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Promoting energy efficiency investments with risk management decision tools

  • Jackson, Jerry
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    This paper reviews current capital budgeting practices and their impact on energy efficiency investments. The prevalent use of short payback "rule-of-thumb" requirements to screen efficiency projects for risk is shown to bias investment choices towards "sure bet" investments bypassing many profitable efficiency investment options. A risk management investment strategy is presented as an alternative to risk avoidance practices applied with payback thresholds. The financial industry risk management tool Value-at-Risk is described and extended to provide an Energy-Budgets-at-Risk or EBaR risk management analysis to convey more accurate energy efficiency investment risk information. The paper concludes with recommendations to expand the use of Value-at-Risk-type energy efficiency analysis.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-4YNT92H-2/2/c61a95339f8065f02661406ce9e7296d
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    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 8 (August)
    Pages: 3865-3873

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:8:p:3865-3873
    Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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