Risks and Uncertainties Associated with Residential Energy Efficiency Investments

This study sets out to discuss and test the factors, which are identified in the existing literature as potential risk factors for consideration in energy efficiency retrofit valuation estimates. 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.

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