Financial appraisal of efficiency investments: Why the good may be the worst enemy of the best

摘要

This methodological paper has a didactic goal: improving ourunderstanding of what “cost-optimal energy performance ofbuildings” means, and how financial appraisal of efficiencyinvestments must be set up. Three items merit improvement.First, focus on the endowment character of energy performanceof long-living assets like buildings. Second, defining cost-optimalrequires more than a comparative static trade-off scheme;cost-optimal refers to dynamic efficiency, which results fromtechnology dynamics induced by changes in society and policy.Third, financial appraisal is a more complex issue than simplenet present value and life cycle cost calculations. It must reflectthe time sequential dynamics of real life processes includingreal life decision-making. Financial appraisal is embedded in acomplex framework made up by three dimensions: future time,doubt and irrevocability. The latter dimension connects with issueslike lock-in, path dependency, generally overlooked in netpresent value calculations. This may lead to very erroneous recommendationsregarding efficiency investments, in particularwhen the energy performance endowment of buildings is decided.The paper introduces the literature. Mostly irrevocabilityis used as an argument to “Wait and Learn” with disastrous impactson the pace of climate policy. But the opposite “Choose orLose” is the logical outcome when the methodology is fed withevidenced expectations. The latter boosts energy efficiency toits boundaries, saving it from the middle-of-the-river quagmirewhere incomplete appraisals are dropping it too often (makingthe good the worst enemy of the best).