Case Study: Creating an exemplar company to accelerate the move to a low carbon building sector in the UK.
The Carbon Trust is an independent company set up by the UK Government in 2001 to support the move to a low carbon economy. Carbon Trust Enterprises Limited (“CTEL”) is a commercial arm of the Carbon Trust and focuses on the creation of valuable low carbon businesses. www.carbontrust.co.uk
- There is a need to reduce carbon emissions of existing commercial building stock: The UK has committed to cut CO2 emissions by 80% by 2050. Non residential buildings contribute towards almost 1/5th of UK’s CO2 emissions. 50% of commercial premises available today will be in use in 2050. However direct regulatory compulsion and government-based financial incentives are focused on new build, residential and public sector – not commercial.
- Very few examples of low carbon building refurbishment exist: Reasons for this include the lack of existing standards – this means that occupiers can’t articulate their needs clearly. Many commercial premises are tenanted and there is currently no perceived incentive for a landlord to opt for a low carbon refurbishment. Tenants won’t invest as energy-only ROI is too low. Lastly multiple disconnects in the process from commissioning to using a building mean that low carbon solutions are extremely difficult to implement.
- Tenant appetite for low carbon buildings is increasing: Up to 5000 non-industrial companies in the UK now fall within the CRC regulation. This makes compliance and disclosure increasingly important for occupiers where carbon performance of their office space is a material part of carbon footprint. In addition Companies are recognising the need to create a positive brand perception to staff, customers and stakeholders to support sales, recruitment and retention. Lastly, appetite for low carbon solutions is being driven up by occupiers need for transparency and direct control of energy costs and carbon impacts for corporate and regulatory reporting.
Low Carbon Workplace (LCW) meets increasing occupier demand through offering a certified low carbon building with an ongoing programme of carbon management (via an occupant charter) at comparable rates to a traditional office building.
LCW will bring together partners in a commercial demonstration of how to realise the carbon/cost benefits latent in the non-domestic property sector. This will provide a platform for the establishment of commercially viable low carbon refurbishment standards required for decarbonising the sector.
In the long term the benefit of low-carbon buildings in attracting and retaining tenants and related premium on building value is expected to influence the broader industry towards an uptake of low carbon methods.
Business model components include both a managed fund and an ongoing operational management contract.
LCW is a partnership between the Carbon Trust (as accreditation partner), a building owner (owning multiple commercial properties) and a selected refurbishment partner.
The business is expected to scale by attracting institutional investors.
LCW could hold a national portfolio of 25-50 low carbon buildings by 2015. These buildings would directly save 6,000 tCO2 per year. The investment is expected to return >20%IRR. This will prove the case and providing the basis for low-carbon property investment.
Key Innovation Points
- Lifecycle control: Successful decarbonisation of a building requires oversight and management of the entire process from building selection through specifying the refurbishment to ongoing building use. The holistic business model ensures carbon specifications are upheld at every decision-making stage of the project so that they are not lost in design, value engineering, construction or during occupier fitout and use. The use of a charter encourages efficient energy management, in-use.
- Leveraged capability: Positioning of Carbon Trust as co-ordinator, manager and certifier extends its proven role as certifier through business operations (Carbon Label Company and Carbon Standard Company) and gives LCW carbon credibility.
- Collaborative development: Strategic property partners bring leadership positions in their fields of specialist asset management and refurbishment project delivery skills to the LCW venture and will take the lead in securing the additional funding from institutional investors
- Capacity building: Developing new ‘blueprints’ and trialling new products for the industry
- Early occupier sourcing: A dedicated role to source and engage potential occupiers reduces project risks, by establishing pre-let positions.
- Timing: UK recession has created a drop in rental market and this provides a differentiator for tenancy returns and the possibility of longer term equity upside.
Low Carbon Workplace is operational and has secured its first properties.