savings.

Managed by Knight Frank, the owners of 6 O’Connell Street, Sydney spent less than $150,000 upgrading the plant and BMS in their office tower, raising the NABERS energy rating from 1.5 stars to 4.0 stars, according to the report.

An audit discovered that the chillers and boilers in the 1960s building were running at the same time and competing against one another. Mr Fisher said the payback from the project was almost immediate for the owners as the works have largely been part of general building maintenance and good management.

The report also stresses the importance of employing external professionals to assist landlords and managers to boost the environmental performance of a building.

Managers are important

All respondents who took part in the project saw investing in an effective building manager as one of the most important expenses, both before, and after a building upgrade takes place.

External building managers were recommended as a cost-effective alternative to in-house staff, particularly as this allows for the selection of a professional with experience managing a building of a similar age or a property with comparable plant and equipment.

Added to this, the cost of getting a consultant to audit your building – generally in the order of a few thousand dollars ¬– can quickly and in some cases immediately pay for itself: “by direct energy savings or avoidance of expensive emergency maintenance,” the report said.

Avoiding stranded assets is key

The report found that a building can only be allowed to run down so much before it significantly begins to lose tenants and diminish in value, with the chance it will become harder to sell or be left “stranded”.

For those building owners who do take a longer term view of their asset, and wish to continue to rent or possibly sell at some point in the future, doing nothing in terms of upgrading or maintenance can prove counterproductive.

The private owners of 100 George Street, Parramatta, spent $6 million recladding and boosting the internal amenity of the building resulting in an estimated rent increase of 25 per cent post-completion while cutting energy consumption in half.

Large-scale environmental upgrade works are also underwriting a new business model, according to Mr Fisher.

“An emerging business model is one of securing government and corporate tenants based on the promise [of] green upgrades,” he said. “This can both increase rental return, tenant retention but most importantly building value well and above capital investment.”

The report found that upgrades focussed on improving the environmental performance and efficiency of a building provide owners with a considerable number of benefits including:

• Significant reductions to ongoing operating costs.
• Future-proofing a building against rising energy costs.
• Improving marketability based on a higher NABERS rating.
• Improving the building’s competitiveness and value by becoming eligible for government and other corporate tenants with sustainability requirements.
• Taking advantage of sizable government grants.

Mr Fisher said many of the case studies identified in the report received grants from the Green Building Fund, which is now closed. There are other sources of funding and subsidies available including the Energy Savings Schemes and the Energy Saver program, according to the report.

Environmental Upgrade Agreements also provide more easily accessible funding for refurbishment works based on a better rate and longer loan terms.

Green Capital is holding two free seminars that will present reasons for upgrading buildings, and how to achieve successful results from a retrofit. The seminars are being held in Parramatta on June 25 and Sydney on June 27.

Retrofitting of Green Buildings. Sydney Case Studies Identified by the Total Environment Centre

Our Results

• Identified electricity savings of over 20% for initiatives with a payback period of less than 2 years.

Our Activity

• Completed an Energy Assessment for the School of Management Building.

Forget the feel good factors in energy efficiency or climate change. At the end of the day, according to green enthusiast Harry Chua, it’s the beautiful set of numbers on the bottom line that make the recent deal to upgrade his office building in the Melbourne CBD speak volumes.

Chua is the Melbourne investor who this week revealed he has signed up with the National Australia Bank for Australia’s first privately funded environmental upgrade agreement for his building at 123 Queen Street in the Melbourne CBD.

Another EUA deal, for the Kings Technology Park in Dorcas Street South Melbourne funded by Sustainable Melbourne Fund for the Melbourne 1200 buildings program was announced on the same day.

On Tuesday, Chua spoke to The Fifth Estate to explain what compelled him to become a pioneer in a lending facility that was still untested, but has captured the imagination of major investors in Australia and the US, former US president Bill Clinton and Virgin chief Richard Branson.

In Chua’s view, yes, the deal is good for the environment; it’s good for marketing, for staff morale, for tenants and for clients of all descriptions who want to know how the building owner is managing the asset.

