Energy and Greenhouse Emissions Market Considerations
Group Market Considerations
Community Awareness
The World Meteorological Organisation declared 2006 the sixth-warmest year globally: the top 10 warmest years recorded globally have all occurred during the last 12 years.
Community awareness of climate change is building in Australia as it is elsewhere around the world. The United Nations' Intergovernmental Panel on Climate Change's (IPCC) Fourth Assessment Report and the Stern Review of the Economics of Climate Change have generated significant media interest in Australia and built on publicity surrounding The Weather Makers authored by Tim Flannery (the 2007 Australian of the Year) and the movie An Inconvenient Truth. Climate Change is now a regular feature of news bulletins and television programming. As a result of this growing public discussion, there has been significant increase in interest of business and the community in greener buildings and reducing energy use. Reducing greenhouse gas emissions to mitigate climate change is now recognised as a key priority for Australia's security. In a 2006 Lowy poll, 68% of respondents supported the statement that 'global warming is a serious and pressing problem. We should begin taking steps now even if this involves significant costs'. Investa has noted these changing market conditions and as shall be shown below is taking action to respond to them.
Mandatory Government Reporting
The Federal Government released its Energy Efficiency Opportunities (EEO) Program, a mandatory reporting program for all organisations consuming over 0.5 PJ of energy. In the first round of the program (which spans five years) companies are required to assess 80% of their end energy use and report on reductions over the period, alongside progress against six key indicators designed to improve the management of energy within each organisation.
While we are not yet required to participate in this program (our energy consumption falls approximately 5% under the hurdle rate at which organisations must participate), we actively supported the Department of Industry Tourism and Resources on the trialling of the program for the property industry.
Investment & Asset Management Market Considerations
Protection against Pricing Volatility and Security of Supply
Electricity futures contracts doubled in price from January to June 2007 as the likelihood of drought-induced water shortages restricting electricity generation capacity rose (see graph below). At particular risk are generators in southeast Queensland that provide peaking supply to the national electricity grid.
Click image to enlarge
Investa has continued to reduce its exposure to energy pricing volatility and improve security of supply through implementation of energy efficiency initiatives and sophisticated contracting strategies.
Investa is not exposed to rising costs of supply in the short term due to our contracting position.
PCA Office Quality Grade Matrix and Government Leasing Guidelines
The revised Property Council of Australia (PCA) Building Quality Guidelines published at the beginning of 2006 stated that Premium, Grade A and Grade B buildings should have an accredited ABGR rating, recognising the relationship between a building's environmental performance and its quality.
The Federal Government, under its Energy Efficiency in Government Operations (EEGO) Policy (2006), now requires its departments and agencies entering new leases to seek accommodation in buildings with Base Building ratings of 4.5 Star ABGR or better (2.5 stars is the market average, 3.0 represents 'best practice').
Investa now has 16 buildings rated 4.5 stars or better.
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Development Market Considerations
Increasing Regulation in Residential Sector
In residential development, there have been rapid changes in government regulation and support for more sustainable houses over the last 18 months. The Nationwide House Energy Rating Scheme (NatHERS) uses computer simulations to rate the potential energy efficiency of Australian homes on a scale of zero to 10 stars. The more stars, the less likely the occupants are to need cooling or heating to stay comfortable.
In May 2006 the new Building Code of Australia incorporated 5 Star energy efficiency regulations which were adopted in Western Australia, South Australia, Victoria and the Australian Capital Territory. As of 1 January 2007, the Queensland Development Code (QDC) was amended to require the installation of a 5,000 litre tank on all new homes in south-east Queensland (this provision applied across Queensland from 1 July 2007).The tank also needs to be plumbed into the home for external use, toilet flushing and washing machines.
Building and Sustainability Index (BASIX) Energy 40 was introduced during the year for housing in NSW. Energy 40 requires the installation of energy efficiency features designed to reduce a new home's energy consumption to 40% less than the current average.
The Western Australian Government is to introduce a new rating system for housing construction known as the Five Star Plus initiative from September 1 2007. Five Star Plus requires all new homes to have solar or five star gas hot water, water efficient showerheads, water efficient taps and dual flush lavatories.
Market Trends away from Sustainability in Residential Sector
Some market trends are however running contrary to sustainability. For example, energy use and emissions from lighting (especially halogen downlights), appliances such as plasma televisions and air conditioning are increasing. In addition, the overall size of homes is increasing (as shown in the graph below) – the average new dwelling is estimated to have a 30% larger net conditioned floor area than the average existing dwelling.
Source: ABS, Building Approvals, 8713.0, Dec 2003.
As we noted in last year's report, most of the residential market is highly price sensitive, especially given the high and rising cost of land in most Australian cities. With growing environmental awareness, particularly about climate change, market demand for energy saving and 'green' home features is expected to grow. However, currently, despite the high level of media coverage of environmental issues, the market is largely unaware of the environmental impact of their home purchase choices. As such, there is a business imperative for Clarendon to assist in educating the market and therefore growing demand for more sustainable new homes. As discussed elsewhere, the price of electricity is likely to increase rapidly over the next few years, as is the price of petrol. With tighter family budgets, there is likely to be greater interest in the running costs of homes.
We are aware that mandatory disclosure of the energy and water performance of homes at point of sale which currently occurs in the ACT may be extended to other states and territories and so are looking to where we can improve these aspects of our homes without additional costs to the purchaser. Clarendon in New South Wales coped well with the introduction of the BASIX. We need to be ahead of future regulation so as to not be subject to unexpected future business costs.
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Case Studies
Scope of Reporting:
The scope of Investa's energy and greenhouse emission reporting is explained in the reporting protocol summarised in the appendices. Generally speaking, we report on the energy usage over which we have direct control. This means we report on buildings we manage (including buildings owned by external funds managed by Investa) and the energy component that we manage within them, i.e. common services such as air conditioning and lifts, but not office lights and computers that are controlled by tenants and not buildings managed by others. This methodology is consistent with that described in the Australian Building Greenhouse Rating (ABGR) validation protocol and recognises that while the CO2 emissions from generating electricity are released by other businesses operating somewhere else, we are able to influence the amount consumed and therefore influence the volume of CO2 emitted.
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