In December 2012 Parramatta City Council celebrated the signing of the first Environmental Upgrade Agreement (EUA) in NSW for the Australian Unity Investments owned building at 10 Valentine Avenue, Parramatta. 

The 15,995 sqm building has undergone a full tenancy lighting upgrade, with the works estimated to save the tenants around 70 per cent on their lighting bills. With escalating energy prices this is estimated to save the tenants between $150,000 and $200,000 a year from mid-2016. Completed in January 2013, the tenants are already enjoying the improvement of their office spaces and energy savings.

Environmental Upgrade Agreements (EUAs) enable the financing of large capital upgrade works to existing commercial buildings that result in energy, water, or other environmental savings. The replacement of older equipment, such as air conditioning and lift systems or lighting fixtures are ideal upgrades eligible under this funding program. We spoke to a number of the stakeholders involved in the upgrade project to take a look at the finance mechanism from the tenant’s perspective.

The upgrade project

“Interestingly this EUA was actually initiated by the tenant. Government Property NSW (formerly the State Property Authority). They acted on behalf of fourteen NSW Government tenants within the 4.5 star rated building and approached Australian Unity about their appetite for a lighting upgrade. 

It’s a great demonstration of collaboration between the two parties and is an Australian first, whereby the tenants contribute to the repayment of the building upgrade and stand to gain substantial benefits from reduced energy bills and improved amenity"

The building at 10 Valentine Avenue was built in 1988. The original lighting design was still in place and an upgrade would be required at some time in the future, however with the application of the EUA, it effectively made this project financially more attractive to the building owner and timing of the upgrade was brought forward. The project involved the replacement of the original T8 florescent ceiling lights in the tenanted areas of the building with energy efficient T5 lighting and LED down-lights for corridor areas, on all fourteen floors of the building.

Valued in the order of $940,000 this large upgrade project of over 15,000 square meters of office space was a significant investment which would drastically improve the quality of lighting for the tenants. This too was identified as one of the fastest and most immediate ways for the tenants to save money in energy bills.

Expected energy cost savings and payback for this scale of project

Roger Walker, of EcoStrategies, EUA consultant for the project noted that “the lighting upgrade project is estimated to achieve up to a 70 per cent reduction on existing lighting electricity costs with an immediate positive return for the tenant. As the project was undertaken under an energy performance contract these savings are guaranteed by the lighting supplier. So we’re expecting the tenant to immediately start to see the reductions in their electricity bills. And, with the installation of new light fittings, maintenance costs that are paid by the tenant are also reduced.”

While the project costs are being repaid by the building owner under the EUA, in-line with the EUA legislation, Government Property NSW agreed to make contributions in the order of $6.50 to $7.00 per square meter per annum for the term of the existing lease. This equates to approximately 42 per cent of the project costs.

“Once the EUA repayments cease the tenants will see the full benefit of a cost saving of an estimated $150,000 to $200,000 per year.” It is expected that tenants will retain approximately 30 per cent of energy cost savings over the remaining lease term.

And, what’s in it for the tenant?

Essentially all fourteen tenants have been enjoying the benefits of a more efficient, comfortable and environmentally friendly work environment and reduced electricity bills now, with no capital outlay. Looking at the long-term, with the tenancy now running off energy efficient lighting, they are set to reduce their day-to-day operating costs, carbon footprint and future energy bills. As energy prices continue to rise, these upgrades are set to protect tenants’ costs and make the building more attractive to lease.

Matt Fisher noted that “From the outset Government Property NSW had a strong commitment to achieving emission reductions in the building they tenant. With this project estimated to achieve a reduction in GHG emissions of over 550 tonnes per annum, there were clear wins win to be made. In addition they also wanted to achieve energy savings for financial reasons. The energy savings of the lighting upgrade were extensively modelled and showed that a 63 per cent reduction was possible. During the life of the EUA the tenant will pay contributions of no more than the energy that is saved. Essentially the legislation offers full tenant protection so at worst it’s a cost-neutral outcome for the tenant and in this case the amount paid by the tenant is expected to be less than the cost savings they benefited from.” 

