In its quest to become one of the world’s most sustainable cities The City of Melbourne has set itself the ambitious target of being carbon neutral by 2020. So how does a municipality that generates over six million tonnes of carbon dioxide emissions each year reduce that to effectively zero? Many initiatives will make up the final solution, but with heating, cooling and lighting the thousands of large commercial buildings in the City a major source of carbon emissions, these are obvious targets for action.

The commercial building sector is already leading on energy efficiency, aided by a simple commercial incentive: properly undertaken, energy efficiency improvements and renewable energy systems quickly pay for themselves and improve the bottom line for commercial tenants. Energy efficient buildings also tend to be more comfortable, more desirable places to work, which can even lead to improved employee retention.

With many compelling case studies on the value of building improvements, why isn’t every building owner pulling on the overalls, replacing old, inefficient HVAC systems, installing regenerative lifts, slapping solar film on windows and plastering buildings with solar panels? There’s the obvious issue of paying the upfront costs, but also another hurdle: the building owner pays for the upgrades, but the tenants reap the benefits through reduced power bills.

To deal with both problems, the City of Melbourne developed some innovative financing options.

Funding a more sustainable Melbourne

It took a revision to an Act of Parliament to achieve, but the City of Melbourne became involved, both directly and indirectly, in financing energy efficiency improvements. To administer these activities, Council appointed the Sustainable Melbourne Fund (SMF).

“The fund was established in 2002 with $5 million from Council,” says SMF’s Chief Executive Scott Bocskay. “For over 12 years SMF has been self-sustaining, and it’s now worth $6.5 million.” Those relatively modest figures hide the bigger picture. Through reinvesting its own funds in rolling loans and facilitating lending from associated banks, SMF has played a key role in energy efficiency and renewable energy projects worth $21 million that have reduced carbon emissions by 100,000 tonnes.

The Cooking Space commercial kitchen saves over $9,000 a year thanks to the 30kW solar power system and Sustainable Melbourne Fund.

The loan approach

The simplest function of SMF is as a lender. For projects that deliver both improved environmental and commercial outcomes, SMF can lend up to $2 million for terms as long as 10 years. And it isn’t just businesses within the boundaries of the City of Melbourne that can benefit. SMF can lend to projects throughout Victoria.

Loans are great for a lot of projects, but they don’t bring the tenant into the loop. Achieving this is where the real innovation lies.

Environmental Upgrade Agreements

Under an Environmental Upgrade Agreement (EUA), a loan is made to the building owner by a commercial bank. However, rather than the owner directly making loan repayments to the bank, repayments are collected through the council rates as a voluntary charge. Council then pays the bank.

How Environmental Upgrade Agreements work

This extra step is important. In most commercial leases rates are an outgoing paid by the tenant, and therefore provides a mechanism by which tenants can contribute to the upgrade. With a well-structured EUA the increase in the rates is more than offset by the energy savings enjoyed by the tenant so a financial benefit is gained right from the start. SMF’s role is to act as assessor and facilitator to ensure each project is both commercially and environmentally viable.

EUAs align tenant and owner interests. The tenant saves money and the owner gains a building that will be more attractive to future tenants, so it makes sense for both parties to talk to each other and then contact SMF.

Solar focus

Effective as things like upgrading plant rooms and installing more efficient boilers may be, they aren’t exactly sexy. “There’s plenty of interest in solar power though,” says Scott. Declining costs mean that solar power systems produce a very attractive return on investment, and SMF is promoting 2015 as the ‘year of solar finance’.

“We’ve identified around one and a half square kilometres of suitable commercial roof space within the City of Melbourne so there is a lot of potential within the City itself,” Scott says. That isn’t enough on its own to achieve carbon neutrality, but it could dent carbon emissions by hundreds of thousands of tonnes. And there’s no need for building owners to stop at solar power. Once they are aware of the other 70 or so energy and water efficiency upgrades that are eligible for funding, they will most likely look at implementing some of these as well.

Broader legacy

Melbourne is just one city, and impressive as going carbon neutral would be it accounts for roughly 1.1% of Australia’s total carbon emissions. So SMF’s greatest achievement may lie in demonstrating the effectiveness of EUAs and encouraging their rollout around the country. Five councils in New South Wales now offer similar schemes based upon Melbourne’s model. South Australia will introduce legislation permitting EUAs in the near future, however in that state will be referred to Building Upgrade finance.  For this reason SMF was a key partner in the Better Building Finance initiative, which aims at unifying the national vocabulary and understanding when it comes to EUAs. “Regardless what its called, EUA’s are simply a better way to profit from building upgrades, weather you are a tenant or building owner” says Scott.

Closer to home SMF hope to be able to help other Victorian councils offer and administer EUAs. With the recent Victorian election and a new government supportive of a state-wide EUA program the economic opportunities are huge. Research undertaken by the Regional Greenhouse alliances estimates up to $4.5 billion and 18,000 jobs could be created through a state-wide expansion of EUAs.

The existence of SMF and the related 1200 Buildings program also influences the private sector. A survey indicated that 500 buildings had undergone upgrades independently of council programs.

EUAs could create many thousands of jobs in Victoria alone.

Spread the word

With a team of just three backed by a board of seven, one challenge for SMF is educating building owners and tenants on both the measures that can be taken in energy and water efficiency and the funding available. So why not give them a hand?

Whatever your role, if you work in a business that operates from a building that could do with a sustainability makeover research the options for full financing in your area. If you can find one, tell your boss. As well as helping to create a better working environment for yourself and colleagues, you might even get a bonus for improving the bottom line.

All images supplied.