1. Relative Carbon Intensity of buildings in the Sydney CBD (The Fifth Estate, 2014) An Analysis of NABERS and the CBD Program: Business Case Presented by:Lisa HindeJames Ray Tommy MokVictor-Arthur Guay Bhanupong Sirayobhas

2. What is NABERS? NSW State Government Initiative introduced in 1998. Covers NABERS Energy, Water, Waste, Indoor Environment. Measures and compares similar buildings to provide benchmarks in energy efficiency on par with industry performance. NABERS Image 1: OEH Homepage, 2014

3. Image 2: NABERS rating tools

4. Triple Bottom Line Business Case - Benefits Economic benefits Reduce energy cost of buildings (operating cost saving) Create more value of buildings in markets Attract and retain tenants High rates of returns on investment Increase in the buildings capital value Environmental benefits Promote energy efficiency Reduce energy consumption of buildings Minimise environmental impacts Improved productivity, health and safety, and staff well being.

5. Triple Bottom Line Business Case - Benefits Social benefits Good image and reputation on building performance Encourage CSR and stakeholder engagement Reflect sustainability leadership Image 4: Sample NABERS energy star rating on a BEEC

6. What is the CBD Program? Federal Government’s Commercial Building Disclosure (CDB) program introduced in 2010. Office buildings for sale or lease of over 2,000m2 net lettable area must disclose the NABERS Energy Rating. A NABERS Energy rating is required to comply with the CBD program as a component of BEEC CBD Program Image 3: BEEC sample

7. Increase in the NABERS rated commercial building stock Image 5: Amount of commercial buildings using NABERS energy rating

8. Increase In Capital Value The following graphs indicate that:  the capital value of the rated building stock since 2006 having considerably increased,  the percentage of offices rated 4 to 6 stars have increased;  in June 2011, 52% of commercial building rated achieved a 4-6 stars rating, while in 2013, it increased to 80%. Image 6: Commercial Building stock value Image 7: Commercial Building stock average star rating in 2013

9. Improvements in NABERS Ratings Image 8: Energy improvements, per States

10. COMMON MISCONCEPTION: THERE CAN’T BE THAT MUCH OF A DIFFERENCE BETWEEN STAR RATINGS OTHERWISE EVERYONE WOULD BE DOING IT? How does a 3.5 star Rated Commercial Building Compare to a 4 star?

11. NABERS Outgoings Comparison Base Building NABERS Energy Performance Base CaseImproved Case Annual Savings Location:Canberra Base-Building NLA:10,000 m² Star rating:3.5 stars4 stars Base-building kWh:1,042,180 kWh859,030 kWh183,150 kWh Electrical $/kWh:$0.15 Total base-building electrical cost:$156,327$128,855$27,473 Total base-building electrical cost $/m²:$15.63 /m²$12.89 /m²$2.75 /m² Assumptions:50 hrs / week 100% electricity (ie no gas or bulk fuel delivery) Image 8: (EMF Building Tuning,2014) Each NABERS star is the equivalent of a 15% more energy efficient building.

12. Government Recognises these savings… And have therefore incorporated or have proposed benchmarks for their own buildings to abide by. Image 9: How is NABERS being used? (NABERS, 2014)

13. Image 10: Premiums/ Discounts (%) by category for NABERS rating groups, source NEWELL, G., MACFARLANE, J. & KOK, N. 2011

14. High performance rating building advantage 16% net operating income 2.5% Total return Less capital expenditure and vacancy rate High and low NABERS energy office performance compare Returns different between high and low performance NABERS energy office

15. Case Study 1 New Building 15 Storey ATO Office Building located on Elizabeth Street, Brisbane 55 Elizabeth Street – NABERS assessment by EMF Building Tuning The Client was contractually required to provide a 4.5 star NABERS Energy outcome, in line with Government Policy. Following a thorough commissioning process and NABERS assessment: tracking at 5.5 stars, performing at 18% less than the model predicted.

