There are inherent difficulties involved in upgrading commercial buildings. The difficulty centres on the numbers of stakeholders, often with competing priorities, who have an interest in a building. Lutzenhiser and Biggart (2001) identified six key stakeholder categories in the energy retrofitting of commercial buildings, i.e.: providers of capital; developers, design and delivery firms; community/political/regulatory interests, facility management, tenants, and others (including energy service companies, product vendors, manufacturers, insurance providers). In most cases, there is no single stakeholder who must consider the entire life cycle costing of a commercial building (NPC & Exergy, 2009), meaning that long-term projects, such as energy efficiency upgrades, may be overlooked.
There are numerous reports providing in-depth analysis of the drivers for building energy retrofitting (Arup, 2009; Arup et al., 2009; DEHWA, 2009; Ernst & Young, 2010; Falkenbach et al., 2010; GBCA, 2008; Yates, 2001). A review of drivers for building energy retrofitting in
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Australia identified the following as key factors in the decision to undertake upgrade projects, however this is not an exhaustive list:
1. Operational cost savings – Improving the energy efficiency of commercial buildings will reduce energy costs for the building owner. Increasing energy prices may increase the importance of this driver (Arup, 2009; DEHWA, 2009; 2010; GBCA, 2008).
2. Corporate Social Responsibility/Reputational – Being a ‘green’ company is an increasingly important tool for differentiation in the eyes of both customers and employees. This is suggested as the key non-regulatory driver of energy efficiency uptake (Arup, 2009; DEHWA, 2009; 2010; GBCA, 2008).
3. Reduced exposure to energy price volatility – given the uncertainty about energy production in the future, and the discussion around carbon pricing, reducing dependence on energy is seen as a way of ‘future-proofing’ a company (Ernst & Young, 2010; GBCA, 2008).
4. Government Action – government programs and funding support raises awareness and stimulates action in this area (Arup, 2009; 2010).
5. Increase tenant attraction and retention - That ‘green’ buildings are increasingly being perceived as necessary to ensure continued tenancy (Arup, 2009; Arup & PCA, 2008; DEHWA, 2009; GBCA, 2008; Wilkinson & Reed, 2008).
6. Legislative changes - particularly mandatory disclosure of NABERS ratings when selling or letting a commercial building, and BCA Section J (Arup, 2009; Arup & PCA, 2008). 7. Maintaining or achieving PCA office quality grade (Arup, 2009; DEHWA, 2009;
Wilkinson & Reed, 2008).
Many research projects have examined barriers preventing uptake, and there is a significant resource looking at the barriers for specific stakeholders. (Productivity Commission, 2005; Sustainable Energy Authority, 2004; Ernst & Young, 2010; GBCA, 2008). For the purpose of this study, the summary from (ClimateWorks Australia, 2010a) of some of the most significant barriers, presented in Table 2-4 below, is sufficient, and has good agreement with other studies.
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Table 2-4 Barriers to uptake of energy efficiency retrofits in the Australian context (ClimateWorks Australia, 2010a).
Barriers Description
Cost of Capital Makes marginal projects unprofitable
Interruptions in Operations Make implementation of some technologies non-economic Non-market Pricing Very low energy prices decrease sensitivity to market signals Finite access to capital EE projects compete with other internal projects for capital Long payback periods EE projects offer profits, but often with very long paybacks,
whereas most companies have policies for short paybacks Investment hurdle rate Companies often have investment opportunities with higher
returns than energy efficiency projects Access to information
Lack of awareness on energy efficiency opportunity for building owned, lack of information on impact of choices on energy bills
Lack of understanding Low awareness; no in-house knowledge of complex
processes/business case; fear of decreased performance, etc... Low business priority Can be caused by energy bill representing a low share of
operating costs, by a focus on growth, etc... Lack of statistical experience to
prove secondary benefits
For example it is hard to put numbers on increased productivity or improved health due to more fresh air Administrative structures For example when building management decisions are made
in an entity separate from operating costs management Budget allocation processes
Energy savings not always taken into account (e.g. public sector), procurement policies favour low upfront vs lifecycle cost
Split incentives Happens when building owner makes the building equipment decisions while tenants get the energy savings
Lack of project scale Increases transaction costs, prevents dealing with ESCOs Long decision cycles As equipment often has long lifespan, equipment renewal/
retrofits, especially for central services, happen on long cycles Availability of equipment,
infrastructure
Energy efficient equipment is not always available (e.g. computers), lack of local expertise in some equipment Reliability/quality of supply E.g. issues with the reliability of savings estimates, inability
for energy service companies to offer tailored service Management tradition E.g. long term procurement relationship
Other goals of decision makers E.g. decision for building equipment will be driven by staff comfort
In order to overcome some of the barriers identified above, government has historically been important in this field. The overarching government program promoting energy efficiency in Australia is the National Strategy on Energy Efficiency (NSEE). The NSEE is an attempt to co- ordinate energy efficiency efforts across various levels of government, and streamline the process
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for business and households. It has an overall goal to accelerate energy efficiency efforts, and one theme (out of four) is ‘Making Buildings more Energy Efficient.’ Changes to the BCA, and Commercial Building Disclosure legislation are both measures which have been implemented under this theme.
