Promoting energy efficiency investments with risk management decision tools

Jerry Jackson

Energy Policy, 2010, vol. 38, issue 8, 3865-3873

Abstract: This paper reviews current capital budgeting practices and their impact on energy efficiency investments. The prevalent use of short payback "rule-of-thumb" requirements to screen efficiency projects for risk is shown to bias investment choices towards "sure bet" investments bypassing many profitable efficiency investment options. A risk management investment strategy is presented as an alternative to risk avoidance practices applied with payback thresholds. The financial industry risk management tool Value-at-Risk is described and extended to provide an Energy-Budgets-at-Risk or EBaR risk management analysis to convey more accurate energy efficiency investment risk information. The paper concludes with recommendations to expand the use of Value-at-Risk-type energy efficiency analysis.

Keywords: Energy; efficiency; Risk; management; Energy; paradox (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (49)

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