Almost all focus in the report was applied to the option of pursuing renewable energy as a solution to our reliance on carbon based energy. This is fine for the longer term, but it ignores the commercial reality that a step by step approach is required and indeed will occur. 

Plainly, the process of reducing our reliance on fossil fuels must include the reduction in our overall demand for energy. Any decrease in demand for energy will also reduce Peak Demand. 

It is pleasing that the Federal Government’s announcements following the COAG meeting finally seem to be recognising this fact. But they still seem to be tinkering – one minute per hour less air-conditioning, is cute but not as effective as four less hours at the right times. 

Energy Efficiency is a huge key to achieving greenhouse targets. Energy Efficiency improvements in buildings can provide a quick, very predictable – and in some instances guaranteed – energy use saving. 

In the experience of Napier & Blakeley, energy use in an office building can be reduced by 40% – 50% via energy efficiency measures.  Each measure produces a positive return on investment, in many cases far better than the building owners’ so called “core business”. 

For example:

Office buildings are responsible for about 10% (1) of Australia’s greenhouse gas emissions. Thus a best – and plainly unlikely – outcome is that Australia’s collective energy use could be reduced by 5% overnight by the adoption of all energy efficiency improvement options.

 Plainly energy efficiency improvements in buildings should be a no-brainer environmentally and economically. 

But it’s not really happening. 

Whether decision makers can’t grasp the concept of spending money to save money, whether the energy costs are not considered material, whether CSR statements are simply that, statements, or whether there is too much confusion out there, it’s difficult to pin-point the reason why.

I suggest one reason for inaction on energy efficiency improvement is environmental fatigue caused by its constant political treatment and the uncertainties brought about by the myriad references around it.

We have VEET, ESC, M&V, GBCA, NABERS, BEEC, Green Star, Green Star Performance, LCAL, CEFC, Kyoto, Montreal, Copenhagen, signatories, non signatories, sceptics, carbon tax, DRM, Peak Demand, CTS, ETS, MWh, KWh, Energy Efficiency Opportunities Programme, Energy Efficiency Information Grants, Climate Change Commission, BREEAM, LEED, E3, MEPS, GEMS, GBF, EUA, EPC, EEC, Clean Energy Future, to name but a few.

Maybe another hindrance – as it appears from the recent Climate Commission Report – is that there are two camps? The first; the dull yet pragmatic supporters of energy efficiency measures and the other; the elite and well funded supporters of renewable energy?

I don’t for a moment suggest that we don’t pursue the development, or to not adopt, renewable energy options.

 Renewable energy can have less certainty and has far longer payback periods.

We see inexpert community groups pursuing the development of localised wind farms – although sometimes not too close to their own homes – perhaps for the benefit of being part of a community, rather than for economic or even environmental drivers, especially when considered against the energy efficiency improvement opportunities that no doubt lie dormant throughout their region.

Similarly, we see the power companies building renewable supplies, but some or perhaps all of this activity has been forced upon them by government regulation.

On the matter of the power companies, many query their push for their customers to use less power.

It is the reduction in PEAK DEMAND that the power companies pursue. A pursuit that we should all support.

Peak Demand relates to the eight or ten hours in the two or three hottest days of the year, when everyone cranks up their cooling. This tiny percentage of annual demand, requires 10%-20% of the power companies’ infrastructure.

Thus billions of dollars are invested for our collective comfort for a few short hours. Analysts suggest that the premium we all pay for this luxury is about 400 times the standard rate per MWh – although this is averaged across each one of our electricity accounts.

Perhaps Development Approvals should require a high rise to incorporate its own capacity to service its Peak Demand?

The introduction of ‘Time-of-Use’ metering would enable (i) the power companies to apply a more realistic price to these peak periods and (ii) consumers to reduce their energy consumption during these periods (in response to the high prices charged).

Over time, the requirement to carry under-utilised infrastructure will subside, enabling the gradual withdrawal of the requirement to subsidise the peak users and thus reduction in all others’ energy bills.

