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Modeling energy efficiency insurances and energy performance contracts for a quantitative comparison of risk mitigation potential

Jannick Töppel and Timm Tränkler

Energy Economics, 2019, vol. 80, issue C, 842-859

Abstract: Financial risk mitigation via Energy Performance Contracting or Energy Efficiency Insurances may overcome individual barriers for energy efficiency investments. However, while the financial industry, and especially insurance companies, may have compelling reasons to get involved in energy efficiency investments, the research on and real-world applications of risk transfer contracts for private decision-makers are scarce. Thus, this study quantitatively compares the risk mitigation potential of risk transfer contracts based on a comprehensive energy bill savings forecast model comprising stochastic processes for weather, commodity prices, and technological energy efficiency performance. The model is fitted with a unique dataset for German residential buildings. Our findings indicate that risk transfer contracts positively affect individual decision-makers' willingness to invest in energy efficiency. Generally, we find Energy Performance Contracts to be superior in most scenarios when transaction costs are not considered. However, insurance companies may benefit from diversification effects and by ceding risks to global capital markets and reinsurance companies.

Keywords: Energy efficiency investment; Energy performance contract; Energy efficiency insurance; Financial risk mitigation; Energy efficiency risk management (search for similar items in EconPapers)
JEL-codes: G22 Q40 Q47 R38 (search for similar items in EconPapers)
Date: 2019
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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