### 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 language | English |
---|---|

Journal | Energies |

Volume | 10 |

Issue number | 10 |

DOIs | |

Publication status | Published - 1 Oct 2017 |

MoE publication type | A1 Journal article-refereed |

### Fingerprint

### Keywords

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

### Cite this

*Energies*,

*10*(10). https://doi.org/10.3390/en10101545

}

*Energies*, vol. 10, no. 10. https://doi.org/10.3390/en10101545

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

Research output: Contribution to journal › Article › Scientific › peer-review

TY - JOUR

T1 - Estimating the value of price risk reduction in energy efficiency investments in buildings

AU - Tuominen, Pekka

AU - Seppänen, Tuomas

PY - 2017/10/1

Y1 - 2017/10/1

N2 - 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.

AB - 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.

KW - Energy efficiency

KW - Energy end use

KW - Investment

KW - Multiple benefits

KW - Price risk

UR - http://www.scopus.com/inward/record.url?scp=85044463823&partnerID=8YFLogxK

U2 - 10.3390/en10101545

DO - 10.3390/en10101545

M3 - Article

AN - SCOPUS:85044463823

VL - 10

JO - Energies

JF - Energies

SN - 1996-1073

IS - 10

ER -