Deep energy renovation strategies: A real option approach for add-ons in a social housing case study

Abstract In this paper a techno-economic evaluation method for deep renovation of buildings is introduced. We study the validation of an integrated design methodology based upon the creation of additional volume on existing buildings (Add-Ons) intended as roof-top or aside extensions, enclosures, parasites or facade transformations. Energy price uncertainty is modelled through a mean-reverting stochastic process, which well fits the data for natural gas prices, and the proposed evaluation method is based on real-option theory, which is an advancement of standard cost-benefit analysis, to be employed whenever uncertainty has a significant impact on the investment option. The new method to evaluate the economical feasibility of the Add-ons strategy for Deep Energy Renovation is tested through design experiments on a real case study of social housing in Reggio Emilia (Italy).