Environmental Upgrade Agreements (EUA)

EUA’s are a new financing model for building owners to upgrade their buildings for energy savings and green technologies. The idea being that finance is provided to pay for these upgrades and that savings generated for the upgrade will pay the finance.

Mining for Green

The finance for these projects will be levied by the council and part of the building rates and in turn billed to tenants as part of their outgoings.

The arbitrage opportunity exists due to the finance being applied by the council to the building is off-balance sheet and paid for by tenants. From the building owners perspective the finance and associated upgrades improves the net value of the building at nil net cost to tenants.

Risk or Cost? Choose One

As the cost of your project is subsidized by energy savings and paid for by tenants it is technically a win/win situation. Yet like most things it’s not that simple. Tenants are scared of entering into an agreement where savings may no be realized and guarantees don’t offer the comfort that you would expect. Maybe tenants fear legal loopholes that may leave them bearing costs despite guarantees.

Personally I believe it is an issue of trust. One where the building owner probably needs to pickup the cost of EUA payment and share savings only with tenants that come onboard. This provides proactive tenants with savings far more than any EUA charge. For the building owner this is not the most efficiency money for nothing approach, but do we ever get anything for nothing?

So, if your keen about going green and are comfortable with a little volatility in your leasing yield then EUA’s are probably right for you. Yet the question must be asked, of the 1200 Buildings covered by the legislation in Melbourne how many will look to take advantage of this?

Links

1200 Buildings Program

Advertisements