The anatomy of investing in energy efficient buildings

A building investment is a real decision because the allocated resources are typically irrevocable for long times. Investment appraisal is a logic method to process elapsing time, uncertain benefits and costs, and irrevocability related to decisions. Most analysts stop halfway the appraisal process when they carefully assess net present values and their sensitivity to uncertain future events. But sidelining irrevocability and the dynamic sequential analysis of future events and actions cause wrong decisions when the energy performance endowment of a new building is decided. Irrevocability and preclusion are explained, and their impact illustrated with a case study. Adopting realistic assumptions about the uncertain future and applying the proper methodology reveal as financially best choice the immediate investment in passive attributes and items. Irrevocability is of high relevance for building efficiency investments and for the implementation of the EU-2010 buildings directive.

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