But above all it’s good for the bottom line, says Chua. And this is the point he wants to make clear.

The building, at 123 Queen Street, will be upgraded with a trigeneration gas fired energy system, light sensors and double glazing .

Here’s how the numbers go:

• Total energy bill before the upgrade, $350,000 a year
• Energy savings with the upgrade, $180,000
• Return on investment, 11.79 per cent
• Payback, 8.5 years
• Total cost of funding of the EUA, 7.7 per cent
• EUA loan from NAB, 1.34 million
• Total cost of upgrade including loan plus additional “preparation costs,” $1.54 million

Chua, a medical practitioner who now concentrates on his property and hospitality portfolio and prefers to keep a low profile, defied his reticence to speak to The Fifth Estate, in the interests of sending out a message about these numbers.

“Sustainability is something I have a passion for,” says Chua, who is a director on the board of advisers for Climate Alliance. However, such concerns are irrelevant to many property investors, he says.

“Some people might want to do this sort of work because they have a passion for doing the right thing environmentally, but if it doesn’t make commercial sense, most people won’t do it,” Chua says.

“There are a lot of people who don’t believe in the cause, in climate change. But at the end of the day that doesn’t matter if this makes sense financially.

“So we want to make sure this works financially. That’s the message we want to get out.

“With the $180,000 per annum in savings, that’s a return on investment of 11.79 per cent. That’s pretty much an 8.5 year payback.

“If electricity goes up 30 per cent it will dramatically increase,” Chua says.

“On top of that we have a Green Building Fund loan which makes it a 17.3 per cent return on investment.

“But even without the Green Building Fund grant the cost of borrowing from the EUA is 7.7 per cent all up and the return is 11.7 per cent. So it’s positive and the cost of electricity will become more expensive, so these figures are a worse case scenario.”

The upgrade work is over a 1960s building with an unusually complex blend of uses over 16,240 square metres of lettable area.

There is a 72 room four-star hotel, multiple bars and nightclubs, function room with licence for 2000 people and conference facilities, plus retail and office space including for Chua’s own staff to run his property portfolio.

Chua describes the building as “pretty much inefficient”, with a NABERS energy rating of about one star.

“Our carbon foot print is 4800 tonnes per annum and the savings will be 1300 tonnes…per annum. That’s a 27 per cent reduction in carbon footprint print.

“We do use a lot of energy and to be clean [green] would be fantastic. Also as a marketing exercise,” Chua says.

“When people inquiry about functions and training rooms they want to know, what is your stand on sustainability? And we can say, we are doing this and in 12 months time we will be carbon neutral.

“It’s a good story for our kids and our future and it makes sense marketing wise.

“To bring it up to four star [NABERS energy] will make tenants will feel better.”

Chua wants to make the building to be 100 per cent carbon neutral by the end of 2012, with the balance of carbon savings purchased through carbon credits.

Work has commenced an the trigeneration system ordered and expected to be operational by the fourth quarter of 2012.

Twist in the tale
An interesting twist is Chua’s decision to pick up the tab for the loan himself, but this is a decision with a kicker in it.

Most of the tenants are on gross leases, and some on net. So those on gross leases do not pay additional charges for outgoings; these are incorporated into the overall rent. While those on net leases pay for outgoings separately.

In the Melbourne version of the EUA agreements each tenant in the building needs to agree to the scheme, with the proviso that they be no worse off.

But with multiple tenants on a mix of gross and net leases, Chua decided it would be easier to pick up the tab himself.

“We’ve done all the financials. We are not passing on costs on to the tenants; it gets complicated and is very hard to understand how the savings will work out.

“The way I saw it, I will pick up the cost and the savings will amount $180,000 per annum in energy. The gas bill will cost more but we will save on electricity.

The sweet spot will come when it’s time to renegotiate the rent. With the tenants enjoying lower cost of outgoings it ought to place an interesting premium on the value of remaining in the building.

Plans

Next plan is to roll out the program to other buildings in his portfolio, Chua says.

“We have small city buildings. This is the first one to start with then we will roll this out to a few other properties.”

The Fifth Estate – sustainable property news and forum