Transcript Document

Retro-fitting Commercial Buildings
A Financing Perspective
Date: April 2011
Prepared by: Carbon Solutions Group
There is an opportunity to develop a scalable financing solution
to fund the retro-fit of large commercial buildings
Background
• The built environment is a significant emitter of
greenhouse gas emissions. The use of residential and
commercial buildings is responsible for about 23 percent
of Australia’s greenhouse gas emissions1
• The International Panel on Climate Change found that
energy efficiency in buildings encompasses the most
diverse, largest and cost-effective set of mitigation
opportunities available
• A Climateworks Australia study 2 estimated that there is
potential to save as much as 23 GWhr per year through
energy efficiency retro-fits in commercial buildings by
2020, with an investment requirement of around $13
billion.
• The City of Melbourne1,200 buildings program is
estimated to cost $1.3 billion in additional retrofitting
construction expenditure (within a range of approximately
$0.8 billion to $1.7 billion). 3
The Opportunity
• To develop a scalable financing solution to fund
commercial building retro-fits.
Challenges
•
Split incentives
•
Aggregation and scale
•
Large number of stakeholders involved
•
Up-front capital costs with average payback
periods of 7 to 10 years
•
Concept of using reduction in costs as a revenue
stream
•
Lack of awareness
 Energy efficiency is not sexy
1.
2.
3.
Unlocking a Green, Efficient Build Environment, Build Environment meets Parliament Summit, Penny Wong, 16 June 2010
Climateworks, Low Carbon Growth Plan for Australia, March 2010
The retrofitting costs are base building only and do not include tenanted space.
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There are a number of key factors driving the retro-fitting of
commercial buildings
• Tangible benefits include lower energy costs1, higher rentals, lower vacancies and enhanced market value
• Intangible benefits include reduced carbon emissions, improved working conditions for employee and
increased productivity
• Tenants (particularly government2 and large corporates) increasingly demand green office buildings with
government policy to occupy buildings with a minimum 4.5 star NABERS energy rating
• New national legislation to apply from mid 2010 will require mandatory disclosure of energy efficiency
ratings for commercial office are sold, leased and subleased (greater than 2000m2 in Net Lettable Area). 3
As a result, office buildings that are more energy efficient will be at a competitive advantage and
encourage demand for more efficient buildings.
• “Future proof” the portfolio against rising energy costs, market rejection of “non-green” buildings and
tightening regulations on building sustainability performance
1.
2.
3.
A one star gain would save energy costs of $2 to $4 a square metre per annum (excluding the impact of a price on carbon).
Government tenants occupy approximately 33 percent of the Australian office market.
NABERS administration have indicated that the “current market average” NABERS Energy rating for offices is 2.0 to 2.5 stars
3
The opportunity to develop a commercial building retro-fit solution is
complicated by the differing requirements of the key stakeholders
NSW Government
Department of Environment, Climate Change and Water
Victorian Government
Department of Premier and Cabinet
4
A scalable solution delivers on one of the critical requirements
of all stakeholders
Cumulative Energy Savings
Delivering maximum energy efficiency savings
Possible property filters
40%
Chiller Replacement
Mechanical Works
Building
Building
Operational
Management Changes
Lighting
System
Part 1
Part 2
Part 3
Part 4
Part 5
•
Project type: Energy and water efficiency
•
Property size: minimum 5,000sqm
•
Property energy bill: minimum $500,000 p.a.
•
Single site project: minimum $500,000
•
Building age: minimum 5 years
•
Star rating: less than 3.5 NABER’s
(energy and water)
•
Location: National
$1.5m
The Solution
 Work with fund managers with the potential to retro-fit a number of commercial properties across their portfolio
 Target retro-fit investments that deliver 30 to 40 percent energy efficiency savings per building
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There are a couple of major financing road-blocks that need to be resolved
for the commercial building retro-fit financing opportunity to be realised
Challenges
1. Term of the loan
2. Subordination of security
Proposed solution
•
Environmental Upgrade Agreements (“EUA”)
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EUA financing has the potential to overcome key barriers to
financing energy efficiency retro-fits in commercial buildings
Bank
Australian
Carbon Trust
Debt
Debt
SPV
“Special Taxes” levied by
City Council
Commercial
Property Fund
“Special Taxes” levied by
City Council
City Council
Energy
Savings
Guarantee
Property 1
Property 2
Undertake retrofit &
provide EPC **
ESCO
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Considerable progress has been made in developing commercial
building retro-fit financing structures but challenges remain

There has been significant progress across the commercial property industry, the banking
sector and both Federal and State governments to address the commercial building retro-fit
opportunity

There are still a number of challenges that need to be addressed in order to develop a
scalable, financing business model
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Key Contacts - Carbon Solutions
Neil Hereford
Head of Carbon Solutions Group
Institutional Banking & Markets
Commonwealth Bank of Australia
Level 22, 201 Sussex Street
Sydney NSW 2000
Phone:
61 2 9118 4225
Mobile:
61 410 445 039
Fax:
61 2 9118 4200
Email: [email protected]
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