Government initiatives in the building energy retrofitting industry have experienced a high degree of flux, and therefore and exhaustive list is not supplied. Kempener (2007) provided a review of common policy instruments which relate to energy efficiency. Examples of recent policies are included, although in some cases the listed policies have been discontinued:
1. Energy efficiency standards for office equipment and base building performance (e.g. NCC Section J, Mandatory Energy and Performance Standards for appliances);
2. Voluntary energy efficiency rating programs for base buildings and tenancy (e.g. NABERS);
3. Portals for the dissemination of information on energy efficient technologies (e.g. Energy efficiency exchange (eex.gove.au), yourbuilding.org, City Switch);
4. Development of green leases and new construction contracts to overcome the principal- agent barriers between respectively owners and tenants and between owners, developers and suppliers (e.g. Environmental Upgrade Agreements);
5. Development of energy performance contracts to overcome the capital investment barriers of and lack of information on energy efficiency (e.g. Environmental Upgrade Agreements); 6. Financial incentives for building owners, property developers and tenant for energy
efficient design and operation (e.g. Green Building Fund, Clean Energy Finance Company, Tax Breaks for Green Buildings, Energy Saver Scheme, Energy Efficiency for Small Business).
A government policy which is a major driver for building upgrades, not just from an energy efficiency standpoint, is compliance with the Building Code of Australia (BCA) (ABCB, 2013). Non-compliance with the building code can often trigger the need for a building upgrade, including energy efficiency measures. Once a building undergoes refurbishment, alteration or extensions, the energy efficiency requirement outlined in Section J of the BCA apply. Therefore, if a building is non-compliant in any area of the BCA, and requires upgrade works, minimum standards of energy efficiency must be achieved.
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Energy Efficiency provisions in Section J of the BCA were first applied to commercial building in the 2006 BCA, and the stringency was increased substantially in 2010. Section J contains clauses which relate to; building fabric, glazing, building sealing, air-conditioning and ventilation systems, artificial lighting and power, hot water supply and swimming pool and spa pool plant, and access for maintenance and facilities for monitoring. The increased stringency is illustrated, in a simplified manner, in Table 2-5.
Table 2-5 Indicative comparison of stringency of energy efficiency clauses in BCA 2010 and BCA 2006 for Climate Zone 5, which includes Sydney. Note: values are simplifications of actual clause, and are indicative of the increased stringency only.
a – Minimum roof R-value varies depending on roof upper surface solar absorptance.
b – Minimum floor R-value varies depending on floor construction type, e.g. slab-on-ground, suspended floor.
c – Glazing energy index is a factor of glazing area and orientation, SHGC, shading, and U-value of each glazing element.
The Centre for International Economics (CIE, 2009) performed simulations to determine the impact of increased stringency in the energy efficiency provisions of the BCA. The report compared various template buildings, including two office buildings, modelled with DTS (described below) construction and services for the BCA 2009 (minor amendments from BCA 2006) and the proposed BCA 2010. The study found a predicted average decrease in the total energy consumption of office buildings of -17.2%. A decrease was predicted in all climate zones, ranging from – 5.6% in Zone 8, to -20.8% in Zone 6.
