Civil Engineering Reference
In-Depth Information
Uncertainty in Refurbishment Investment
Carol C. Menassa and Wilson Ortiz-Vega
Abstract Nearly zero-energy refurbishments provide many of the benefits of
nearly zero-energy buildings to the aging building stock and offer an opportunity to
make them more resource-efficient and environmentally friendly, with an increased
social and financial value. However, high initial costs and uncertainties about the
expected benefits characterize this type of investment and affect the building
stakeholders' decision on whether to go ahead with such a project or not. Given the
special case of existing buildings and associated challenges to refurbish them to
nearly zero energy, this chapter identifies and classifies uncertainties that charac-
terize and make this type of investment a highly uncertain endeavor over the project
life cycle. It also provides recommendations about managing these uncertainties
during the project evaluation phase. Finally, a new approach to project evaluation
based on the option pricing theory is presented along with a case study example.
1 Introduction
The existing building sector is responsible for over 70 % of the world delivered
energy consumption (US EIA
2011
). In addition, over 80 % of the energy con-
sumption in the life cycle of a building occurs during its operation (United Nations
Environment Program
2007
). High energy-consuming countries, such as the United
States of America (USA), estimate that in the next 25 years, approximately three-
quarters of their built environment will be either new or refurbished (US EIA
2012
).
