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A two-factor method for appraising
building renovation and energy efficiency
improvement projects
Prof., habil.dr. Vytautas Martinaitis,
Vilnius Gediminas technical university
Deptm. Heating and ventilation
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BENEFIT
RIGA MANAGERS SCHOOL and PARTNERS
5/24/2017
Housing is a multifaceted phenomenon which is
expected to meet many requirements:
human (functionality in use, safety,
health, comfort),
• Economic (economy of investment,
construction and lifetime),
• Cultural (lifestyle, building
traditions, business culture,
aesthetics, architectural styles and
trends, image),
• Ecological requirements (economy
of raw materials, energy,
environmental burdens and waste,
also biodiversity).
•
Energy use in the building is only one of many factors
influenced to solution of investors and owners
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BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
5/24/2017
Lessons from Energy Efficiency Housing Pilot
Project (EEHPP,The World Bank, 2002) in Lithuania:
The main motivations of homeowners to take the loan
for renovation were (in order of Importance):
(i) to improve their own apartment (better indoor climate, new
windows, etc.),
• (ii) to carry out urgent repairs of the building (leaking roofs, etc.)
thus prolonging the life of their asset,
• (iii) to obtain energy (expenses for energy) savings.
•
Energy saving is not main factor, owners of buildings are
worried about integrated solution of problems
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BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
5/24/2017
Best technical solutions
for building renovation:
• Reduce expenses for energy
•
•
•
•
resources
Reduce expenses for building
maintenance
Improve value of building in
the RE market
Improve security and comfort
Ameliorate aesthetic value ect.
Many owners look for this kind of solution, but how
consider all of this factors during project evaluation?
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BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
5/24/2017
Current building renovation
assessment methods :
“Energetics” assessment methods:
•
Simple payback time (PBT)
•
Net present value (NPV)
•
Internal rate of return (IRR)
•
Cost of conserved energy (CCE)
Economic benefit of project
assessed only by savings of
expenses for energy
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Multiple criteria analysis
•
•
•
•
Benefit of project assessed
under several criterions
Like:
reduction of expenses for
energy
improved comfort
improved public health
expend workplace ect.
Need human and technical
resourses
BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
5/24/2017
Cost of Conserved Energy
calculation advantage
Results of the CCE analysis coincide with results
of the NPV and IRR analyses, however:
• calculation of the CCE is simpler
• its interpretation is more understandable.
• it is independent of future energy prices, therefore
Cost of Conserved Energy calculation will be used
in the two-factors method
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Cost of Conserved Energy – CCE
CCE = I * CRF / dE
CCE – cost of conserved energy, Euro/kWh
I–
the investment cost (this may just be the capital cost, or may also
include the present value of additional operation and maintenance costs
due to the energy efficiency measure), Euro
CRF – the capital recovery factor to annualize the investment cost of the
measure
dE the annual savings in physical units, e.g. kWh
If the cost occurs at time zero and energy is saved at a constant rate of dE
per year, the CRF can be calculated CRF = d/(1-(1+d)-n), where n is the
lifetime of the measure (in number of years) and d the consumer’s annual
discount rate.
During assessment of project CCE is compared with Cost of energy
resources. If save is cheaper – good project!
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Two-factors project appraising method
In the building renovation and energy efficiency
improvement projects two-factors are appraised:
• Energy saving
• building improvement
Ideally such method should:
– include more criteria than just savings of energy or fuel,
– be simple and easy to use,
– require a minimum of vague assumptions,
– be as close as possible to methods currently used.
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BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
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Building improvement and energy efficiency
measures can be divided into three groups:
• energy efficiency
measures,(E);
• so-called ‘two-fold
measures’, i.e. both saving
energy and improving
building construction, (T);
• building improvement or
renovation measures, (C).
