Estimating the value of price risk reduction in energy efficiency investments in buildings

Pekka Tuominen, Tuomas Seppänen

    Research output: Contribution to journalArticleScientificpeer-review

    2 Citations (Scopus)

    Abstract

    This paper presents a method for calculating the value of price risk reduction to a consumer that can be achieved with investments in energy efficiency. The value of price risk reduction is discussed to some length in general terms in the literature reviewed but, so far, no methodology for calculating the value has been presented. Here we suggest such a method. The problem of valuating price risk reduction is approached using a variation of the Black-Scholes model by considering a hypothetical financial instrument that a consumer would purchase to insure herself against unexpected price hikes. This hypothetical instrument is then compared with an actual energy efficiency investment that reaches the same level of price risk reduction. To demonstrate the usability of the method, case examples are calculated for typical single-family houses in Finland. The results show that the price risk entailed in household energy consumption can be reduced by a meaningful amount with energy efficiency investments, and that the monetary value of this reduction can be calculated. It is argued that this often-overlooked benefit of energy efficiency investments merits more consideration in future studies.

    Original languageEnglish
    JournalEnergies
    Volume10
    Issue number10
    DOIs
    Publication statusPublished - 1 Oct 2017
    MoE publication typeA1 Journal article-refereed

    Fingerprint

    Energy Efficiency
    Energy efficiency
    Value
    Black-Scholes Model
    Energy utilization
    Usability
    Energy Consumption
    Buildings
    Methodology
    Term
    Demonstrate

    Keywords

    • Energy efficiency
    • Energy end use
    • Investment
    • Multiple benefits
    • Price risk

    Cite this

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    Estimating the value of price risk reduction in energy efficiency investments in buildings. / Tuominen, Pekka; Seppänen, Tuomas.

    In: Energies, Vol. 10, No. 10, 01.10.2017.

    Research output: Contribution to journalArticleScientificpeer-review

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    AU - Tuominen, Pekka

    AU - Seppänen, Tuomas

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    KW - Energy end use

    KW - Investment

    KW - Multiple benefits

    KW - Price risk

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