basics:affordability:investing_in_energy_efficiency:economy_and_financing_of_efficiency_new_buildings_renovation_and_step_by_step_retrofit

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basics:affordability:investing_in_energy_efficiency:economy_and_financing_of_efficiency_new_buildings_renovation_and_step_by_step_retrofit [2016/02/17 09:04] kdreimanebasics:affordability:investing_in_energy_efficiency:economy_and_financing_of_efficiency_new_buildings_renovation_and_step_by_step_retrofit [2019/03/20 11:08] (current) cblagojevic
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 |//**Figure 2:** Residual values for calculation period of 20 years//|//**Figure 3:** The economical effect of bringing forward the exchange of windows (2013)with Passive House windows//|//**Figure 4:** Medium quality is a barrier to future energy efficiency investments. Here: Wall insulation, profit depending on insulation thickness equivalent before refurbishment.//| |//**Figure 2:** Residual values for calculation period of 20 years//|//**Figure 3:** The economical effect of bringing forward the exchange of windows (2013)with Passive House windows//|//**Figure 4:** Medium quality is a barrier to future energy efficiency investments. Here: Wall insulation, profit depending on insulation thickness equivalent before refurbishment.//|
  
- Proper attribution of investment costs: only (additional) investments that are imputable to energy efficiency may be accounted for in the economic analysis. Although this seems obvious, the calculation including all the measures’ costs which are often many times higher than the additional investment costs for energy efficiency, is very often the reason for a wrong economic assessment result.+  *  Proper attribution of investment costs: only (additional) investments that are imputable to energy efficiency may be accounted for in the economic analysis. Although this seems obvious, the calculation including all the measures’ costs which are often many times higher than the additional investment costs for energy efficiency, is very often the reason for a wrong economic assessment result.
 \\ \\
-• Life cycle of the measures: make sure that revenues (e.g. saved energy’s costs) yielded after the end of the pay back time are not forgotten. Total life cycle results are what counts.\\ 
  
-• When calculation periods are longer than the life cycle of the measure or the component, replacement costs must be considered. However, when they are shorter (which is often the case for buildings), residual values must be regarded at the end of the calculation period – instead they are  often forgotten. Depending on the lifetime span, the calculation period and the discount rate, residual values can easily be up to 30% or more of the original investment.\\+  * Life cycle of the measures: make sure that revenues (e.g. saved energy’s costs) yielded after the end of the pay back time are not forgotten. Total life cycle results are what counts.\\
  
-• Interest (discount) rates: often the expected rates of return are inadequately high (see next chapter)\\ 
  
-• Future energy prices and price increase: Assumptions on constant rate of growth may lead to unrealistically high energy prices for long calculation periods.\\+  * When calculation periods are longer than the life cycle of the measure or the component, replacement costs must be considered. However, when they are shorter (which is often the case for buildings), residual values must be regarded at the end of the calculation period – instead they are  often forgotten. Depending on the lifetime span, the calculation period and the discount rate, residual values can easily be up to 30% or more of the original investment.\\
  
-• Point in time of the measuredoes the measure fit within the normal renewal cycle, or is there a residual depreciation of the component? In the latter case, the residual value of the basic investment has to be added to the extra energy efficiency investment. This proves that undertaking retrofit based on potential energy savings is not an effective strategy\\+  * Interest (discount) ratesoften the expected rates of return are inadequately high (see next chapter)\\
  
-The starting point of energy efficiency interventions: medium quality reduces energy demand, but also possible energy savings later, thus the potential revenues of an energy efficiency investment. Future amendments to improve their quality are very improbable because they will not pay back, thus impeding future sustainable developments. Therefore, //**"when you do it, do it right"**//.\\+  * Future energy prices and price increase: Assumptions on constant rate of growth may lead to unrealistically high energy prices for long calculation periods.\\ 
 + 
 +  * Point in time of the measure: does the measure fit within the normal renewal cycle, or is there a residual depreciation of the component? In the latter case, the residual value of the basic investment has to be added to the extra energy efficiency investment. This proves that undertaking retrofit based on potential energy savings is not an effective strategy\\ 
 + 
 +  * The starting point of energy efficiency interventions: medium quality reduces energy demand, but also possible energy savings later, thus the potential revenues of an energy efficiency investment. Future amendments to improve their quality are very improbable because they will not pay back, thus impeding future sustainable developments. Therefore, //**"when you do it, do it right"**//.\\
  
 ===== Risk and return ===== ===== Risk and return =====
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 The expected rates of return are the calculatory interest rates (or discount rates) in the dynamic economic assessment. We have seen that the present value of future payments decreases with high interest rates and depreciates the investment. But high interest rates are coupled with high risks. On the capital market, it is not possible to earn high interests with risk free investments. However, energy saving investments are risk free or even risk reducing - as long as the building they belong to are not in question. Which buildings should be kept in the stock and upgraded is a decision concerning the real estate portfolio management. However, once the decision to proceed with the retrofit has been made, it is always advantageous to include the energy efficiency investment, reducing the risk of higher energy prices that might affect the market. Since risky investments with the chance of higher ROI's are not comparable with energy efficiency investments, they are not eligible alternative assets to measure the economic success. For low risk investments, however, a "risk premium" cannot be expected. They can be financed by credits though, and they should when equity is expected to yield high rates of return.\\ The expected rates of return are the calculatory interest rates (or discount rates) in the dynamic economic assessment. We have seen that the present value of future payments decreases with high interest rates and depreciates the investment. But high interest rates are coupled with high risks. On the capital market, it is not possible to earn high interests with risk free investments. However, energy saving investments are risk free or even risk reducing - as long as the building they belong to are not in question. Which buildings should be kept in the stock and upgraded is a decision concerning the real estate portfolio management. However, once the decision to proceed with the retrofit has been made, it is always advantageous to include the energy efficiency investment, reducing the risk of higher energy prices that might affect the market. Since risky investments with the chance of higher ROI's are not comparable with energy efficiency investments, they are not eligible alternative assets to measure the economic success. For low risk investments, however, a "risk premium" cannot be expected. They can be financed by credits though, and they should when equity is expected to yield high rates of return.\\
  
