Councils encouraged to tackle infrastructure backlog with switch to clean energy

16 June 2016

Australian councils should urgently consider tailored debt finance to improve their energy performance and reduce emissions from old and poorly maintained assets.

According to a newly released Market Report by the CEFC, Clean energy opportunities for local government, Australian councils are missing out on lower cost clean energy solutions, leading to unnecessarily high operating costs, as well as higher carbon emissions.

The CEFC Market Report finds that councils typically hold large property and infrastructure portfolios with long operating lives. But while councils generally have stable cash flows and a strong capacity to service debt, many councils are making relatively little use of currently available low cost finance to update this critical infrastructure.

“By restricting investment to what can be paid for from current-year or retained income, councils face an accumulation of inefficient, out-of-date or sub-optimal infrastructure on their balance sheets,” CEFC Local Government sector lead Melanie Madders said.

“Much of this aging infrastructure is energy inefficient, meaning councils have higher operating costs and a higher carbon footprint than necessary. Some councils also have zero-debt policies, which are putting the cost burden of inefficient long-life assets onto current ratepayers, rather than sharing these costs with future ratepayers who will also share in the benefits.

“We believe it is time for councils to take a longer term view of their infrastructure, improve their energy efficiency and increase their use of clean energy to limit their carbon emissions.”

The CEFC Local Government Finance Program provides councils with access to tailored finance for a range of clean energy and energy efficiency investments. Reflecting the particular financing needs of councils, the CEFC finance includes access to competitive fixed-rate longer-dated senior debt of up to 10 years. The finance can be drawn over a three-year availability period and includes the ability for multiple councils to enter into joint financing agreements for eligible projects.

“Depending on a council’s energy consumption patterns and energy upgrade opportunities, the savings from clean energy investments can offset the loan repayments, improving council operating budgets while meeting environmental goals,” Ms Madders said.

“This kind of sustainable borrowing is integral to prudent long-term asset management, which is especially important given the significant infrastructure challenge that councils face. Importantly, the cost savings and emissions reductions from clean energy projects continue after the debt is repaid.”

The CEFC Market Report identifies a number of areas where councils can act immediately to benefit from clean energy investments. Practical steps can include:

• Using specialist energy efficiency consultants and energy companies to conduct energy audits of council buildings, fleets and facilities, usually involving reviews of asset inventories and energy costs, to identify investments that would boost energy efficiency at a cost below the saving gained.
• Working with other councils in their area to share knowledge and resourcing as well as combine smaller individual upgrades into a larger project to achieve economies of scale.
• Focusing on large buildings with higher energy consumption, such as civic and leisure centres, to maximise energy cost savings and prove up the financial benefits of other energy efficiency investments.
• Designating a sustainability officer or team with responsibility for finding opportunities for renewable energy and energy efficiency investment opportunities across the council’s asset portfolio.
• Using external consultants to analyse and help develop the business case for potential projects.

Ms Madders added: “The economic and social benefits of energy efficiency and renewable energy technologies are clear, delivering lower energy costs, lower emissions and a more sustainable footprint. It is only with a longer term strategic approach to asset management that councils can effectively switch to clean energy options which will reduce operating costs and enable them to lower emissions.”

The CEFC Local Government is looking forward to meeting with Councils at the 2016 National General Assembly of Local Government at the National Convention Centre in Canberra from 19 to 22 June, 2016.

For more information on CEFC council financing, please visit the Local Government Finance program page on our website.