16. Image 12: EMF Building Tuning, 55 Elizabeth Street, NABERS Report, 2013

17. Image 13: Whole Building Summary – Model vs Performance Current Month (Humphries, M 2014)

18. Case Study 2 Existing Building 3 Storey Commonwealth Tenanted Office Building located at 4 Mort Street, Canberra 4 Mort Street – NABERS assessment by Building Management 45 year old office building performing at 2 stars – aimed to improve to 4.5 stars. Key factors that drove upgrade:  Cost savings;  Policy instruments (CBD Program, Government Building requirements); Results indicated energy cost saving of $120,000 per annum Asset value increase of $1.4million; and A 70% reduction in annual greenhouse gas emissions

19. Electricity Consumption Pre and Post Retrofit Financial incentives are confined not only to energy savings, but also include appreciation of asset value and rental returns. (Department of Industry; Energy, 2012) Image 14: Electricity Consumption Pre and Post Retrofit (Department of Industry; Energy, 2012)

20. Drivers & Barriers DRIVERSBARRIERS Market demand for high energy rated buildings Split Incentives for costs (owner) and savings (tenants) Government tenancy minimum requirements Low relative cost of energy / no cost for carbon Portfolio performance and reporting Low / no incentive for operators / facility managers for energy improvement Operational cost savings Minimal demand for energy efficient buildings at lower end of tenant market Government funding opportunities Perceived improvement difficulty and long payback Poor / misinformation No minimum performance requirement Image 15: Humphries, M, 2014 – EMF Building Tuning

21. The CBD Program is currently under review.... The Department of Industry have appointed ACIL Allen to review the program (it’s objectives / impacts on the market and funding) Unclear whether it will be dismissed or improved. The numbers don’t lie... We conclude that the CBD Program is improving the quality and value of Australian Commercial Buildings and therefore should not be dismissed.

22. Energy wise buildings AN ECONOMIC AND POLICY ANALYSIS

23. Energy wise buildings: An economic and policy analysis There is a large potential to use energy more wisely in buildings, particularly in homes. Solar photovoltaic (PV) systems and energy saving measures in households allow people to save energy, money and reduce greenhouse gas emissions. Business models can help to achieve this, and good governance can enable and accelerate them. Key business models to enhance development in the housing sector are on-bill financing (OBF) and Property Assessed Clean Energy (PACE). Economic modelling has shown a strong case for implementing as many cost-effective measures as possible, and to legislate feed-in tariff schemes for energy wise measures that are not (yet) economical.

24. Doing life cycle assessments (environmental, social and economic) can help to analyse sensitivity factors and internalize externalities which can be used to justify feed-in tariffs. Here, not yet being economical means that the net present value is negative and the life cycle cost of energy is positive. Using energy wisely will result in many good outcomes for culture, economy and ecology; and will require innovation in technology, business and policy. Energy wise buildings: An economic and policy analysis

29. Economic modelling BAU, PV, LED lighting replacement, shading and heating and cooling reduction measures PV and LED replacements are good on a life cycle perspective (higher net present value and lower levelised cost of energy) There is potential for shading; and heating and cooling reduction measures, but economic performance varies with climate so DD is needed.

30. Conclusions: energy wise homes On-bill financing (OBF) and Property Assessed Clean Energy (PACE) are the most promising business models for homes due to ongoing, more affordable costs over the life cycle of occupation

31. Conclusions: policies for OBF In the near-term, adjust the variable and fixed components of electricity tariffs to more accurately reflect the long-run marginal cost (LRMC) of providing electricity. Use capacity and locational network pricing, coupled with spot-tied electricity pricing, when smart metering infrastructure is more widely deployed

32. Property Assessed Clean Energy (PACE) Property tax laws could be amended to make PACE suitable. The energy savings and money for PV electricity export could be treated as an income and so GST could apply. Alternatively, mandate mortgage lenders to allow energy wise retrofits to be included in the mortgage and repaid over a longer term and/or a higher interest rate. However, there needs to be stakeholder engagement with mortgage lenders before such a mandate would be made. A barrier that could arise here is that mortgage lenders may find the level of risk with energy wise retrofits to be unacceptable. Therefore, to overcome this potential barrier, it would be important to standardise measurement and verification procedures according to the Internation Performance Measurement and Verification Protocol (IPMVP); and to securitize lending, e.g. through government bonds, collateral

33. Life cycle assessment to internalize externalities Use LCA to internalize externalities, which can be used to justify feed-in tariffs for energy savings measures, particularly ones which are not (yet) economical

34. Conclusions: CBD Mandatory performance disclosure for commercial buildings should be kept A feasibility study could be done to extend the scheme to other built environment sectors (e.g. small buildings), which can in turn enable other policy measures

