6 May 2010

The Fifth Estate

Let’s face it energy efficiency is not sexy. Like electricity it’s a bit hard to get a handle on and it’s a pretty dull conversation starter. It’s even worse for politicians facing the great moral challenge of our times. Wizz bang technology on the other hand is much more exciting - it is shiny, highly visible, you can tie a ribbon around it and it’s wonderful for photo opportunities.

But energy efficiency is the sleeping giant. Both political parties have made noises about taking it more seriously. And with the building sector alone estimated to account for at least 23 per cent of Australia’s carbon emissions it’s hard to understand why they’re taking so long.

Research by McKinsey and Company estimates that energy efficiency in commercial buildings can save $130 per tonne of CO2 reduction. Commercial buildings have also been identified by the Intergovernmental Panel on Climate Change as the largest and most cost effective sector for achieving greenhouse gas reductions.

It is something that has been occupying the minds of organisations involved in energy efficiency, particularly with the deadline this week for submissions to the federal government’s Task Group on Energy Efficiency.

Rob Murray-Leach, CEO of the Energy Efficiency Council, told The Fifth Estate the EEC’s submission to the task group pushed for greater focus on energy performance contracts, or EPCs. These involve energy service companies contracting to reduce a company or building’s energy use by an agreed amount and if it falls short, compensating the client for the difference.

“Energy performance contracts are a win win for many companies as they transfer the responsibility for energy efficiency gains to providers with the expertise to deliver it,” says Murray-Leach.

“We are looking over the next year to introduce more tools to reduce the barriers to information on EPCs. They are a very, very powerful tool but they are not particularly well understood which is a major barrier to their wider acceptance . One of our recommendations to government is for an agency to facilitate these contracts.”

Other recommendations by the EEC to push energy efficiency include:

  • a national incentive scheme for energy efficiency retrofits
  • a $500 million to support several innovative models to provide capital for energy efficiency upgrades
  • mandatory display of NABERS base building and tenancy ratings in building foyers, commencing with buildings occupied by the public sector
  • building the capacity of the property and energy efficiency service sectors.

Mark Lister, interim CEO of the newly formed Australian Alliance to Save Energy (A²SE) and group manager corporate affairs at Szencorp (an A²SE Founding Associate), says one of the reasons energy efficiency has not been embraced is that the industry is a fragmented one.

“There’s no energy efficiency industry as such – it is made up of many different sectors and occupations such as architects, builders, lighting companies, manufacturers. And within the built environment, the green building sector is really very small,” says Lister.

“We’re trying to pull together people across sectors, including big industrial users, and get all major political parties involved. We’re not a lobby group – we want to reduce the industry fragmentation, get some research going and get something done now about energy efficiency.”

In its submission to the government’s task group on energy efficiency the A2SE calls for better integration between the work of the Task  Group  and  the  National  Strategy  for  Energy  Efficiency.

“The work of the Task Group could be targeted more explicitly at improving the strength of existing work in the NSEE and providing new mechanisms, specificity and resources to speed its uptake. Unless this is done at appropriate scale, it may not lead to dramatically increased energy efficiency implementation activity,” the submission said.

And without this integration any proposed new measures and mechanisms would risk “further problems of uncoordination in program delivery and in governance arrangements.”

Lister says there is considerable frustration with the way the Task Group’s Issues Paper was written.

“It is full of information that has been known to the informed Australian community on energy efficiency for years,” says Lister. “

“Australian advocates  of  energy  efficiency  learn  nothing  of  the  Task  Group’s  plans  from  this  Issues  Paper,  and  it  is  unlikely  that  the  Task  Group  will  learn  much  from  the  responses  it  receives.”

The A²SE is calling for both the government and opposition  parties to develop comprehensive  and  ambitious  climate change  policies.

“There is no requirement for the task group to publicly release any recommendations and there are no signs that either side of politics is committed to energy efficiency,” says Lister. “They’d rather spend a couple of billion on a wave energy project because it is more visible.”

The current strategies, including mandatory disclosure of energy use in commercial buildings, are all focused on reporting rather than actually doing anything, says Lister. Energy performance contracts were useful tools but need to be very contractually clear.

“Sometimes these contracts are not clear cut and there is variation between what is being offered. There have been disputes between clients and service companies and this can make people wary of pursuing them in the future. It is important to be aware of the pitfalls,” said Lister.

The A²SE is trying to get a new type of contract up which it believes plugs into the government and community’s way of thinking. Called the Energy Efficiency Power Plant, the concept is a virtual power plant which caters to a whole local government area. The idea is that the amount of energy saved across the precinct over a given period of time through energy efficiency measures is the same as that produced by a large scale coal fired power station during the same period.

