Exclusive: An industry-led program to improve commercial building energy efficiency has struck its first deal, and the company behind the model says if expanded it could deliver $100 million a year in savings to Australian businesses while cutting annual greenhouse gas emissions by 180,000 tonnes.
Building owner Queensland Investment Corporation (QIC) and tenant Queensland Department of Housing and Public Works have been announced as the first customers to sign up to the t3 Initiative, described as a simplified Environmental Upgrade Agreement (EUA) process that gives building owners and tenants incentives to pursue energy efficiency upgrades, with both guaranteed a share in savings generated.
As first flagged in The Fifth Estate, the process removes much of the complexity and bureaucracy that has stifled the growth of EUAs, while still addressing the “split incentive” issue that makes upgrading existing stock difficult in the highly tenanted commercial building space.
The deal involves an upgrade of lighting from fluorescent to smart LED over two buildings at 111 George Street and neighbouring 33 Charlotte Street in Brisbane CBD.
Led by strategic business solutions group Incorp and Brisbane City Council’s sustainability agency CitySmart, the t3 initiative is named to reference the three pillars of sustainability touched on by the program – economic, environmental and social.
Incorp Facilities Management national director Roger Walker told The Fifth Estate the initiative was “built from the experience of EUAs”, and has vastly simplified the process to make it more attractive to owners and tenants alike.
t3 operates on a cost recovery basis where building owners fully fund the upgrade but then receive 80 per cent of the operational savings over the term of a lease. Tenants have no capital outlay, but keep 20 per cent of savings (though different splits can be negotiated). Carbon credits generated from projects are also donated to a chosen charity.
The two QIC building projects will involve lighting upgrades across 40,000 square metres of space, and Walker estimates there’ll be bill reductions of about $300,000 a year and greenhouse gas emission cuts of 640 tonnes. A charitable donation of $30,000 will be made to an organisation of QIC’s choice, though this will have to have the endorsement of the government tenant.
Health and productivity is another benefit of the program – for QIC it was important that the lighting installed met the requirements of the WELL Building Standard in terms of melanopic light intensity, making it easier for future tenants to pursue WELL ratings.
The initiative lasts for the length of a tenant’s lease, which in the current case will be about 7-8 years. Walker says similar deals could also be struck with tenants on shorter leases, as the owner would get some of their investment back, and would probably have to upgrade the lighting at end of lease anyway to attract a new tenant, with LED now industry standard.
Industrial solar next
The focus to begin with is on lighting and solar. While the commercial sector is focused on lighting (due to the limited space for on-site solar), the industrial sector presents a big opportunity for solar, with the first projects agreed to with owners already, and a deal hopefully set to be struck in March or April. Under the solar plan, tenants will pay 50 per cent of grid-connected energy rates.
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Walker says t3 is “primarily a cultural change program”.
“Who do I want to give money to as a tenant? Do I want to give my money to coal-fired generation grid electricity? Do I want to continue to give money to maintenance? Or would I rather have an improved workplace for staff and lower bills, and have the building owner invest in their asset?”
One simplification made on EUAs is getting rid of “the pressure of continued verification”, which could work to improve building value. Under EUAs, annual performance verification means that the income from projects can vary year-to-year. This means those savings wouldn’t be included as guaranteed income. The t3 initiative, however, locks in an income stream for the term of the lease, allowing it to be considered in calculations of building valuers.
Complementary to EUAs
And while the initiative has come from a desire to simplify the EUA process, Walker says EUAs are complementary to t3, and “a great finance mechanism”.
“Building owners might still get finance through the EUA process. [The t3 Initiative] doesn’t replace it; it complements it.”
Currently Walker says most of the interest in the initiative is coming from larger corporates, including BDO, Suncorp, Charter Hall and Eagle Property Group, though the NSW government has also shown strong interest. And while for now it’s just Australia involved, there are early plans to spread the initiative globally.
- See t3 Initiative for more information.