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Themeninfos – A compact guide to energy research

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The assessment of the profitability of energy-optimised buildings depends strongly on the perspective taken, the mode of evaluation and the calculation method used.
© Fotolia/Tiberius Gracchus
New Building and Refurbishment
Themeninfo III/2017
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Profitability of energyoptimised buildings

“Does that really pay off?” – this is something you often hear when people are talking about energyoptimised new buildings or refurbishment projects. Germany’s Energy Saving Act also formulates a requirement for cost-effectiveness. It is not easy to answer this question. For this reason, the terms ‘economic viability’ and ‘economically advantageous’ will first be defined.

Nowadays, it is relatively easy from an engineering viewpoint to construct buildings with extremely low energy demand. However, is it also possible to achieve this energy performance level, which is ambitious in terms of design, building technology and commercial considerations, with existing buildings on a large scale? And is this advantageous from a financial point of view?

The assessment of the profitability of energy-optimised buildings depends strongly on the perspective taken, the mode of evaluation and the calculation method used. We would like to consider all this in greater detail in this BINE-Themeninfo brochure. It will be shown on the basis of a number of propertyindustry studies, various analyses from the research community and specific sample projects that energy-optimised construction and refurbishment can be a financially beneficial strategy when the ‘big picture’ is considered.

Developers, investors, owners, tenants, the construction industry, suppliers of energyefficiency solutions and designers have their own modes of argument as regards the issue of economic viability. This is partially a consequence of their differing interests. In addition, there are few facts available on the profitability of energy-optimised construction and refurbishment that are transparent and dependable from a methodological viewpoint. There is also a general lack of understanding, transparency and uniform methods as regards the issue of economic viability. The framework conditions used – such as current and future energy prices, discount rates, the reference study period, expected service lives, value-influencing effects and the manner of dealing with uncertainties – have a considerable influence on the assessment result.

Various pioneering projects have shown that building concepts that are ambitious in terms of energy issues can be successfully launched on the real-estate market. However, the energy-related and economic parameters and framework conditions presented for these projects have not always been well documented and transparent up to now. There are a number of property-industry investigations and model projects evaluated by researchers that assess the energy-related and economic performance of energy-optimised buildings in a transparent manner. These analyses provide useful data and facts about the costs of energy-optimised construction methods and about the assessment of the economic advantage of measures for new-build schemes and refurbishment projects.

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What does profitability actually mean?

Which energy performance level is sensible to aim for in the case of new-build and modernisation projects? When trying to answer this question, lively debates about the profitability of energy-optimised buildings always result in the areas of government, industry and research. Calculations with regard to profitability have a significant influence on investment decisions for all new-build and modernisation projects. Legal requirements and support programmes are also affected by this issue. However, “profitability” is often interpreted and calculated in different manners.

The concept of profitability

“Profitability” and the principle of the analysis of profitability are clearly defined in the field of business studies. The question is posed whether a measure is economically beneficial in absolute or relative terms or at least more advantageous than some alternative. When evaluating profitability in a narrower sense, a quantifiable resource is compared with quantifiable benefit. In all cases, a relation to the invested capital is established. A measure or project variant is then economically viable in an absolute sense if revenues are greater than expenses/costs. Projects that fulfil this criterion should be implemented.

Relative profitability applies if the ratio of revenue to expenses/costs is more favourable for a given measure or variant than for an alternative solution. The alternative variant may consist of simply “leaving things as they are”.

When these principles are applied to the residential and real-estate sectors, measures at the level of building components or buildings are often subject to an evaluation of economic viability. The basis and starting point for such evaluations are the cash flows – both incoming and outgoing – over the lifecycle of the building or building component. The recording and analysis of these cash flows form the foundation for life-cycle-costing and for methods of analysis of economic viability.

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