Article first appeared in Sourceable online on 4th June 2020 at:
As Victor Hugo famously stated, “Nothing is as powerful as an idea whose time has come”, so now is surely the time for Environmental Upgrade Agreements to be taken up across Australia.
Environmental Upgrade Finance (or Building Upgrade Finance – the terms are inter-changeable between states) can be explained as a simple loan used to pay for works that improve the energy, water or environmental efficiency and overall sustainability of the building; the loan is repaid through council rates over an agreed time period.
The finance can be used for a range of projects such as installation of renewable energy systems, new equipment or initiatives to improve energy and water efficiency, or projects that minimise waste, maximise resilience or improve resource efficiency; there just needs to be a measurable sustainability improvement over time.
CASE STUDY: The Rye Hotel, Mornington Peninsula, VIC:
The hotel is a well-established business which includes a bistro, café, beer garden, bar, function rooms and hotel with conference facilities, 43 rooms and a swimming pool. The owner had been planning the installation of solar panels at the site for some time, but the main obstacle was the upfront cost. Environmental Upgrade Finance overcame this cost barrier, allowing the savings from reduced power bills to fund repayments, with the upgrade resulting in an immediate 25% saving on accounts, allowing the savings to cover the loan repayments. The expected savings over the 25-year asset lifetime are $560,000. Read more: https://sustainableaustraliafund.com.au/success-stories/rye-hotel/
Photo credit: The Rye Hotel, Mornington Peninsula, VIC
Environmental Upgrade Finance has been talked about around Australia for decades. The Sustainable Melbourne Fund was established back in 2002, with legislation passed by the City to enable the finance in 2010. The first agreement was signed in the City of Melbourne in 2011, with legislation updated to allow all councils in Victoria to offer the finance model from 2015. In NSW, the legislation allowed for Environmental Upgrade Finance in 2010, and South Australia passed legislation which also includes heritage upgrades, for Building Upgrade Finance in 2015. National expansion led to the Sustainable Australia Fund in 2019.
Once a council has resolved to offer Environmental Upgrade Finance, and a project and building owner identified, the finance is established through a three-way contract known as an Environmental Upgrade Agreement (often referred to as “an EUA”), drawn up between the building owner, local council, and lender. Once the loan has been used to pay for the building upgrade, the council takes repayments over the term of the agreement alongside the usual rates paid each quarter.
The building owner benefits from reduced utility bills, improved asset value and sustainability outcomes, increased comfort, indoor environmental quality or tenant attraction, as well as the long-term fixed-interest loan.
Although there is a broad range of finance alternatives available to building owners, there are four key differences between Building Upgrade Finance and ‘traditional’ loans:
In Australia, the funds come from the private sector, where financial institutions can finance these projects. The Sustainable Australia Fund is the most active player in the market, valuing a partnership with Bank Australia to provide the funding for projects as well as a level of market and business development for each council area. As an open market solution supported by the Australian Renewable Energy Agency (ARENA) to help expand the market, other lenders are certainly encouraged to participate. Better Building Finance is a sister organisation to Sustainable Australia Fund, and acts as a third-party administrator for councils. They don’t charge council a fee for their services and, unlike earlier arrangements, the management and administration processes provided aim to remove most of the workload from councils.
CASE STUDY: Food production and processing, Somerville VIC
Hussey & Co is a lettuce farm that delivers produce to Australia and overseas. With 74 acres of land, multiple sheds and industrial processing facilities, it relies heavily on energy to stay in business. After reviewing the cost savings from their first solar installation, Hussey & Co’s business owners were so impressed they decided to take out another Environmental Upgrade Agreement almost immediately. With another $1million in capital to install a second solar system, the company saves an additional $86,000 per year. Read more: https://sustainableaustraliafund.com.au/hussey-and-co/
Photo credit: Hussey & Co, Somerville, VIC
As of early May 2020, there are dozens of councils offering Environmental Upgrade Finance across Victoria including the City of Melbourne, City of Port Phillip and Mornington Peninsula Shire, and nearly a hundred successful projects with examples of funding from $15,000 to over $7million. With councils such as Kyogle in NSW now signed up with Better Building Finance, it’s definitely time for more leading councils across NSW, SA and VIC to leverage the private sector finance available to achieve better environmental, economic and social outcomes for their areas; targeting more sustainable outcomes for buildings, businesses and communities.
CASE STUDY: Light industrial - 114 Bakehouse Road, Kensington VIC
Looking for ways to future-proof their light industrial warehouse building from rising energy costs, Australian company Covertel was interested in the installation of a solar system to save costs and increase the building’s re-sale value. Their upgrade works included the installation of 10kW solar array and an LED lighting upgrade and generated annual energy savings of $3,825 against annual loan repayments of $2,996. Read more: https://betterbuildingfinance.com.au/case-studies/114-bakehouse-road-kensington-vic/
So why hasn’t Environmental Upgrade Finance been quite the success in Australia as PACE finance has been in the US? Well, there were a few barriers early on:
To find out more, read other case studies and to start the conversation, just visit https://betterbuildingfinance.com.au/.
Robin Mellon is one of Australia’s experts on sustainability in the built environment and is determined to leave the planet in a better shape than it was when he found it. Robin believes in a Better Sydney – better buildings, better communities and a better quality of life.