What the rising cost of energy means for our homes

Article written by Luke Menzel published on The Real Estate Conversation AUG 14, 2017
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Energy prices are rising, and buildings, homes, and industries must adapt

For many years, Australians have been the beneficiaries of very low electricity prices. The low cost of supply meant that not much attention was paid to efficiency measures in the commercial building sector, with the exception of Premium and A-Grade buildings.

Sure, very straightforward projects with a quick payback sometimes got done, but more complex or ambitious projects stayed on the backburner.

Well, something has changed over the last few years, and changed quickly: the unit cost of energy.

Energy prices are on the front pages and top of mind for businesses and households around Australia.

Governments are moving to address this at the system level. The Finkel Review – released in June – outlined what has been dubbed the ‘energy trilemma’: putting downward pressure on energy prices and ensuring security of supply while transitioning Australia to a low-carbon future.

But even if the energy market reform process is a resounding success, I don’t know many experts that think energy prices are ever returning to their historic lows.

There is a lot of talk about our energy system being in a period of transition, and people often think about that in terms the shift from coal to renewables, or from centralised to distributed generation.

But if energy is in transition, the buildings, the homes, the industries it powers are in transition as well. For the built environment, that transition involves adjusting to a higher unit cost for energy. And energy efficiency – using less of the stuff for the same or a better outcome – has to be a huge part of the story, because that’s how we keep bills down.

The good news is that while energy prices go up, the costs of implementing many energy efficiency measures is dropping.

In June, the Clean Energy Finance Corporation released a report that outlines 50 energy efficiency initiatives, their upfront costs and payback periods.

The report makes compelling reading for building owners looking to future proof their assets, with 16 initiatives offering payback periods of less than five years. Two thirds of those 50 measures have paybacks of less than 10 years.

So, the technology is ready to go. It’s not a technological barrier we face. It’s all about deployment.

Of course, the bulk of Australia’s Premium and A-Grade buildings are already pretty energy efficient. That’s not to say that more can’t be done – I don’t want to let those guys off the hook.

But the ‘mid tier’ market – those B, C and D grade buildings – continues to lag behind.

That’s roughly 80,000 buildings – or around 52 million sqm in space – that would benefit from energy efficiency upgrades to boost their performance, long-term value and attractiveness to tenants.

It’s a huge opportunity. But the market has been very slow to move.

However, the business case is getting more compelling every day. Interest in energy efficiency is rising along with energy prices.

Not only that, but Josh Frydenberg has just dropped the Commercial Building Disclosure threshold – the trigger point at which you need to rate and disclose your energy performance when you sell or lease your property – from 2,000 sqm to 1,000 sqm.

That means buyers and tenants will be able to shop around for buildings with better energy performance, which makes it a metric on which smart building owners can compete.

Increasingly, good energy performance – a NABERS energy rating of four stars or more – is going to be table stakes for competing in the mid-tier office market. The tenants paying the energy bills are going to start asking the question. They already are.

From a building owner’s perspective, it makes sense to make sure you have a good answer.