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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