There does not appear to be the political will to allow the introduction of enabling metering in some of our States.

Coupled with statutory pricing mechanisms, we face the risk of more (short to medium term) superfluous infrastructure costs being passed on to us all.

There have been various Government programmes and grant moneys made available for energy efficiency improvements to existing buildings. However, they represent a bag mixed with expediency, cynicism and political targets, for example:

Green Building Fund, $120M directly supported energy efficiency in buildings, but went primarily to those at the front of the curve, who perhaps could afford to do the works themselves.

Low Carbon Communities, $330M seems to be a welfare handout disguised as environmentally driven grants.

$1B tax breaks for energy efficiency works. This large number was waved under our noses for some time and then claimed back by the Treasurer to balance his books. But the break was almost certain to NOT induce change in behaviour. The conditions and the time lags involved would have neutered its capacity to procreate.

It’s a similar story relating to the renewables sector but on a much grander – or perhaps cynical – scale, for example:

Carbon Tax; given the removal of much of the pain – via tax cuts and subsidies – required to induce change, this appears to be a redistribution of wealth disguised as environmentally driven ambition.

Clean Energy Finance Corporation; has been billed as $10B for driving the renewables sector. There is some talk of part of the finance to be speared into energy efficiency, but I am nor aware of any confirmation on this front.

Perhaps we should forget the acronyms and start from ground up now, to address Peak Demand by improving energy efficiency and give ourselves a better platform to consider the longer term options before us.

By Peter Frith, Joint Managing Director, Napier & Blakeley, Energy Efficiency Advocates.*
Published on the Property Review Website 13.12.12

Sources:  (1) Australian Government – Department of Climate Change and Energy Efficiency

Transitional Provisions Ending this Year

The current transitional provisions of the CBD program that require only a NABERS base building energy rating to be disclosed will end on 31 October 2011, with full mandatory disclosure requirements commencing on 1 November 2011.

From 1 November 2011, the Building Energy Efficiency Disclosure Act 2010 (BEED Act) requires corporations selling, leasing or subleasing certain large (>2000sqm) office spaces to register a full Building Energy Efficiency Certificate (BEEC), not just a NABERS rating.

What is a BEEC ?

The BEEC is comprised of three parts:

1.   NABERS Energy base building rating
2.   Tenancy lighting energy efficiency assessment
3.   General energy efficiency guidance for building owners and tenants

The BEEC may be valid for up to 12 months, however will only be valid to the date of the expiry of either Parts 1 or 2 whichever occurs first, as Parts 1 and 2 individually may be valid for up to 12 months but may be completed at different times.

At the time of disclosure, the BEEC will need to be valid, current and registered on the publicly accessible registry on the CBD program’s website.

Importantly, both the NABERS rating and new tenancy lighting assessments take a significant amount of time to complete the assessment and certification process, so need to be undertaken and certified well before a need to disclose for advertising may arise to avoid the risk of non-compliance with the legislation.

What’s the difference?

The required BEEC now incorporates a tenancy lighting assessment. A CBD tenancy lighting assessment of a building is based on a methodical survey of the general lighting system installed in the tenant office spaces of a building (the system that is reasonably expected to be left in a tenant space when the tenant leaves and the tenancy fitout removed).

The NABERS base building rating requirements remains the same as the current transitional provisions, and still requires a full 12 months of building operational data to provide a valid accredited NABERS assessment. Note that a NABERS estimate or non-accredited assessment has no credibility in terms of the BEEC, it requires a current certified NABERS Energy base building rating.

The general energy efficiency guidance will be provided as part of the BEEC when issued.

Accredited tenancy lighting assessments

For a lighting assessment to be valid under the BEED Act, it must be performed in accordance with the new CBD Tenancy Lighting Assessment for Offices Rules, by a CBD accredited assessor.