The concept, says Lister, will require a very strong contract with the virtual power plant operator (an energy service company). The alliance is currently talking to institutional investors.

“We are deliberately cashing in on the supply side mentality out there. We can go to the Energy Minister and say you must invest in this power plant – it will create this many jobs and have zero emissions.”

The alliance is currently in discussions with a conglomeration of council areas in Melbourne, as well as utility companies over the concept. It has also approached Sustainability Victoria and the Australian energy regulator for seed funding.

“We think we need something big and innovative to attract serious investment. There are barriers to energy efficiency – mainly the political will to sit down and commit serious resources and a plethora of small policies.

“In the last federal budget there was $1.5 billion committed to renewables and $90 million for the green building fund. The potential for renewables to reduce emissions is half that of energy efficiency.”

But there is no doubt energy efficiency in commercial buildings has been taken seriously over the last couple of years. This has largely been driven by measures such as The Green Building Fund, which provided building owners with up to $500,000 to do green retrofits, and more recently the impending introduction of mandatory disclosure of energy use.

There has been a rash of new tools introduced to measure energy use and carbon footprints - Landcom’s Precinx, GBCA’s Greenstar Communities tool and Colliers’ CarbonSystems to name just a few.

In March the Lend Lease Core Plus Fund (LLCPF) announced it will trial new CSIRO-developed smart software to reduce energy usage in four of its commercial assets by up to 30 per cent.

The software, called BuildingIQ, aims to optimise how the building’s heating and air conditioning system operates and also incorporates weather updates from the Bureau of Meteorology to maximize air conditioning and energy efficiency.

BuildingIQ Chief Executive Officer Michael Zimmerman, told The Fifth Estate, there is huge demand for building efficiency measures in commercial buildings.

“Even with the ETS off the agenda, there will be ongoing demand across the market to reduce energy use. Mandatory disclosure has pushed it recently but there was already demand there. There are pretty clear financial gains from having a more energy efficient building, not just in energy bills but in the increased value in the building and its ability to attract tenants and higher rent,” says Zimmerman.

His company had had “fantastic demand” for the BuildingIQ system. One of the reasons for this was the pay as you go subscription model rather than a large up-front cost.

“There are many systems out there where you have to pay big dollars up front without any certainty. With this system people are paying a fraction of what their energy bill may be – the idea is that they are paying for it out of the savings they make,” says Zimmerman.

The level of demand for the BuildingIQ software has meant the company has had to put on extra staff and is currently seeking new operations people. The main clients for the software have been large property groups but the company is also working with energy service companies that can incorporate the software in their energy performance contracts.

EPC providers appear to be on the increase and include companies such as Honeywell, Siemens, Cisco, Szencorp’s energy performance arm Energy Conservation Systems, Johnson Controls and Energetics – to name just a few.

Simon James, general manager - energy and environment for Honeywell Building Solutions, says there has been large growth in its energy performance contract business over the past couple of years.

“Last year when business was tough for many sectors, this segment of our business was definitely up. People want green buildings and anything that pushes that further, such as mandatory disclosure, creates more demand for energy performance contracts,” says James.

Honeywell’s energy performance contract with GPT for its building at 530 Collins Street is a good example of what is being achieved out there in the market (see separate story on this). The contract is aiming for a major cut in energy use and 40 per cent reduction in greenhouse gas emissions. It will also take the building to a 5 star NABERS energy rating.

All up the contract guarantees a saving of around $360,000 a year. This will be achieved through an improved base building management system, a co-generation plant and new features such as energy efficient lighting, efficient chillers and variable speed drives on pumps and fans.

Any disputes over who is responsible for what is removed by a very clearly drawn up contract, says James.

“Things we can control we are responsible for and if the building operator is responsible then that is clear under the contract. Problems would only arise with building owners that don’t spend a lot of time looking at a contract before they enter into it, or thinking about their own responsibilities. With an experienced company like GPT there is no risk of confusion – the contract sets out how performance is measured and verified and everything is specified up front.”

The project was only completed at the end of April but as progress is tracked continuously, Honeywell is able to see whether it is on track. So far things are looking good, says James.

But if energy efficiency is really going to make an impact on emissions the government is going to have to back energy efficiency measures more effectively, says James.

“Energy efficiency just needs a push – it has financial payback, it makes good business sense and it reduces emissions.

“The barrier is that it just doesn’t register on the mindset. Just like in households power bills of commercial buildings go up and people just keep paying them. It isn’t a burning issue like some other aspects of business so it isn’t given priority.

“But it is a missed opportunity. It needs things like the Green Building Fund to give people some impetus to get off the fence. Both political parties have said they’ll focus on energy efficiency – now we just have to see some action.”