There’s an old question about grants. Some funding is great but is it ever enough? The issue recently rose to the fore with the recent announcement from Sustainability Victoria that had a new program of grants for energy efficiency, called Better Commercial Buildings. While some sources grumbled that the money was too little to achieve much and that waiting around for grants could delay action, SV has pointed out that funding is just part of the story. More important and probably more valuable is end-to-end support to get an upgrade program going.
Victoria’s Better Commercial Buildings initiative, and its grants for commercial building upgrades, has raised questions in the energy efficiency sector – like is the money enough? Will proponents be able to gain finance for implementation? And are grants really the way forward?
The prospect of funding could work to slow down the upgrade process, an industry source told The Fifth Estate.
For example, a building owner could have a business case put to them and see a three-year return on investment, but say, “If we can get funding we will do that,” the source said.
The $30,000 amount of the new grants was also “not a fantastic amount”, the source said.
Looking into the finer detail of Victoria’s program, successful applicants will be required to undertake an energy audit to the Australian standard.
The source said the audit cost for a small to medium enterprise, where energy is not a primary input – such as a hotel or retailer – is between $1500 to $6000 for a Type 1 audit, and $3000 to $15000 for a Type 2 audit.
The mandatory post-project 12-month measurement and verification process is also a cost.
“Data analysis is money,” the source said.
Between the audit and the M&V – that’s a large part of the grant done.
Even without those costs, HVAC, which is generally about 50 per cent of a commercial building energy bill, usually could not be improved to any great extent for $30,000.
While EUAs are starting to see a little bit of improvement in terms of uptake, finding funding can be a challenge for some, the source said. Macquarie Bank is one of the more likely banks to fund energy efficiency, but it depends who you are.
“It’s like any risk [for a bank]; if the applicant can mitigate that and is putting in tier one products and the profile of the clients is not risky.”
SMEs are generally not gaining funding from the Clean Energy Finance Corporation for efficiency activities, they said, as it only wanted to fund “the big stuff”.
“Everyone wants to skim off the low-risk stuff.”
Funders may also pick and choose which initiatives they are willing to fund for a low-risk site, the source said.
Grants not the crucial factor
Warren Overton, Sustainability Victoria’s director of business and built environment, told The Fifth Estate the grant amount was not the crucial factor.
Feedback from participants in SV’s Energy Efficient Office Buildings program, which tackled energy efficiency in 20 mid-tier office buildings, revealed that the real value was the end-to-end support to get an upgrade program going.
That includes project management support during the implementation phase.
Participants said capital was not crucial – as the projects typically “stack up in their own right”.
SV also has a Memorandum of Understanding with the Sustainable Melbourne Fund that participants in the new, expanded program will be in a position to access Environmental Upgrade Finance.
While this will be dictated by whether they are in a local government area that has committed to EUAs, Mr Overton said the expanded SMF EUF initiative meant “the majority of the Victorian population is covered”.
Those looking to undertake projects in a council area that has not committed to EUAs could present a great opportunity to get those councils involved, he said.
There are also other financial structures available, including green bonds and instruments that can bring projects and opportunities together.
“We are looking at how can we facilitate the market and bring projects and finance together.”
It is about helping to make connections to “get the market to do what it has to do”.
“We have to get the transformation happening.”
Grants are the fish, but we need to give a rod
The grants are like giving someone a fish, Mr Overton said, but “we want to give them a fishing rod”.
One benefit of the grant scheme from SV’s perspective is it represents a way to gain market intelligence, he said. For example, there has already had significant interest from the retail and accommodation sectors.
The appetite reinforces the findings of recent SV research that showed consumers had a “massive preference” for products and services from companies with environmental credentials.
One of the requirements of the grants is that proponents achieve a one star NABERS rating improvement or equivalent.
Having that rating or some other type of credential is something the business can then promote.
“It will be interesting to see how consumers react,” Mr Overton said.
Fundamentally, the grants are about capacity building for the SME sector, and support for businesses to make the business case, Mr Overton said.
Often in that sector people don’t have the time, expertise, or dedicated staff working on sustainability and energy efficiency – they just bring in a contractor when something goes wrong.
“They work in, not on, the business,” Mr Overton said.
Consider the ROI and capture long-term benefits from M&V
Randall Vavra, general manager of consultancy CarbonetiX, said there were bottom-line benefits of upgrades with or without a grant.
“If you’ve got a business case with a five-year return, what rate of return does that represent? That’s 20 per cent return in my book. Do you know anywhere else you can get a guaranteed 20 per cent on your money?”
There is also a way to make the M&V requirement deliver lasting benefits.
“Where an asset owner is taking the step to install metering as part of M&V it is valuable to make them permanent, rather than temporary,” Mr Vavra said.
“Then, when energy efficiency measures are carried out, the asset owner or facilities manager has a before and after picture that enables them to see what value-specific initiatives have contributed to the change in energy use.
“It also allows real-time monitoring of the facility to action faults at the time or shortly thereafter, saving much more energy than waiting for the bill and wondering what happened.”