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

See all articles by Donald Stevens

Donald Stevens

University of Cambridge - Department of Land Economy

Hassan Adan

University of Cambridge - Department of Land Economy

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Winfried de Coo

Tilburg University - TIAS School for Business and Society

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Dimitra Kavarnou

University of Cambridge - Department of Land Economy

R Singh

Date Written: February 28, 2019

Abstract

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

Stevens, Donald and Adan, Hassan and Brounen, Dirk and de Coo, Winfried and Fuerst, Franz and Kavarnou, Dimitra and Singh, Ramandeep, Risks and Uncertainties Associated with Residential Energy Efficiency Investments (February 28, 2019). Real Estate Finance, Spring 2019, Volume 35, Number 4,vpages 249–262. Available at SSRN: https://ssrn.com/abstract=3254854 or http://dx.doi.org/10.2139/ssrn.3254854

Donald Stevens

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Hassan Adan

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 1 0408 2371 (Phone)
+31 1 0408 9017 (Fax)

HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/dbrounen

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
120-551-3535 (Phone)

Winfried De Coo

Tilburg University - TIAS School for Business and Society

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

Dimitra Kavarnou

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

No contact information is available for Ramandeep Singh

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