Harry Chua, the owner of Citiclub in Queen Street, in Melbourne’s CBD, has a special goal in the next 12 months: he wants his hotel and conference centre to be carbon neutral.
To achieve that, he is happy to be a guinea pig in a new scheme that provides cheaper loans to fund environmental upgrades of commercial buildings.
That money is available through a trust - the ”Australian environmental upgrade fund” - that is managed by Eureka Funds Management, with NAB and Low Carbon Australia providing the capital. Low Carbon Australia (LCA), set up by the federal government in 2010, has more than $100 million in funding.
Crucially, its involvement allows NAB to offer an ”environmental upgrade agreement” at a discounted rate to what otherwise would be possible.
NAB provides the credit assessment - the rate varies depending on the risk of the customer - while LCA assesses the environmental effectiveness of the projects.
The first agreement was signed last October for the City of Melbourne’s 1200 Building program, which aims at environmental upgrades for the city’s commercial buildings.
It’s against this background that Dr Chua embarked on the upgrade of Citiclub, the former headquarters of the RACV Club, in the CBD.
The upgrade is going to cost $1.5 million. Dr Chua has borrowed $1.35 million through the fund at 7.71 per cent over 10 years, with the balance provided by his equity. Based on today’s energy prices, he estimates the payback period will be about 10 years.
Dr Chua calculated that with long-term energy savings that would give him a return of $180,000 a year - a return of 11.7 per cent. Another grant from the Green Building Fund would push the return to 17 per cent.
”I’m assuming that power prices will be the same, but the rate of return will increase as power prices rise. This is a 15-to-20-year plan, but after 10 years, there will be a profit,” he told The Age.
The planned upgrades include:
- Lighting - passive infrared sensors will automatically switch lights off when an area is not used.
- Double-glazing of the facade, improving the building’s insulation.
- Converting the building’s sub-metering board so that energy use can be monitored and tenants will pay for their own usage.
- Installation of a combined heating, cooling and power system.
The lighting and facade work were completed last month. The upgrade is calculated to create energy savings of 27 per cent. The NABERS rating, now effectively 2½ stars, will rise to 4 to 4½ stars.
Dr Chua said once the savings were made, he would buy permits to achieve the balance of energy requirements to become carbon neutral. ”The staff are also passionate about the project,” he said.
The chief executive of Low Carbon Australia, Meg McDonald, said the challenge for property investors was justifying the economic rationale and business case for green buildings.
But there was a clear link between enhanced green premiums in value and higher NABERS energy ratings, said Ms McDonald, a former senior diplomat who was Australia’s lead negotiator for the Kyoto Protocol.
Dr Chua is confident about the payback for a green retrofit. ”The tenants like it. As a green building, the returns will improve - rents will be higher and the value will go up,” he said.
Under the upgrade agreement, the owner is advanced funds for the project by the financier in exchange for a new charge levied on the building by the council. The council passes this charge back to the financier.
