How Not to Use the SLSC Programme's Latest 5% Business Case Tool
Over the last few decades we’ve seen dozens of organisations, state and Federal government agencies, consultants, multi-national behemoths, advocacy groups and peak association groups try their hand and help or intervene in the Australian public lighting landscape. One program currently active in trying to inform government at all levels about the application and benefits of LEDs and smart lighting is the Street Lighting and Smart Controls (SLSC) Programme. It has showed some promise over the last years but is causing some councils to scratch their heads as to the value of the information being developed.
We've had several councils ask us to review the most recent package to the sector, a “Model Business Case for Street Lighting and Smart Controls Upgrades", a template document supported by an accompanying Excel-based modelling tool. The tools have some serious flaws that councils need to be aware of before they think of using it. It is too superficial to be of benefit, too far removed from real-world projects and some of the financial modelling will be picked apart by your finance team, senior management or CFO, especially considering the purpose of the package is to “demonstrate debt servicing cashflows for street lighting projects”.
Grain of Salt
We have a potential conflict of interest here because street lighting is our bread and butter and we're not directly involved with the SLSC program. In any given year Ironbark will work with a few hundred councils in smart lighting projects throughout Australia and have worked on more LED and smart lighting projects than everyone else combined. So, we understand that some readers will take this article as Ironbark “protecting our turf” or trying to downplay the role of another organisation. On the other hand, we want to see councils spending time and resources as efficiently and effectively as possibly to see real action happening. This means that we’ll be frank and fearless in our advice. If that means pointing clients to great work undertaken by our competitors, then we’re happy to do so (shout out to excellent consultants and Ironbark competitor Point Advisory for their “Energy Models for Councils: Decision Making Guide”, and Kinesis’s powerful emissions reporting CCAP tool).
We’d also note the amazing work of IPWEA, who helped set-up the SLSC group, one of the most well-respected organisations in the local government landscape. Over the last few decades many of our staff have undertaken training with IPWEA, attended and presented at their excellent conferences, and worked closely with state chapters on policy to provide programmatic advice. SLSC are certainly not a competitor and we’ve been seeking to work with them, support them, provide them with information and data for years. The “Model Business Case” package was developed with input from corporate advisors and consultants and it’s within reason that SLSC will take their advice. But in this most recent foray they shouldn’t have. And neither should councils because it could lead them to make poor decisions and possibly embarrass themselves internally and to the broader community.
The Red Flag Issues
There is a long list of flaws within the business case documentation. Below are four initial “red flag” issues to be aware of. If you are going to use the templates then please have a good review of the information first, especially if you’re going to share the results with other stakeholders - internal or external.
1. It Only Tells You 5% of the Picture
If you fill in all the inputs in the excel spreadsheet, develop the document and your finance team decides to have a review then be prepared for some severe critiquing, because there’s no scope for annual projected changes in electricity and tariff costs. One of our economists nearly had a heart attack when we mentioned that these business cases assumed no change in electricity and tariff costs. This business case tool shows you 5% of the picture:
- Year 1: Potential energy/tariff savings from changing to LED based on inputs for energy and tariff costs/charges today
- Year 2: ?
- Year 3: ?
- Year 4: ?
- Year 5: ?
- Year 6: ?
- Year 7: ?
- Year 8: ?
- Year 9: ?
- Year 10: ?
- Year 11: ?
- Year 12: ?
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- Year 14: ?
- Year 15: ?
- Year 16: ?
- Year 17: ?
- Year 18: ?
- Year 19: ?
- Year 20: ?
It’s like buying an investment property and suggesting everything will remain static for next few decades. You’d be crazy to assume that the rent you receive; the bills you pay; mortgage repayments; the rates you pay; the maintenance you require will be the same today as in 2029 or 2039.
2. No Analysis on Smart Lighting Savings
We were very surprised to see that despite talking up the benefits of smart lighting and calling it a “Model Business Case Model Business Case for Street Lighting and Smart Controls Upgrades”, there’s no analysis on the financial savings from smart lighting. The rest of the sector seems to have moved on, or at least those councils and stakeholders who are involved in delivering projects are already seeing the benefits and feeding this back into analysis. For example, our business cases now provide information and potential savings from the following specific smart lighting benefits:
- Constant Light Output (CLO)
- Traffic Safety
- Maintenance cost reduction
To know the costs and savings (simple net savings, cumulative greenhouse gas savings, payback period, ROI) from these smart lighting technologies – you need to have your finger on the pulse and be involved at the coal-face working and delivering projects to know. We're supporting councils nationwide to deliver real projects that incorporate smart lighting and have actual numbers on the benefits – and the costs.
3. It Doesn’t Save you Time or Money
We had a few councils ask if we could fill in the template for them, but the time and cost to do so would have been more than to develop one using our own models. There’s so much information you need to know before you can get started and you probably don’t have it available. You’ll also need to know tariffs, DNSP project management fees, written down values, avoided cost, discount rates. If you’re in Victoria or NSW you’ll need to know how to calculate energy efficiency certificate conversion factors and the savings and risks. If you were planning on calculating Australian Carbon Credit Units (ACCUs) then you can’t use the greenhouse gas savings section at all (if you were planning on doing this then instead of getting into the nuances of Australian emissions factors here, just give us a call and we’ll explain why you cannot use it for ACCUs).
4. Locked into 10 Year Time Horizon
The business case doesn’t allow you to change the time horizon from 10 years. The lights are designed for and typically last for 20 years as per the Australian Standards, the AER, manufacturers and everyone else! 10 years doesn’t cut the mustard.
Putting the Smart Back into the SLSC
The Model Business Case has received a fair amount press and we’ve no doubt some councils will try and use it. But it’s seriously flawed and should not be used in the current format – the excel tool or the word document template. Previous SLSC tools have been simple, and that’s good. The Model Public Lighting Controls Specification was a handy “101” document for councils to gain an initial understanding of smart controls and the Model LED Public Lighting Specifications were a good start for council-owned lights, but of course now out-of-date as we're sure the SLSC would acknowledge. It's very challenging to keep templated documents and specifications dynamic.
This latest business case tool isn’t just simple, it’s flawed to the point of being counter-productive. We recommend councils don’t use it. If you do, do not call it a “robust” analysis as SLSC suggest and think twice about showing it to your finance team or senior management because they may raise the concerns noted above.
After All That. Want Help Filling in the Tool?
For those councils who asked Ironbark for a review of the SLSC tool, Ironbark can input all the data, confirm the assumptions, provide you with said assumptions and developed the report based on the template for around $5-6,000.
We’ve had requests for help filling it in or comparing results with our analysis, but we’re not comfortable undertaking this for councils at all. The data and outputs are flawed and won’t give you information to the level of accuracy we are comfortable with as a professional organisation. You’re better off getting a business case developed from scratch.