35. References Humphries, M 2014, Interview & Internal Documentation, October 24. Department of Industry 2012, Commercial building disclosure: Statistical overview of the second year of full disclosure, Australian Government, [Online] Available on http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf (Accessed 20 October 2014) http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf Department of Industry 2013, What is CBD?, Australian Government, [Online] Available on http://cbd.gov.au/overview-of-the-program/what- is-cbd (Accessed 28 May 2014)http://cbd.gov.au/overview-of-the-program/what- is-cbd Department of Industry 2013, Benefits, Australian Government, [Online] Available on http://cbd.gov.au/overview-of-the-program/benefits (Accessed 20 October 2014)http://cbd.gov.au/overview-of-the-program/benefits Getting to Sustainability 2012, Review of the Commercial Building Disclosure (CBD) program [ONLINE] Available on http://www.gettingtosustainability.com.au/review-of-the-commercial-building-disclosure-cbd-program/ (Accessed 20 October 2014) http://www.gettingtosustainability.com.au/review-of-the-commercial-building-disclosure-cbd-program/ Investment Property Databank, IDP Australia quarterly green property index [ONLINE] Available on http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 (Accessed 20 October 2014) http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 Jewell, 2014, Report: look beneath the NABERS stars to drive building sustainability, The Fifth Estate, [Online] Available on http://www.thefifthestate.com.au/politics/inquiries-and-submissions/report-look-beneath-the-nabers-stars-to-drive-building- sustainability/63684 http://www.thefifthestate.com.au/politics/inquiries-and-submissions/report-look-beneath-the-nabers-stars-to-drive-building- sustainability/63684 NABERS, 2014, Homepage Statistics, [Online] Available on http://www.nabers.gov.au/public/WebPages/Home.aspxhttp://www.nabers.gov.au/public/WebPages/Home.aspx NABERS, 2014, Sustainability initiatives using NABERS, [Online] Available on (Accessed 25 October 2014) http://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=programs.htmhttp://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=programs.htm (Accessed 20 October 2014) Office of Environment and Heritage 2014, Research and statistics [ONLINE] Available on http://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=ResearchStats.htm (Accessed 20 October 2014) http://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=ResearchStats.htm Office of Environment and Heritage 2014, Research and statistics [ONLINE] Available on http://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=ResearchStats.htm (Accessed 20 October 2014) http://www.nabers.gov.au/public/WebPages/ContentStandard.aspx?module=10&template=3&include=ResearchStats.htm

36. Image references Image 1: OEH Homepage, 2014 Image 2: NABERS rating tools Image 3: CETEC 2014, Building Energy Efficiency Certificates for CBD, [Online] Available on http://www.cetec.com.au/services/cbd.htmlhttp://www.cetec.com.au/services/cbd.html Image 4: Department of Industry 2014, NABERS energy for offices star rating, Australian Government, [Online] Available on http://cbd.gov.au/get-and-use-a-rating/nabers-energy-for-offices-star-ratings http://cbd.gov.au/get-and-use-a-rating/nabers-energy-for-offices-star-ratings Image 5: Department of Resources Energy and Tourism 2011, Commercial building disclosure: Statistical overview of the first year of full disclosure, Australian Government, [Online] Available on http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf Image 6: Investment Property Databank, IDP Australia quarterly green property index [ONLINE] Available on http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 (Accessed 28 May 2014) http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 Image 7: Investment Property Databank, IDP Australia quarterly green property index [ONLINE] Available on http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 (Accessed 28 May 2014) http://www.nabers.gov.au/public/WebPages/DocumentHandler.ashx?docType=3&id=98&attId=0 Image 8: Department of Industry 2012, Commercial building disclosure: Statistical overview of the second year of full disclosure, Australian Government, [Online] Available on http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf http://www.cbd.gov.au/sites/cbd.gov.au/files/files/CBD%20Statistical%20Overview%201st%20year(1).pdf Image 9:How is NABERS being used? (NABERS, 2014) Image 10:Premiums/ Discounts (%) by category for NABERS rating groups, source NEWELL, G., MACFARLANE, J. & KOK, N. 2011 Image 11:High and low NABERS energy office performance compare / Returns different between high and low performance NABERS energy office Image 12: EMF Building Tuning, 55 Elizabeth Street, NABERS Report, 2013 Image 13: Whole Building Summary – Model vs Performance Current Month (Humphries, M 2014) Image 14: Electricity Consumption Pre and Post Retrofit (Department of Industry; Energy, 2012) Image 15: Humphries, M, 2014 – EMF Building Tuning