Building Upgrade Financing to Boost Sustainability in SA 1

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Tuesday, March 10th, 2015
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The South Australian government has made good on its election promise to expedite the retrofitting of older commercial buildings in Adelaide with the introduction of Building Upgrade Financing (BUF) legislation in the state parliament.

Climate Change minister Ian Hunter said the introduction to parliament of the Local Government (Building Upgrade Agreements) Amendments Bill 2015 will help boost investment in sustainability upgrades for commercial buildings throughout South Australia.

Hunter pointed out that BUF can facilitate efficiency retrofits buildings by overcoming barriers such as the reluctance of traditional financiers to provide loans due to lack of security as a collateral; the perception amongst building owners that such investments will fail to provide sufficient returns, and split incentives between tenants and building owners, with the former enjoying the benefits while the latter bear the costs.

BUF loans are attached to properties themselves instead of their owners, and are transferred along with ownership in the event of a sales transaction. BUFs are also distinct from conventional financing in that loan repayments are collected in the form of property related charges such as council rates.

NSW and Victoria have both implemented what is essentially the same financing mechanism in the form of Environmental Upgrade Agreements, which have already been applied to major projects, including $10 million in financing for a $26.5 million tri-generation plant at the Central Park mixed residential, retail and commercial project in Sydney’s inner-west, and the $7 million environmental upgrade of the 501 Swanston Street commercial building in Melbourne.

The new legislation in South Australia prescribes that councils may enter building upgrade agreements with the owners of buildings situated within their jurisdiction, as long as the building is of a prescribed kind and its construction was completed at least two years before the formation of the agreement.

BUF, as outlined by the new bill, should have tremendous potential in the Adelaide City Council, which is host to over 3,000 commercial and industrial properties, consisting primarily of commercial office and retail buildings.

A report assembled by ARUP on behalf of the state government in mid-2012 concerning the potential impact of BUF found that the mechanism could have a dramatic impact on greenhouse gas emissions in South Australia, one fifth of which result from building-related energy demand.

According to the report, a BUF applied to the Adelaide CBD and peripheral areas could result in carbon savings of between six and 32 per cent, equivalent reductions in CO2 emissions of between 10,800 to 61,400 tonnes per year.

In additional to these considerable environmental benefits, the BUF would also have a highly positive economic impact, resulting in capital investment of between $78.4 million to $666 million and direct employment of between 310 to 2,685 jobs.

The Green Building Council of Australia (GBCA) has hailed the introduction of the legislation and its potential impact on the sustainability levels of South Australia’s built assets.

“We applaud the Weatherill government for addressing the environment performance of the state’s ageing buildings,” said GBCA chief operating officer Robin Mellon. “Access to affordable finance options is an issue for many building owners. Without access to grants, tax relief or alternative financing options, many building owners find it too difficult to invest in building upgrades. This new measure will enable South Australia’s property industry to unlock the energy efficiency potential in their buildings.”

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  1. Robert Germane

    EUAs are an innovative form of financing arrangement and the introduction of the Bill in South Australia sounds like a positive move on the part of that state's government.

    With the economy in the doldrums, any measures which can help to unlock investment in commercial building retrofits is welcome, and this comes with the added environmental benefits referred to in the article.