-|{{:picopen:18pht_ebel_fig_5.png?500}}| +|{{:picopen:18pht_ebel_fig_5.png?500}}| **Figure 5**: Risk and return. Risk premium on the capital market is the additional expected rate of return attributed to the risk.|
-Figure 5: Risk and return. Risk premium on the capital market is the additional expected rate of return attributed to the risk.|+
  
 ===== Cost optimality ===== ===== Cost optimality =====
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 ===== Documented projects ===== ===== Documented projects =====
  
-[{{:basics:affordability:investing_in_energy_efficiency:18pht_ebel_fig_7.png?500}}|//**Figure 7**: Comparison of life cycle costs of renovation: a real case. The realized EnerPHit variant was cost optimal. Since 2008 the prices of Passive House Components are reduced and the refurbishment with Passive house components looks even more advantageous. Shown costs     total energy relevant  costs over 20 yrs.//]+{{ :picopen:comparison_of_life_cycle_costs_of_renovation.png?500}}|//**Figure 7**: Comparison of life cycle costs of renovation: a real case. The realized EnerPHit variant was cost optimal. Since 2008 the prices of Passive House Components are reduced and the refurbishment with Passive house components looks even more advantageous. Shown costs = total energy relevant  costs over 20 yrs.//|
 \\ \\
 A solid basis for all cost evaluations are well documented retrofit projects, including  achieved savings and thorough analysis of the investment costs for all building components. A main issue though, is to separate extra costs for energy efficiency from usual retrofit investment costs.\\ A solid basis for all cost evaluations are well documented retrofit projects, including  achieved savings and thorough analysis of the investment costs for all building components. A main issue though, is to separate extra costs for energy efficiency from usual retrofit investment costs.\\
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 If energy saving investments are already economically feasible, funding should avoid keeping them expensive. Instead, financial aids should focus on:\\ If energy saving investments are already economically feasible, funding should avoid keeping them expensive. Instead, financial aids should focus on:\\
  
-improving liquidity and reducing the financial burden. This can be achieved through direct financial support, but also special credit lines with low interest rates (especially in the first years)\\ +  * improving liquidity and reducing the financial burden. This can be achieved through direct financial support, but also special credit lines with low interest rates (especially in the first years)\\ 
-supporting collaterals to facilitate access to attractive bank credits\\ + 
-binding financial support to quality assured design to realize the expected performance and guarantee damage-free construction and long lifetime measures\\ +  * supporting collaterals to facilitate access to attractive bank credits\\ 
-achieving very high energy efficiency, because the next renovation will only happen after many years. In this respect, medium quality would hinder the necessary reduction of energy demand and emissions and cause a "lock in" effect.\\ + 
-An interesting example is offered by the German KfW credits (www.kfw.de). The low interest loans for energy efficient new and retrofit buildings are coupled with direct subsidies, which are higher for better energy efficiency.\\ +  * binding financial support to quality assured design to realize the expected performance and guarantee damage-free construction and long lifetime measures\\ 
-Many German regions provide extra subsidies in support of energy efficiency. For the Hanover region e.g., it could be proved that every Euro granted by the proKlima-Fonds:\\ + 
-generates a total investment of 16 €, while the additional investment for additional efficiency is only 2 € (but double the value of the incentive)\\ +  * achieving very high energy efficiency, because the next renovation will only happen after many years. In this respect, medium quality would hinder the necessary reduction of energy demand and emissions and cause a "lock in" effect.\\ 
--  creates added value of 7 € + 
--  generates a local labour equivalent to 3 €.+  * An interesting example is offered by the German KfW credits (www.kfw.de). The low interest loans for energy efficient new and retrofit buildings are coupled with direct subsidies, which are higher for better energy efficiency.\\ 
 + 
 +  * Many German regions provide extra subsidies in support of energy efficiency. For the Hanover region e.g., it could be proved that every Euro granted by the proKlima-Fonds:\\ generates a total investment of 16 €, while the additional investment for additional efficiency is only 2 € (but double the value of the incentive)\\ creates added value of 7 € \\ generates a local labour equivalent to 3 €.
  
 |{{:picopen:18pht_ebel_fig_8.png?600}}|{{:picopen:18pht_ebel_fig_9.png?400}}| |{{:picopen:18pht_ebel_fig_8.png?600}}|{{:picopen:18pht_ebel_fig_9.png?400}}|
basics/affordability/investing_in_energy_efficiency/economy_and_financing_of_efficiency_new_buildings_renovation_and_step_by_step_retrofit.1455696255.txt.gz · Last modified: 2016/02/17 09:04 by kdreimane