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Assessing the economic efficiency of energy-optimised buildings is complex. Professor Thomas Lützkendorf in the BINE interview.
© Karlsruher Institut für Technologie (KIT), Fachgebiet Immobilienwirtschaft
BINE interview on economic efficiency
29.11.2017

Differentiated assessment of economic benefits

Nowadays, it is relatively easy from an engineering viewpoint to construct buildings with extremely low energy requirements. However, is it also possible to achieve this energy level, which is ambitious in terms of planning, building technology and commercial considerations, with existing buildings on a large scale? And is this advantageous from a financial point of view? In the BINE interview, Professor Thomas Lützkendorf from the Centre for Real Estate at the Karlsruhe Institute of Technology (KIT) discusses the statutory framework conditions, calculation methods and data bases for transparently determining the economic benefits of energy-optimised buildings.

BINE Information Service: Professor Lützkendorf, the German Energy Saving Act requires that energy efficiency measures are cost-effective. Does that provide clarity when making investment decisions?
Prof. Thomas Lützkendorf: The requirement itself is very clear. This states that measures to ensure or improve the energy efficiency of buildings should and must be economically efficient. In particular, the regulator refers to this economic efficiency principle in formulating requirements for the energy performance of new-build and modernisation measures. There are problems, however, in terms of their concrete implementation. A variety of methods are available for assessing the economic efficiency – and owner-occupiers, landlords or even investors and shareholders interpret the concept of economic efficiency according to their own specific interests and goals.

Sounds complicated
Lützkendorf: Yes, this also explains the multitude of partially contradictory claims when it comes to examining or justifying current energy performance requirements. The assumptions and boundary conditions are often not depicted in a sufficiently transparent manner – owners are sometimes unsure themselves whether a measure is economical.

The economic efficiency is always determined of course by the benefit-cost ratio. Can the benefits be so easily determined?
Lützkendorf: The assessment of the benefits is strongly influenced by the viewer's perspective. The benefits of energy-saving measures are quite different for tenants, owner-occupiers, landlords or society. These range from greater comfort and lower energy costs to improved rentability and marketability as well as resource conservation and environmental relief. And there is another special aspect: the benefits lie in the future, so decisions are usually based on a forecast of the benefits. In contrast, the expenditure – i.e. usually the construction costs – initially seems easier to determine. However, the need to include the service life of the components and systems, the maintenance costs or the auxiliary energy requirement means that this is also not trivial.

Are there any cost parameters that can provide a reference here?
Lützkendorf: For individual projects, it is certainly right and proper to seek concrete offers for the planned measures at an early stage. There are significant price differences in the market. This also applies to maintenance and repair costs, which should be enquired about at the same time. In addition to Building Cost Index manuals and data collections in relevant publications, the IWU in Darmstadt, for example, publishes cost parameters for planning measures for residential buildings. Colleagues are moving towards specifying bandwidths, but also suggest “calculation values” in order to be able to offer concrete input values for feasibility studies. There is a continuing need to update such data. Good planners usually have their own data collections and know the regional market.

Lifecycle cost analysis is often discussed and rarely used. How practicable is this holistic approach for assessing the economic efficiency?
Lützkendorf: Recording the revenues and payments over the entire lifecycle of buildings is a prerequisite for all kinds of economic efficiency studies. They are often used without lifecycle costing being explicitly referred to. The European Commission recommends the Global Cost method for specifying cost-optimal requirement levels for the energy performance. But it's quite complex to provide the required data on the service life and maintenance cycles of components and systems, to predict future pricing and to set a suitable discount rate.

And how do you deal with these uncertainties, for example in the case of unclear interest rates or energy price developments?
Lützkendorf: This is where conventions and scenarios help. For individual parameters, calculation values can be specified or bandwidths used. However, since the economic efficiency is influenced by many input variables, it can be complicated at bandwidths for several sizes. The problem can be solved with the Monte Carlo simulation. This can show the extent and probability with which measures with varying input quantities remain in the economic range. Incidentally, good energy performance is also an “insurance” against the risk of rising energy prices. After all, it makes a big difference if the price of energy doubles when there is a demand of 20 or 200 kilowatt hours per square metre per year.

What uncertainty factor do building users represent and what consequences does this have for economic efficiency analyses?
Lützkendorf: Are users an uncertainty factor or is the real purpose of buildings to provide them with a shell? But seriously, building users of course have a big impact on the energy consumption. “Correctly heating and ventilating” is often raised as an issue – but there are still many misunderstandings. However, there are also uncertainties when it comes to forecasting the amount of energy saved by renovation measures. Users then like to enjoy the new comfort in all rooms. This should be taken into account with realistic assumptions and bandwidths in the economic efficiency calculations. Another possibility is to provide additional details in the energy pass which depict several usage scenarios and bandwidths of user behaviour.

What role do demonstration projects with ambitious energy performance goals play in soundly assessing the economic advantages of particularly energy-efficient new-build or renovation schemes?
Lützkendorf: Demonstration projects not only serve to prove the technical feasibility. Ideally, scientifically supported projects also provide a role model for collecting and documenting the energy performance and economic parameters. They thus become a reliable source of empirical values and provide information on the construction costs and energy consumption based on real data. Assumptions and boundary conditions for economic feasibility studies can therefore be adjusted if necessary. There is still a need to catch up in terms of long-term monitoring. There is interest in data on the technical reliability as well as on the maintenance and repair costs. This data can also include information about the influence of measures on the thermal comfort, indoor air quality or service life of the outer envelope. This helps to better describe additional benefit effects and thus support a transition from evaluating the economic viability to a more differentiated assessment of the economic benefits.

Essential principles for assessing the economic benefits of measures to improve the energy performance of buildings can be found in the BINE-Themeninfo brochure “Economic viability of energy-optimised buildings”. Using data from real estate studies, various research analyses and several concrete examples, the authors Professor Thomas Lützkendorf (KIT) and Dr Andreas Enseling (IWU) also show that energy-optimised construction and renovation can be an economically beneficial strategy in holistic terms.

(jl)

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In interview

Professor Thomas Lützkendorf teaches Economics and Ecology of Housing at the Centre for Real Estate at Karlsruhe Institute of Technology (KIT). His work focuses on the further development and application of lifecycle analysis methods, the design of information flows along the value chain as well as the integration of sustainability aspects into risk analyses, valuation and portfolio management. Professor Lützkendorf has authored the BINE-Themeninfo brochure “Economic viability of energy-optimised buildings” together with Dr Andreas Enseling from Institut Wohnen und Umwelt GmbH (IWU) in Darmstadt.