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(E)
(T)
(C)
BENEFITRIGA MANAGERS SCHOOL and PARTNERSBENEFIT
5/24/2017
Main steps of two-factors
project assessment method (1)
1. Assessment of investment ceiling.
2. Investments division* and coupling into:
a) energy saving investments IE
b)
+ IECE* and
building quality improving investments IC + IECC*
* - investments of “two-fold” measures are divided into two components:
energy saving IECE and building quality improving IECC
3. Assessment of cost efficiency:
a) The energy efficiency group of investments is assessed
using the CCE criteria
b) building quality improving group of investments is
assessed be comparing with accumulated funds for building
maintenance, repairing and renovation (MR&R).
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Main steps of two-factors
project assessment method (2)
Price of new building, KN (€/m2)
IE
Price of old building, KO
(€/m2)
+
IEC
IECE
Cost of
saved
energy
Investment risk
+
IC
=
I
(sum of
investment)
IECC
Accumulated or
planed accumulate
funds for building
maintenance,
repairing and
renovation (MR&R).
Point of two-factors project assessment method is investments
dividing of in two groups and its assessment using different criteria!
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Assessment of investment ceiling
I < (KN – KO)*f
•
•
•

KN
I - sum of investment, Lt/m2
KN – price of new building, Lt/m2
KO - price of old building, Lt/m2
f – the corrective factor taking
into account building location,
aesthetics and other additional
amenities.
f
I
KO
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Investments division and coupling (1)
Investments of “two-fold” measures (IEC), i.e. both saving energy and
improving building construction are divided into two components:
energy saving (IECE) and building quality improving (IECC):
k-
IEC = IECC + IECE
IECC = k* IEC
IECE = IEC - IECC
building rehabilitation coefficient:
k* = t/tmax (linear coefficient)
t – actual age of the element
tmax – lifetime of the element in years
* Examples of nonlinear deterioration functions k=f(t) can be found in the References 1,2.
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Investments division and coupling (2)
Homogeneous energy efficiency investments are then
coupled with the energy efficiency component of
investments of “two-fold” measures : (IE + IECE)*
Homogeneous building improvement or renovation
investments are coupled with the renovation
component of “two-fold” measures : (IC + IECC)
* - really in the formulas are sum of investments: ΣIEi+ΣIECEi and
ΣICi+ΣIECCi , but for simplification symbols of sum are omitted
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Assessment of cost efficiency(1)
The energy efficiency group of investments is assessed
using the cost of conserved energy (CCE) criteria:
IE + IECE ≤ ICCE (1)
I*CCE = ∑r∑iPrdEi,r/CRFi
•
•
•
Pr – the price of r type conserved energy (district heat, natural gas,
electricity, (Lt/kWh);
dEi,r – annual conserved energy amount of r type by implementation
of the i th measure (kWh);
CRFi – capital recovery factor of the i th measure.
If this condition (1) is not met, the composition of the energy
efficiency and building renovation measures should be revised
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Assessment of cost efficiency (2)
The building renovation or improvement group of
investments are assessed using accumulated funds for
MR&R . If the accumulated funds are not sufficient,
then the NPV of planed regular payments for MR&R
are added:
IC + IECC ≤ S + NPVn (2)
•
•
•
S – the funds for MR&R, accumulated by owners of building over the
previous period ;
NPVn – net present value of regular payments for MR&R over a certain;
n – period of n years not exceeding the lifetime of the proposed
measures .
If this condition (2) is not met, the composition of the
energy efficiency and building renovation measures
should be revised
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Assessment of cost efficiency (3)
Project appraisers can also use their own standard methods
for appraisal of MR&R investments IC + IECC
(amount of gage or deposit, ability of owners and etc.)
Main idea of the two-factor method is to appraise energy
efficiency and building renovation components
separately:
•
The energy efficiency group of investments is assessed using the
CCE criteria
•
The building quality improving group of investments is assessed
using conventional methods for building maintenance, repairing,
renovation or construction
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Case (1)
In this case the cost-effectiveness of an investment in
modernizing a typical Lithuanian multifamily building
constructed in 1985 is evaluated.
