Journal article

The role of economic and policy variables in energy-efficient retrofitting assessment. A stochastic Life Cycle Costing methodology

housing investment Energy efficiency Home renovation
Attachment Size
DOI: 10.1016/j.enpol.2019.03.018 1.94 MB

The present paper proposes an original stochastic LCC approach to the assessment of building renovation investments. The approach contributes to the investigation on the role of LCC input data uncertainty, especially that of macroeconomic variables, in determining expected returns and riskiness of these investments.

One of the main problems in achieving the ambitious energy efficiency objective is the apparent lack of private investors’ convenience to make such long-term and high-cost investments in buildings, due to this perceived uncertainty. In fact, a growing evidence has been produced that the risks associated with energy efficiency investments are lower than perceived. Therefore, one major challenge to de-risk these investments consists in providing private investors with better and accessible information as well as appropriate evaluations tools and financial instruments.

This policy objective has been recently reinforced by the EU Directive 2018/844 on energy efficiency of buildings, that encourages Member States to support the mobilisation of investments by providing access both to appropriate mechanisms for the reduction of the perceived risk of energy efficiency operations and to “accessible and transparent advisory tools on relevant energy efficiency renovations and financing instruments” (OJEU, 2018).

However, advisory tools currently used for the evaluation of the (global) cost and expected returns of an energy efficiency retrofitting investment, like the conventional Life Cycle Costing (LCC) methodology, often understate the role of economic variables in determining both the expected returns of the investment and its uncertainty, thus the associated risk. Therefore, the relevance of this study is that the proposed evaluation method can become itself a policy tool available to private and public investors.

Publication Details


Publication Year: