EUAs a better way to pay – for tenants too!

smf blog - euas a better way to pay for tenants too

On Friday, the Clean Energy Finance Corporation (CEFC) announced it will provide finance of up to $30 million for Environmental Upgrade Agreements (EUAs) which will be available through NAB and Eureka Funds Management, bringing the total to up to a joint amount of $80 million allocated for EUAs. CEFC’s CEO, Oliver Yates said “this CEFC and NAB commitment will support growth of EUA finance in Australia and provide a boost for commercial property owners and managers seeking to reduce their buildings’ energy consumption and costs”.

The announcement of the extra funding coincides with a recent presentation Scott Bocskay, CEO of Sustainable Melbourne Fund, did at the Total Facilities Live conference held at Melbourne Exhibition and Convention Centre. Scott emphasised how an EUA proved to be the most cost effective way to pay for a building upgrade compared with traditional debt.

During his presentation, Scott discussed the availability of EUAs and types of upgrade projects that can be financed using an EUA. Scott also discussed the importance of working with tenants to deliver desirable project outcomes and provided case studies of existing EUAs.

Tenant contribution is what makes an EUA a unique lending mechanism. In the worked example presented Scott illustrated that with proactive engagement of tenants a larger project could be undertaken that would result in a positive cash flow. The example presented had an $817,600 project for base building upgrade being financed without tenant contribution resulting in a cash position of -$330,010 paid off over 3 years at 8% interest. However, by using an EUA to finance the same base building upgrade and adding $499,827 for tenant upgrade the repayments become a cash flow of $343p.a over 10 years at 7.5% interest actually.

Importantly, this structure is also a positive outcome for the tenant. Working collaboratively with the building owner, an energy efficiency project can be undertaken which results in a variable cost (energy) being replaced with a fixed cost (EUA contribution) at less than the variable cost. SMF modelling indicates that this can result in a saving of $7,500 in the first year and $50,000 by the third year.

Being in a privileged position, tenants can influence building owners to not only undertake upgrades that result in positive building outcomes, but also support this with a robust business case for building upgrades that will modernise your current building and reflect well to your clients and staff.

Click here to see an example of initial project costs.

If you have an upgrade in mind for your building or would be keen on getting a clearer understanding please contact Michael Lambden, Client Manager at Sustainable Melbourne Fund by email or by calling 9658 8740.

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