Australian government-run clean energy financer Clean Energy Finance Corporation has committed A$100 million ($75.9 million; €71.8 million) to AMP Capital for the firm to make its A$4.7 billion property portfolio carbon neutral by 2030.
The capital has been allocated to AMP’s open-ended AMP Capital Wholesale Office Fund, which has a target of cutting carbon emissions from its property portfolio to zero in 13 years.
In basic terms, ‘net zero’ carbon in the real estate context means the energy being consumed by a building equates to the same energy being generated through renewable energy or through carbon offsets. A carbon neutral property can be achieved either through onsite renewable energy like solar panels on the roof or through renewable energy purchased through the grid, such as a power purchase agreement with a wind farm or large scale solar farm to provide the portfolio or particular building with energy, explained Chris Nunn, head of sustainability and real estate at AMP Capital.
Nunn said the decline in costs of large scale solar and wind, and the increasing development of large scale generation technologies like solar-thermal, could potentially make costs equivalent or even lower than conventional energy before 2030.
“What we are investigating for the AWOF portfolio to meet its carbon natural target by 2030 is through a large-scale power purchase with a renewable energy supplier, say a solar farm, which could guarantee us renewable energy over a 10-year period with a price that is competitive with our current costs of electricity from the grid,” said Nunn.
The centerpiece of the AWOF portfolio is the redevelopment of 50 Bridge Street in Sydney, as well as Quay Quarter Tower and the wider Quay Quarter Sydney precinct incorporating the neighboring Loftus and Young streets mixed-use development.
Not all fund managers are able to commit to such environmental targets. At a recent seminar on environmental best practices in real estate, Jonathan Li, assistant manager of sustainability at Hong Kong-based developer and landlord Hang Lung Properties, noted that for the firm’s retrofit of the Standard Chartered Bank Building in Hong Kong, a high level of capital expenditures was required, coupled with a long payback period. He said the work took almost five years from planning to completion.
Speaking to PERE on the sidelines of the same seminar, other managers also bemoaned the time it takes to see the capital costs come back. “For an opportunity fund, we are holding assets for only a few years. We can do the basics in making the buildings more [energy] efficient, but replacing chillers or bigger spends just don’t make economic sense to us,” said one Hong Kong-based fund manager.
However, Nunn said that as energy efficient buildings become more mainstream, the industry ultimately will see higher capital appreciation in portfolios that have strong sustainability practices in place “Valuation typically uses historical data to make estimates, so there is a bit of a time lag in terms of there being enough of a sample size of these [net zero] buildings for there to be enough of a body of evidence for the valuation community for them to say, ‘Yes, we can statistically see these value increases coming through,’” said Nunn. “That will happen, it’s just a matter of time.”