Elsevier

Energy Policy

Volume 34, Issue 2, January 2006, Pages 172-187
Energy Policy

Marginal costs and co-benefits of energy efficiency investments: The case of the Swiss residential sector

https://doi.org/10.1016/j.enpol.2004.08.039Get rights and content

Abstract

Key elements of present investment decision-making regarding energy efficiency of new buildings and the refurbishment of existing buildings are the marginal costs of energy efficiency measures and incomplete knowledge of investors and architects about pricing, co-benefits and new technologies. This paper reports on a recently completed empirical study for the Swiss residential sector. It empirically quantifies the marginal costs of energy efficiency investments (i.e. additional insulation, improved window systems, ventilation and heating systems and architectural concepts). For the private sector, first results on the economic valuation of co-benefits such as improved comfort of living, improved indoor air quality, better protection against external noise, etc. may amount to the same order of magnitude as the energy-related benefits are given. The cost–benefit analysis includes newly developed technologies that show large variations in prices due to pioneer market pricing, add-on of learning costs and risk components of the installers. Based on new empirical data on the present cost-situation and past techno-economic progress, the potential of future cost reduction was estimated applying the experience curve concept. The paper shows, for the first time, co-benefits and cost dynamics of energy efficiency investments, of which decision makers in the real estate sector, politics and administrations are scarcely aware.

Section snippets

Introduction and scope

In Switzerland—like in many other countries of the temperate zone—large and mostly untapped energy efficiency1 potentials lie, amongst others, in decreasing space heating requirements, which make up approx. 50% of the useful energy and approx. one-third of the final energy demand. Useful energy requirements for space heating of existing buildings could be reduced by approx.

Costing methodology of the marginal cost concept

How much more does a greater insulation thickness or a more energy efficient window cost? How much energy efficiency can be gained and what further cost reductions can be reached through additional insulation? What is the cost of conserved energy? How do these costs compare to the conserved costs of energy (heat) generation? To answer these questions, we define the marginal cost of energy efficiency (mcEE, Eq. (1)) and the average cost of energy efficiency (acEE, Eq. (2)). The two approaches

Marginal costs of energy efficiency—the building owners’ perspective

For façade companies working on compact façades and ventilated façades, and for roofing companies, costs were inquired with regard to insulation thickness (see Fig. 1 as example). Next to the insulation material as a function of the insulation thickness, also additional cost components, such as mechanical structures, labour costs, etc. were included. The insulation thickness was varied from the currently common insulation thickness in Switzerland (10–12 cm) up to 30–35 cm. Both the total costs

Ancillary benefits (co-benefits) of thermal insulation investments

In addition to the above-described direct and indirect economic effects of energy efficiency measures, a comprehensive economic assessment has to include ancillary benefits and co-benefits. One can distinguish private and public co-benefits. In this section, the private ones are presented. In the following, some examples are used to illustrate how the inclusion of such benefits into the business economic assessment can reduce the net marginal costs (see Fig. 7):

  • For the quantification of the

Marginal cost curves—the energy economics perspective

The energy economics perspective differs from the business economics one, on having different optimisation goals. From a public economy and welfare point of view, optimal energy efficiency level is obtained if the marginal cost of different options (to reach a certain goal) are equal. It is important to notice that marginal costs (and not average costs) should be compared. For national goals, nationwide marginal cost curves are a suitable instrument to determine reduction potentials (of say

Conclusions and further perspectives

The present analysis of the residential buildings stock and the possible thermal insulation measures with their cost structures and ancillary benefits demonstrate a complexity of the examined subject, which has been greatly simplified in previous energy economic analyses and models and by environmental interest groups. On the one hand, this led to an underestimation of the costs of conserved energy, i.e. if only insulation material costs are taken into account. On the other hand, the too

Acknowledgements

The author gratefully acknowledges the financial support to this project provided by the Swiss Federal Office of Energy (BFE) in Berne through its research program ‘Energiewirtschaftliche Grundlagen’ (EWG), and valuable comments and support received from his colleagues Sharon Nutter, Reinhard Madlener, Shonali Pachauri and—last but not least—Eberhard Jochem.

Appendix Glossary

A
area of the building envelope, weighted according to SIA/380/1.
CHF
Swiss Francs, currency of Switzerland. 1 CHF≅0.66 Euro, 1 CHF≅0.67 US$, periode 2002 to 2003.
CP
construction period of the buildings considered.
ERFA
referenced energy floor area. Sum of the heated floor (dwelling) areas.
FE
final energy (energy input).
g-value
fraction of solar energy that transmits through transparent construction elements into the building (−), g=1 if 100% of the solar energy that hits the element gets into the

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