From the tenant’s perspective, Lindsay Haraldson, of Government Property NSW said, “We are committed to reducing energy consumption and achieving emission reductions in all the buildings we tenant. In the case of Valentine Avenue, careful calculations showed that our EUA contributions would be less than the savings we would make in our energy costs, so it also made sense from a financial point of view.”

The tenants were also committed to ensuring that the lights met all Australian standards, as required in an EUA and the highest quality of upgrade was received. This means installing lights with enclosed diffusers, and in this case, providing perimeter wall washing. Studies have shown that this type of improved quality of lighting has correlated with increases in productivity, increases in job satisfaction, decreases in absenteeism and staff turnover—definitely a positive benefit for tenants.

Getting the project off the ground

“Parramatta City Council worked with Government Property NSW, Australian Unity Investments, and National Australia Bank to achieve this first EUA milestone. We had discussions with Government Property NSW and were asked to examine what buildings in Parramatta may be suitable for lighting upgrades. 10 Valentine Avenue was a highly suitable building. Negotiations took place between Government Property NSW and Australian Unity Investments, with Walker EcoStrategies and Parramatta City Council facilitating discussions” said Matt Fisher.

From the outset both parties saw the benefit. Through detailed calculations carried out by Roger Walker of EcoStrategies the actual costs and cost savings were presented to both parties. Based on these calculations both parties were happy with the proposed project to be carried out under an EUA and agreements were initiated.  At this point Australian Unity Investments commenced discussions with the National Australian Bank, and all parties worked together to complete the EUA documentation.

Looking at this from the owner’s perspective, Mr Grant Nichols, Property Portfolio Manager at Australian Unity Investments commented that “By entering into an EUA at 10 Valentine Avenue, Australian Unity Investments has been able to improve the building’s energy efficiency, engage collaboratively with the Tenant and diversify our funding arrangements. As an owner of commercial property, it is important to continue to improve building efficiency to protect asset value and attract and retain tenants.”

From the tenant’s perspective, is there any associated risk with the agreement?

A perceived risk to tenants is that contribution payments towards the upgrade are greater than the actual bill savings achieved. Under the legislation this is not allowed. Building owners have an obligation under the legislation to ensure that contributions do not exceed a reasonable estimate of the cost savings to be made by the tenants due to the upgrade works, during the period to which the contribution relates.

As part of the Agreement, the building owner is required to submit annual reports to both tenants and the relevant local council, in this case Parramatta, outlining the progress of the upgrade. Included is a detailed analysis on the actual cost savings achieved in the reporting year versus estimated cost savings. This ensures that the tenant is still paying the correct contributions and that any adjustments can be made accordingly.

The wider potential of the EUA scheme

This type of financial scheme is well established in the USA, with initiatives such as Property Assessed Clean Energy (PACE ) having been on offer since 2008. “Following a study we conducted last year, just looking at the Parramatta’s CBD alone, we can potentially attract $150 million of investment in building upgrades, create 148 full-time jobs, and reduce building owners’ outgoing costs by $26 million through water and electricity savings” said Matt Fisher. Broadening this out to a city-wide perspective, given 98 per cent of today’s buildings will be still standing in 2030, there’s enormous potential for carbon emission reductions across this sector to be realised.

How can tenants get support to initiate and/ or finance sustainable office upgrades?

Tenants wishing to enjoy office spaces with improved amenities such as lighting, air conditioning, lifts etc should begin a dialogue with their building representative in regards to the opportunities offered by EUAs.  For tenants, the CitySwitch program is a good starting point and can steer businesses in the right direction with a range of resources, dedicated program manager support and a national network of other business tenants.

For more information visit:

o   Parramatta EUAs: www.paracity.nsw.gov.au/eua 

o   Sydney CBD EUAs: www.cityofsydney.nsw.gov.au/eau

o   North Sydney EUAs: www.northsydney.nsw.gov.au/eua

o   Melbourne EUAs: www.sustainablemelbournefund.com.au/euf