The tenancy lighting assessments may be completed for all of the building, in which the total office space NLA is assessed, or for a selection of tenancies only within the building. Typically, an all building assessment would be undertaken if the building is being prepared for sale. Assessments of tenancies typically would be undertaken if these areas are to be advertised for lease or sub-lease.

The lighting assessment measures only the energy used by the lighting on an area basis. It does not assess or measure lighting output, quality or suitability of the lighting for use in offices.

Penalties for failure

Failure to disclose may result in civil penalties of up to $110,000 for the first day and $11,000 for each subsequent day may be imposed by a Court for each breach of a disclosure obligation. Alternatively, the Secretary of the Department of Climate Change and Energy Efficiency can issue an infringement notice of up to $11,000 for the first day and $1,100 for each subsequent day of non-compliance.

Further penalties may apply for various breaches of the CBD. Refer to the website for further information with links to the Act and subordinate legislation: www.cbd.gov.au

Have you got a CBD action plan?

Napier & Blakeley are experts in the provision of strategic property advice and can assist in getting your property ready for the demands of the full disclosure requirements.

Meeting the requirements for a BEEC in obtaining an accredited NABERS rating and tenancy lighting assessment for your building is time consuming and intensive, which many people underestimate, so be pro active and plan ahead.

The CBD accreditation and training process for performing tenancy lighting assessments is underway. It is expected that tenancy lighting assessments and hence full BEECs will be available from July 2011, so don’t leave it to the last minute to meet your mandatory disclosure requirements and organise a BEEC with a CBD accredited assessor.

Contact 

Our strategic, cost effective advice will best position your property for the future.

Call Napier & Blakeley today to ensure you are ready for the upcoming changes to this legislation on 1 November 2011 or if you want further information on the Commercial Building Disclosure, or any other Napier & Blakeley services please contact any of our offices below:

Melbourne - Rob Howells            03 9915 6300             rhowells@napierblakeley.com
Sydney – Gavin Peach                02 9299 1899              gpeach@napierblakeley.com

Napier & Blakely services:

• Accredited CBD Tenancy Lighting Assessments
• Accredited NABERS Ratings
• Technical Due Diligence
• Capital Expenditure Planning
• Quantity Surveying
• Strategic Asset Management
• Building & Sustainability Consulting
• Property Depreciation

Reduced Life Expectancy and Premature Capex
Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.

To put this in context, without appropriate R&M, major plant items may have an economic expected life of (say) 25 years, however the reduction of removal of maintenance can result in a major shortfall in expected life to around 15 years.

The Reaction
Astute purchasers have become aware of this risk and look for these patterns in their technical due diligence reporting to ensure that appropriate Capex costs are factored into the purchase price to account for a vendor’s R&M expenditure shortfalls. 

Condition assessments, maintenance reviews, energy assessments and risk weighted strategic Capex forecasts have become 2010’s essential tools for good asset and facility management and sustainable property solutions. 

Risk of Non-Compliance 
New legislation requires that most commercial office property will be required to have a formal energy performance rating in the next few years and many will require this imminently or in the next few months.  This Legislation has caught most by surprise.  The Building Energy Efficiency Disclosure Act 2010 has just been introduced with transitional provisions (1 November 2010 to 30 October 2011) requiring the disclosure of a building’s energy performance through a NABERS Energy base or whole building rating, for all commercial office property with a net lettable area of 2,000sqm or more that is offered for sale or lease. 

Anxious Vendors
With fines in excess of $100,000 for breaches of the Act’s obligations; including advertising the property for sale or lease, after November 1 2010 without an appropriate NABERS Energy rating, there is significant anxiety in the market place.  The latest information from the Department of Climate Change and Energy Efficiency (DCCEE) will surely increase anxiety levels, as they have confirmed that neither exemptions nor extensions will be granted for lack of knowledge or where assessments are currently underway but not yet completed.

 It will be interesting to see how owners, selling and leasing agents and DCCEE react. 

