IN AN Australian first this week, a building owner and its tenants agreed to share the cost of an environmental upgrade that will cut energy usage for lighting by 60 per cent, paying for the investment through council charges.
The accord between Australian Unity and its tenants, the State Property Authority, was designed to fix a well-known market failure that remains an obstacle to retrofitting buildings to save energy.
Owners often have little incentive to invest in efficiency measures if renters pay the bills.
‘‘It’s crazy to allow up to $2 billion in savings for the private sector to be ignored, simply because we needed a small policy innovation to capture them,’’ the NSW Environment Minister, Robyn Parker, said.
While the deal, in Parramatta, will save only a fraction of that total, its design is drawing interest from across Australia, with Queensland and South Australia looking at following NSW.
Victoria has set up similar environmental-upgrade agreements involving owners and councils – but only if 100 per cent of tenants sign on, making their inclusion in repayments typically too onerous to pursue. NSW doesn’t require full support from tenants provided the investment leaves them no worse off.
‘‘Once the market sees [the agreement] operating and gets comfortable with it, we expect it to pick up significantly,’’ said Ashley Robertson, an associate director of National Australia Bank. He said the bank was assembling a pipeline of similar deals to roll out next year.
The involvement of firms such as NAB is also crucial since the lack of finance has hobbled investment in energy and water efficiency by building owners.
The Parramatta agreement for about $800,000 will be paid back over five years, with the repayments matched or exceeded by the energy savings. While that savings stream reassures the bank and its financial partners, Low Carbon Australia and Eureka Funds Management, the link with council rates adds to the security of the finance.
Repayments are effectively a charge against the building, making the loan ‘‘super secure’’, said Meg McDonald, chief executive of Low Carbon Australia. ‘‘It allows the bank rate to be lower.’’
Ms Parker said low bank lending rates should add to the appeal of the accords.
‘‘If the property is sold, security for the loan [and liability] goes with the land, so the bank is able to offer a reduced rate of interest because it is facing a much reduced level of risk compared to most commercial loans,’’ she said.