Updated: Aug 24, 2020
When it comes to energy bills, property developers don't always make decisions that work for their future residents. In this article, we explain why this is the case and how property developers can turn this around by taking control of the embedded networks set-up and technology selection process. Doing so can create lasting financial benefits for their future residents, build their own reputations, and generate new developer revenue streams in the process - a true win-win!
Last week we wrote an article about the Victorian Government’s possible embedded network policy changes in order to protect apartment dwellers from unscrupulously high energy rates. Whilst we welcome some regulatory adjustments in Victoria, we should not ignore the underlying political drivers of the government’s intervention – namely, the general public’s low trust of energy companies and (to an extent) property developers.
Most property developers don’t adequately consider energy in their developments today.
It is not often acknowledged, but property developers have a great responsibility when it comes to energy. Developers determine how future residents engage with energy for the next 50+ years.
This is because property developers make all key decisions on design, services and amenity for their development. With respect to energy, property developers are generally responsible for selecting common and individual energy services (heating, cooling, hot water and cooking services) as well as deciding who will sell the energy to residents (i.e. the embedded network operator).
Developers determine how future residents engage with energy for the next 50+ years.
But the default position for most developers is to not go beyond minimum procedure. Unless a solution provides short-term value to buyers, a developer is unlikely to invest in it. And with many buyers being either investors, or poorly educated on energy matters, it’s easy to see why the running cost savings of around $1k per annum do not typically have a huge impact on property values when the property is $500k+ (Some studies have shown a link between solar and property values, however solar is but one of many components which affect the home’s running costs).
This is a classic economic problem known as the ‘principal-agent’ or ‘split-incentive problem’. It’s why customers can be locked into perpetually high energy usage and not-so competitive deals from less scrupulous embedded network operators who are keeping a large chunk of the economic value created by embedded networks for themselves.
The opportunity for property developers is to be the embedded network operator.
Forward thinking property developers are realising this problem and coming up with a solution.
For developers considering an embedded network enhanced with new energy there are a couple of options for you:
Run a strong tender process to identify embedded network operators prepared to own and operate new energy technology and contractually commit to passing on savings to customers. Or...
Establish your own embedded network operator and do it yourself. This will apply to developers with portfolios of a 1000 homes or more.
Option 2 is less onerous than it might at first seem, as most dedicated embedded network operator businesses will provide the necessary services as an outsourced solution, without them being in control.
The incentives can now be aligned for the developer and customer.
"The developer can invest in technology that will benefit customers, whilst getting a fair, reliable return on their investment in excess of 20%."
We’ve helped a number of our property developer clients establish their own embedded network business, whereby their customers will receive some of the lowest energy rates in the market and the developers earn recurring returns in excess of 20 percent.
The other upside for developers is the chance to improve their own marketability, product differentiation, sustainability and company reputation in a crowded property market - particularly when new energy technology is added.
New energy technology will drive further savings and marketability.
As a developer and newly minted embedded network operator, you will have the perfect foundation to build new energy into your site. Embedded networks have the effect of “vertically integrating” the energy supply of a site. This means that the generation, distribution and retail of energy is all owned and controlled by the same entity.
Here’s just a sample of the opportunities that can be tapped into without grossly affecting the development budget:
Install solar on available roof space
Install batteries that pay
Implement demand response initiatives that can reduce your connection size
Build a highly efficient central plant
Connect the site with a high-voltage connection and build a private network
Not all these opportunities will work for every development. It all hinges on development size, natural assets and design and other variables unique to the development. It’s important to assess each opportunity and determine how best to integrate the solution, starting early in the design process.
The results will speak for themselves. Developers boost their earnings and residents have the lowest energy costs in the market. What’s more, residents are powered by on-site renewable energy they would have otherwise never been able to access.
So far from banning embedded networks (as alluded to by the Victorian Planning Minister) we need to leverage this amazing tool and continue to innovate with it, improving the lives of all residents in apartments and medium-density developments.
New Energy Ventures helps property developers to establish embedded networks that work for both the residents and developer. We also help with scoping and deploying new energy technology within developments.