Multiple-project discount rates for cost-benefit analysis in construction projects: a formal risk model for microgeneration renewable energy technologies

Jacopo Torriti

Construction Management and Economics, 2012, vol. 30, issue 9, 739-747

Abstract: The traditional economic approach for appraising the costs and benefits of construction project net present values involves the calculation of net returns for each investment option under different discount rates. An alternative approach consists of multiple-project discount rates based on risk modelling. The example of a portfolio of microgeneration renewable energy technology is presented to demonstrate that risks and future available budget for re-investment can be taken into account when setting discount rates for construction project specifications in the presence of uncertainty. A formal demonstration is carried out through a reversed intertemporal approach of applied general equilibrium. It is demonstrated that risk and the estimated available budget for future re-investment can be included in the simultaneous assessment of the costs and benefits of multiple projects.

Date: 2012
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DOI: 10.1080/01446193.2012.692165

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