Categories: Sustainable Commercial Buildings, Case Studies Sectors: Owners
The past decade has seen significant changes in how – and what – energy is bought and sold in Australia. Changes such as deregulation, privatisation and a change in fuel mix to include renewable energy types have led to significant changes in energy pricing.
Despite the rise in electricity prices, emissions from the commercial office sector grew by 87 percent between 1990 and 2006, and now account for at least 10 percent of Australia’s greenhouse gas emissions.
Electricity prices in Australia are expected to continue increasing significantly over the coming years. In NSW, it is expected that average prices will rise by as much as 42 percent by 2013, and higher still if a carbon pollution reduction scheme or carbon price is introduced. By 2020, electricity prices are expected to double due to increased network and transmission costs, the shift to renewable energy and the imposition of a price on carbon (See Figure 1).
These significant changes create a need to reassess how building owners and tenants approach energy management – in terms of budgeting and forecasting as well as energy efficiency.
Energy budgets should be carefully prepared to incorporate significant hikes in energy prices – not just by adding a CPI factor to the previous year’s budget. Similarly, business cases for energy efficiency initiatives must be refined to give a realistic view of the return on investment and build a firmer business case for improving the energy performance of assets today.
Historically, energy costs have represented a relatively small portion of the total operating expenses. However, if energy prices double by 2020, these costs rapidly become more significant. This is particularly relevant in less energy-efficient buildings.
Figure 2 shows the bottom line impact of implementing energy efficiency initiatives under three scenarios, all with a cost escalation of 8 percent per year (roughly equivalent to a doubling in energy costs by 2020). The first assumes that no energy efficiency initiatives are implemented, the second sees a 10 percent cut in energy in year one, and the third cuts energy by 25 percent in year one.
Despite reductions in energy use, the bottom line cost will continue to rise. The implication of this is that there is a strong imperative to reduce energy use aggressively and early, and to continue making investments in energy efficiency over time.
Considering that many buildings are yet to capitalise on low or no cost energy efficiency measures, there is a large potential to reduce outgoings by a significant margin at very little cost. Beyond these measures, investment may be required to avoid the expected cost impacts.
Importantly, due to the increasing cost of energy over the coming years, energy efficiency projects that fail to meet payback requirements should be reassessed to determine their suitability.
For example, a company may rule that only projects with a payback of less than five years should be implemented.
When escalating energy costs are factored in correctly, the rate of return will improve; and hence more projects can be implemented. On the other hand, when escalating costs are ignored, viable investment opportunities may be missed.
The final critical element to consider is the introduction of the Building Energy Efficiency Disclosure Act from November 1, 2010, commonly known as mandatory disclosure This scheme will require public disclosure of the energy performance of buildings, giving potential buyers and tenants the ability to perform like-for-like comparisons.
Clearly, the energy management landscape is changing rapidly. Companies should review their budgeting, forecasting and energy efficiency programs to ensure that they reflect rising energy costs and increased market transparency.
Matthew Clifford is national sustainability manager at Jones Lang LaSalle. Chris Treacy is general manager – customer advisory, Creative Energy Solutions.