– heated area of the building - 1725m2;
– annual heat consumption - 302MWh;
– heat is supplied from the district heating system for 37 €/MWh
(in 2005);
– discount rate - 5%;
– evaluated time - 30 years;
– price of new buildings - 730 €/m2;
– price of renovated buildings - 610 €/m2;
– price of old buildings - 440 €/m2;
– proposed investment – 86,2 €/m2;
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Case (2)
Investment package of 86,2 € /m2 consist of:
• energy saving measures - (a) new heat substation (2,9
€/m2), (b) renovation of heating (17,4 €/m2) and (c) hot
water supply systems (4,4 €/m2), total – 24,7 €/m2
• “twofold” measures - insulation of (a) external walls (27,4
€/m2), and (b) roof (7,6 €/m2), and (c) replacement of
windows (17,5 €/m2), total – 52,4 €/m2
• renovation measures - (a) replacement of external doors
(1,3 €/m2), (b) repair of balconies (3,5 €/m2) and (c)
renovation of the cold water supply system (4,3 €/m2),
total – 9,1 €/m2
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Case (3)
Assessment of investment ceiling:
• KN – KO = 730 – 440 = 290 €/m2,
• Price of comparable renovated multifamily building in
this region is about 615 €/m2, so f = (615 – 440)/(730
– 440) = 0,6
• Investment package ›‹ ceiling – 86,2 €/m2 < 290 €/m2
* 0,6 = 174 €/m2
Total investment is below of investment ceiling,
therefore project must pursue
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Case (4)
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Case (5)
Energy efficiency group of investments is
assessed using the CCE criteria :
• energy saving measures group produces a total
energy efficiency investment of – 50,7 €/m2
• investment limit from CCE is equal to 65,4 €/m2.
IE + IECE = 50,7 €/m2 < 65,4 €/m2 = ICCE
This component of the investment would therefore be paid
back via energy savings, and the project is feasible from
this perspective.
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Case (6)
Heat price 37 €/MWh
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Case (7)
Assessement of the building quality improving group:
building quality improving group of investments is 35,5 €/m2
homeowners of this particular building had accumulated 15,9
€/m2 for MR&R,
• If the homeowners decide to take a commercial loan for 15 years
keeping the same payments as previously for MR&R, this loan
would add an additional 11,6 €/m2
•
•
15,9 + 11,6 €/m2 < 35,5 €/m2 = IC + IECC
These amounts together do not cover the total costs for renovation, so that
homeowners would need either to cover these additional costs (9 €/m2)
from their savings or to reconsider the composition of the proposed
project by putting more emphasis on energy efficiency measures.
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Case (8)
I = 86,2 €/ m2
IE = 24,6
Investment
structure
Energy
savings
(sum of investment)
IEC = 52,4 IC = 9,2
IECE = 26,0 IECC = 26,4
50,7
15,9
Accumulated founds for MR&R
11,6
8,0
Financing
structure
Additional
gage of
owners
Founds to accumulate for MR&R
Conclusion: project must be corrected or owners could contribute
≈ 30 pct. (11,6 + 8,0 = 19,6 € /m2) at own gage!
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References
Martinaitis, V., Rogoža, A., 2001. Technological model of building
life cycle. Scientific Magazine of Vilnius Gediminas Technical
University and Lithuanian Academy of Sciences: Statyba (Civil
Engineering) 7 (1), 73–77.
• Martinaitis, V., Rogoža, A., Bikmanienė, I., 2004. Criterion to
evaluate the “twofold benefit’’ of the renovation of buildings and
their elements. Energy and Buildings 36 (1), 3–8.
• Martinaitis, V., Kazakevičius, E., Vitkauskas, A., 2005. A twofactor method for appraising building renovation and energy
efficiency improvement projects. Energy Policy,
(http://www.sciencedirect.com).
•
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Thank you for your attention
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