CONCRETE ANALYSIS

Mandatory energy audits force Hong Kong building owners to review use

Costs are high, but law has forced reluctant building owners to review their consumption

PUBLISHED : Wednesday, 08 January, 2014, 5:35am
UPDATED : Wednesday, 08 January, 2014, 5:35am

Mandatory energy audits - snake or ladder?

The deed is done. One thousand energy audits completed. Tens of thousands of man-hours expended. Tens of millions of dollars in fees handed out.

And for what? No energy audit ever saved a dollar. Only the entirely voluntary implementation of any of the measures recommended will do that. So for the audit exercise itself, no ROI whatever.

That's right. In a town where energy cost improvement measures would not even be cursorily considered without irrefutable evidence that they would pay for themselves in two years, or even one, the owners of the 1,000 commercial buildings that were energy-audited have done the unthinkable.

For good reason of course. Because it was the law.

This one thousand audits exercise has been no mean feat, but all those millions of dollars - was it money well spent?

For Hong Kong as a community, we could say that this first year's effort was a success. As the government intended, it has forced those building owners who would never have taken an organised look at their energy use to do just that. Some will surely see that they do have ways to reduce their energy bills.

For the rest the picture is not so clear. Owners with the sense to see that as long as a kilowatt hour of efficiency could be purchased for less than a kilowatt hour of electricity will already have scrutinised their buildings with tools far more sophisticated than the good old energy audit. So for them, compliance will not have been beneficial.

The middle group - building owners who had already worked on their energy costs by using straightforward energy opportunity checklists - are in a more complicated position. They may make good use of their mandatory energy audit, but they are now at risk in ways that many do not realise.

Their greatest risk is that they will think that with their official assessment in hand, and a few of the recommendations partially or fully implemented, they are now safe to put the subject aside until 10 years from now, when the ordinance kicks in again and requires a repeat.

In other places, this risk is not so great. There is always some incentive for building owners to revisit their energy story due to actual or impending electricity tariff increases - in many places very substantial increases.

But not in Hong Kong. Commercial buildings' energy expense is insignificant given property values, the rents that are charged and the occupancy levels that are maintained. And most of the expense is passed on to tenants in the form of increasing rents.

No incentive for owner action there. And if their building is on Hong Kong Island, the temptation to doze off is all the greater because, in an announcement that is probably unique on planet earth, Hongkong Electric Company has declared it is freezing tariffs for no less than five years.

With any risk of higher energy bills off the table, what is left to drive building owners to demand anything remotely like energy management excellence?

The answer, of course, is that energy consumption is far more than the cost of doing business. Rather, it is the major cause of climate disruption, city air pollution, environment destruction and resource depletion. It is a key factor in business reputation and business risk.

And on the flip side, the need to reverse all those downsides brings the potential to create enormous wealth and lock in competitive advantage at the same time.

To treat energy consumption as a non-issue would extract an inordinately high price from any company that made that mistake on back of a boring energy audit report and low electricity tariffs.

And if our middle group of building owners does make this mistake, the leaders, the laggards and the rest of Hong Kong will not be immune to the repercussions.

So the best thing to do is to embrace the concept of energy management excellence wholeheartedly and follow the leadership of the Hong Kong Stock Exchange, of the institutional investor community that demands carbon transparency and of those business leaders who have shown by their actions that the question of energy is one that can and will only be solved when it is chairmen and CEOs who decide the agenda and unleash their companies' vaunted managerial acumen on the challenge.

Robert Allender is a director of Hong Kong-based energy management advisory company Energy Resources Management