Ninth International Conference on The Constructed Environment

Abstract

There is substantial evidence suggesting that property professionals, such as owners, investors, and lenders who are involved in the investment decision-making process are increasingly interested in energy efficiency improvements (EEIs). One of the primary barriers to EEI is a lack of clear information regarding the true value, both revenue and risk, of EEI investments. EEI investments often include many non-quantifiable benefits as well as risks that current energy performance assessment tools and methods do not simultaneously incorporate. Nor are the outcomes typically presented in appropriate terms to be understood and utilized in the investment decision-making process. In this paper, an analytical method and systematic framework is proposed to evaluate the financial performance of EEI alternatives in existing commercial buildings, while simultaneously addressing the risks and uncertainties associated with the process. The framework is a robust valuation process that takes EEI alternatives, uses current energy simulation programs to forecast estimates of the energy efficiency outcomes, links the predicted building performance to financial model inputs, and derives ranges/distributions of their bottom line financial performances. A Monte Carlo simulation model, based on the Discounted Cash Flow approach, is suggested for modeling the uncertainties of valuation process and estimating the financial performance. It is the objective of this study to create a single platform to bridge the gap between the design and investment communities and translate the technical language to financial language in order to present more reliable and understandable information regarding EEI’s return on investment and its associated risk and uncertainty.