3.3 Integrate future energy prices in the economic calculations made prior to investment decisions
Rethink financing solutions
The problem at hand
Local councils regularly vote investments in new infrastructures, sometimes without even evoking related operating and maintenance costs.
It is well known that investments in energy savings and renewable energy reduce operating costs. Although capital investment may be higher, the additional cost is paid for out of the savings made. However, the project manager always has to prove the cost-effectiveness of the investment by calculating its payback. It is paradoxical. A virtuous investment has to prove it is virtuous, whereas other investments do not!
And how is cost-effectiveness calculated? Potential savings are usually calculated using the energy price from the last known year. But energy prices will reach much higher levels in the 20, 30 or 50 years of the investment’s existence. Decisions are therefore based on inaccurate figures and projects are placed at a disadvantage.
ProposalIntegrate future energy prices in the economic calculations made prior to investment decisions.
Of course, we do not know what these prices will be, but we do know that they will be higher than last year’s prices. This can only improve the return on investment. The idea is to calculate expected savings based on energy prices increased by 20, 30 or 50% depending on the lifetime of the investment. This has two main advantages: attention is drawn to the unavoidable price increase, and decisions are made on the right basis.
Conditions for success
You are here:
Energy Cities, Local authorities in energy transition.