All Euros of Energy Savings are Not Equal: Energy Mix, Expected Future Prices and Prices Volatility Importance

Energy efficiency is one of the more economically sounds way to sustainability. Real Estate accounts for 30% of energy consumption in most developed countries. It also accounts for more than 30% of GHG emission. In the last several years many research have been looking to energy efficiency technology. Very few of them include the future energy price forecast in their valuation. Very few of them include the fact that different energy source savings may have different value. This paper demonstrates that one euro of annual energy savings in different source has a very different value when we account for expected future cost. It also underlines the fact that energy source prices are more or less volatile depending on sources. This should imply different discount rate for investment in technology that involves savings of those energy sources with high prices volatility. Following this demonstration the paper support the idea that whoever assesses the value of energy efficiency have to make assumption on energy source saved, future energy prices, appropriate discount rate and maturity of the investment. When researchers and professionals omit to do those assumptions explicitly they do it implicitly. Hedonic models have been widely used by researcher to assess the value of buildings properties. We use forecast at the moment of the transaction to underline the integration of energy efficiency value in building valuation with hedonic models. We use a US database to investigate the relationship between building energy consumption and building value. We also investigate this relationship with rent. Results suggest that the energy consumption that impacts the rent value is different from those who impact transaction price. It appears that overall energy cost impact the rent value, but not the transaction price. In conclusion, the economic sustainability assessment of an energy savings investment must take into account energy sources and future price.

INDEX OF ENERGY PRESENT VALUE: Assessment tool for energy savings and distributed energy production

Philippe Bélanger

Areas/Paper type – 08. Integration of renewable energy in the built environment, Methodology Background – Today’s simulation technology in engineering and architecture are very impressive. As a result technology developers have a good idea of the resulting energy consumption of a building. They even have an idea of the distribution of the possible output. At CISBAT 2011, some authors presented innovative technologies with detailed impact on energy consumption (energy quantity, type, time of consumption) but very limited value conclusion. When asked why with such data quality they did not have more information about value. They answered with a question. Do you know of a paper that describes the methodology to achieve such valuation? Purpose – This paper intends to present a simple method that allows energy efficient technology to better assess the value of the energy savings. This value can be compared to the cost underlying this improved efficiency. Approach / Methodology / Design – Index are easy to build and duplicate. For example, anybody could compute most of the stock market indices. While it is quite easy, it is time-consuming and it is convenient to use one publicly available in spite of the fact that it may not be the perfect one for the purpose it is used to. This paper applies typical methodology in investment valuation derived from the discounted cash flow (DCF).The proposed index is built using national and international agency forecast for future energy price. It also uses national real estate industry income return to obtain present value of energy efficiency. Results – Proposed index computation are given for different maturity, different years, different forecast sources (US Energy Information Administration and UK department of Energy and Climate Change) and different geographic space (UK and US). The same methodology can be used for other and more specific countries given available data. Limitations / implications – While the method presented here is not perfect, it is better than a method that does not account for discount rate, energy mix and price forecast. Application to a specific project makes the assumption that local price growth and expected return are similar to the one on the country level. Practical implications – New technology both distributed production and energy saving can use presented index to assess the economic value of the technology. Originality / Value – While a simple approach, it appears that such index for future energy value does not exist yet. This paper intends to answer this need.

2013

INDEX OF ENERGY PRESENT VALUE: Assessment tool for energy savings and distributed energy production

Philippe Bélanger

2013