Astute Purchasers
The story doesn’t end once the rating has been achieved.  Purchasers want to know about the processes and procedures that owners have in place, the potential risks of maintaining the rating at the current level and what plans are in place, or could be implemented, to improve the rating, perhaps strategically in line with planned Capex or future lease expires.

Such initiatives are considered in terms of funding opportunities, reduced energy costs, pay back periods and commercial outcomes. 

Published in the Brisbane Legal Magazine November 25, 2010

Lack of Capital post GFC has lead to a significant neglect of R&M and Capex spend.

Having worked on property due diligence valued over $10B since the GFC, Napier & Blakeley have seen only nominal spend on upkeep compared with previous years.

Risk of Non-Compliance (i)

During this period the increasing trend has been a notable reduction of Repair and Maintenance (R&M) and Capital Expenditure (Capex)  budgets. Whilst this strategy may have been necessary in some circumstances e.g. postponement of non-essential Capex, we have found too commonly evidence of non-compliance regarding statutory maintenance such as testing, auditing and reporting of essential safety measures and fire safety systems.

Reduced Life Expectancy and Premature Capex 

Recent technical due diligence and condition assessments have also found that the lack of R&M and Capex budgets for economic life driven plant and equipment overhauls and refurbishments has resulted in increased short and medium term Capex.

To put this in context, without appropriate R&M, major plant items may have an economic expected life of (say) 25 years, however, the reduction or removal of maintenance can result in a major shortfall in expected life to around 15 years.

The Reaction

Astute purchasers have become aware of this risk and look for these patterns in their technical due diligence reporting to ensure that appropriate Capex costs are factored into the purchase price to account for a vendor’s R&M expenditure shortfalls.

Condition assessments, maintenance reviews, energy assessments and risk weighted strategic Capex forecasts have become 2010’s essential tools for good asset and facility management and sustainable property solutions.

Risk of Non-Compliance (ii)

Legislation requires that most commercial office property will be required to have a formal energy performance rating in the next few years and many will require this imminently or in the next few months.

This Legislation has caught most by surprise.

For purchasers and owners it is now important to understand where a property currently sits from a formally rated energy performance perspective.

It is also important to understand how the rating can be maintained at the same level over a period of time, and how it can be strategically and cost effectively improved to avoid future obsolescence.

The Building Energy Efficiency Disclosure Act 2010 is on the cusp of taking effect. The transitional provisions (1 November 2010 to 30 October 2011) require the disclosure of a building’s energy performance through a NABERS Energy base or whole building rating, for all commercial office property with a net lettable area of 2,000m² or more that is offered for sale or lease. However, with only 388 commercial office buildings registered nationally to date, it would seem the message may not have reached all concerned parties with property interests that fall under the Act’s disclosure requirements.

Anxious Vendors

With fines in excess of $110,000 for breaches of the Act’s obligations; including advertising the property for sale or lease, after 1 November 2010 without an appropriate NABERS Energy rating, there is significant anxiety in the market place.

The latest information from the Department of Climate Change and Energy Efficiency (DCCEE) will surely increase anxiety levels, as they have confirmed that neither exemptions nor extensions will be granted for lack of knowledge or where assessments are currently underway but not yet completed.

It will be interesting to see how owners, selling and leasing agents and DCCEE react.

Astute Purchasers

The story doesn’t end once the rating has been achieved. Purchasers want to know about the processes and procedures that owners have in place, the potential risks of maintaining the rating at the current level and what plans are in place, or could be implemented, to improve the rating, perhaps strategically in line with planned Capex or future lease expiries. Such initiatives are considered in terms of funding opportunities, reduced energy costs, pay back periods and commercial outcomes.

For more information on Technical Due Diligence, Capex Forecasts, NABERS Ratings and Sustainable Property Solutions contact Napier & Blakeley.

NSW / ACT / WA / NZ  -  Alastair Walker  -  02 9299 1899
VIC /  SA  / TAS  -  Peter Frith, Rob Howells -  03 9915 6300