Integrating value and uncertainty in the energy retrofit analysis in real estate investment—next generation of energy efficiency assessment tools

Abstract

Real estate professionals, such as investors, owner-occupants, and lenders who are involved in the investment decision-making process, are increasingly interested in energy efficiency investment. However, inability of current tools and techniques for a thorough financial assessment of energy retrofits has led the decision makers to focus on simple energy cost analyses as the primary basis for making energy retrofit investment and/or lending decisions. Thus, substantial non-energy cost savings as well as value implications associated with energy efficiency are often ignored and energy retrofits are undervalued. Through an extensive literature review, interviews with real estate experts, and the author’s experience with energy efficiency analytics and tools development, this paper sets forth the rationales and foundations for the development of an integrated energy retrofit assessment tools to include value, risk, and uncertainty. It suggests a systematic value-based assessment process to analyze full costs and benefits associated with energy retrofit options in the context of value, while clearly articulating the risk and uncertainty. The outcome of the proposed process enables users make more informed investment decisions and drives major energy retrofit investments. As a result of applying such a value-based approach, many investment opportunities that were otherwise ignored may be realized, and therefore, the breadth and depth of energy efficiency investment will increase for the benefit of various stakeholders, including real estate professionals, governments, utilities, or other energy efficiency program sponsors.