Risks and Uncertainties Associated with Residential Energy Efficiency Investments
Real Estate Finance, Spring 2019, Volume 35, Number 4,vpages 249–262
14 Pages Posted: 15 Oct 2018 Last revised: 28 Mar 2019
Date Written: February 28, 2019
This study sets out to discuss and test the potential risk factors of energy efficiency retrofits. It reviews both the short- and long-term assumptions regarding the various uncertainties associated with input parameters to assess their potential effect on outcomes predicted by conventional calculation models. Potential risk mitigation strategies are discussed for each of the listed risk factors with reference to the energy efficiency risk dimensions presented. A general framework is developed and applied to derive risk-specific parameters in a sensitivity analysis calculation. The results demonstrate that financial returns and payback periods are most sensitive to changes in debt, energy prices, interest rates, initial investment costs, and holding periods. The results also underline the crucial role of market mechanisms (green rent premiums) for recouping these investments.
Keywords: energy efficiency, residential retrofit investments, climate change, retrofit risk dimensions
JEL Classification: R31, R28, D1
Suggested Citation: Suggested Citation