Element BCA 2006 BCA 2010
Roof R-value (m2K/W) 3.2 3.2 – 4.2a
Wall R-value (m2K/W) 1.8 2.8
Floor R-value (m2K/W) Nil Nil – 2.0b
Glazing Energy Indexc 0.257 0.145
Lighting power density (W/m2) 7-10 7 - 9
Fan power Targets increased by 30%
Minimum Air cooled full load
EER/part load EER 2.2/3.0 2.5/3.4
Minimum boiler efficiency (%) 75 80
Economy cycle When AC capacity is over
50 kWr.
When AC capacity is over 35 kWr.
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Two methods may be used to achieve compliance with BCA Section J; DTS and verification of an alternative solution. A building must comply with every relevant clause in Section J to be adjudged DTS. The increased stringency in Section J 2010 made it more difficult for a building to achieve DTS compliance, particularly clause J0 – building fabric, and J1 – glazing. CIE calculated that the new provisions for glazing reduced the allowable glazing by up to 50%, compared to BCA 2009 to achieve DTS compliance. If a building design does not met DTS provisions, an assessment of an alternative solution is required. Four alternative assessment methods may be used; documentary evidence (evidence that a material satisfies a DTS provision or performance requirement), the verification method (JV3, introduced in Section 2.6.4), comparison with DTS (showing the proposed solution is equivalent to or better than a DTS provision), and expert judgement. The verification method, JV3, involves the use of BPS to compare the performance of an alternative solution to a reference building simulated with DTS provision.
Another government policy of particular relevance to this study was Environmental Upgrade Agreements (EUA’s), introduced in Victoria and NSW in 2010. EUA’s were a new method of accessing capital for building refurbishment, involving local governments (LGA’s), building owners and finance providers. The EUA legislation (NSW Gov., 2010) has similarities to ‘Property Assessed Clean Energy’ legislation operating in parts of America since 2008. Afinancier provides funds to a building owner for water, energy and other environmental upgrades, and this loan is repaid through a local council charge on the land, as shown in Figure 2-18.
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This legislation was designed to tackle barriers of split incentives and access to capital. It is also an attempt to stimulate environmental upgrade activity in Secondary Grade buildings. The loan is a statutory charge directly attached to the property, rather than to the building owner, and repayment is via council rates. This means loans can be offered at lower interest rates and for longer terms than commercial equivalents (Blundell, 2012), and that it is permissible for the owner to pass on some of the charge to tenants under a net lease. It also allows the debt to be transferred with the sale of the building, and provides additional security for the finance provider, as council has priority ahead of the first mortgage holder in the event of a default.
At the time of writing (May 2015) EUA’s are currently offered in six LGAs. In Victorian LGA’s written consent is required from the tenant before the Environmental Upgrade Charge (EUC) can be passed on, while it is not required in NSW. In both states the EUC can only be levied providing that the tenant contribution does not ‘exceed a reasonable estimate of the cost savings to be made by the lessee’ (unless the lessee consents otherwise) (NSW Gov., 2010).
Despite the potential benefits to a building owner, EUA’s have not attracted widespread traction in the retrofitting market. Of the nine EUA’s signed at the time of writing, only three involved passing on the EUC to the tenants. EUA’s primarily target the Secondary Grade building market, as access to capital is not general a major barrier for institutional owners, who more commonly own Prime Grade buildings. Indeed Roussac and Bright (2012) explained how a major property group in Australia had been able to pass on costs due to environmental upgrades through effective lease contract negotiations. However, hitherto it has unanimously been institutional owners who have taken up EUAs. It is suggested in Blundell (2012) that this was due to Secondary Grade building owners lacking the ‘sophistication’ to engage with EUA. Blundell (2012) suggests several other reasons for the lack of widespread take-up, for example: uncertainty over how an EUA would affect property valuation; uncertainty as to repercussions from an under-performing upgrade; and how effective council will be at enforcing EUA payments. A solution to many of the issues preventing EUA’s gaining traction in the Secondary Grade market is the use of Energy Performance Contracts (EPC). An EPC is a legal guarantee from a third party that the predicted savings will be realised, or equivalent compensation will be provided. From the building owners perspective, EPC reduced exposure to risk, enhances confidence in the decision making process, and allows advanced solutions to be implemented. Several retrofitting companies in Australia provide EPC for certain technologies; one EUA has included an EPC for the lighting upgrade.
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