From volatility to value: analysing and managing financial and performance risk in energy savings projects

Mills, Evan; Kromer, Steve; Weiss, Gary M.; Mathew, Paul

doi:10.1016/j.enpol.2004.08.042

Cited by 105 publications

(51 citation statements)

References 9 publications

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“…A project-level net present value framework places a premium on short-term financial results, and little emphasis on difficult-to-quantify issues, such as quality enhancement or manufacturing flexibility, as stated by Shank [3]. According to Mills [4], many energy-related investments are made without a clear understanding of their financial values, risks and volatilities. Furthermore, accurate and robust analysis demands a high level of understanding of the physical aspects of energy efficiency, which enables the translation of physical data into the language of investment.…”

Section: Efficiency Improvement Analysis From the Business Managementmentioning

confidence: 99%

Evaluating the efficiency of integrated systems in the process industry–Case: Steam cracker

Tuomaala

Hurme

Leino

2010

Applied Thermal Engineering

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Section: Efficiency Improvement Analysis From the Business Managementmentioning

confidence: 99%

Evaluating the efficiency of integrated systems in the process industry–Case: Steam cracker

Tuomaala

Hurme

Leino

2010

Applied Thermal Engineering

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“…The data from QUA can also improve the financial analysis of the ESPC, in that it provides uncertainty data instead of just point estimates. Indeed, uncertainty analysis is critical to bridging the gap between technical and financial analysis in ESPCs [Mills, et al 2005]. …”

Section: Resultsmentioning

confidence: 99%

Use of Quantitative Uncertainty Analysis to Support M&V Decisions in ESPCs

2006

Self Cite

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Measurement and Verification (M&V) is a critical element of an Energy Savings Performance Contract (ESPC) -without M&V, there is no way to confirm that the projected savings in an ESPC are in fact being realized. For any given energy conservation measure in an ESPC, there are usually several M&V choices, which will vary in terms of measurement uncertainty, cost, and technical feasibility. Typically, M&V decisions are made almost solely based on engineering judgment and experience, with little, if any, quantitative uncertainty analysis (QUA).This paper describes the results of a pilot project initiated by the Department of Energy's Federal Energy Management Program to explore the use of Monte-Carlo simulation to assess savings uncertainty and thereby augment the M&V decision-making process in ESPCs. The intent was to use QUA selectively in combination with heuristic knowledge, in order to obtain quantitative estimates of the savings uncertainty without the burden of a comprehensive "bottoms-up" QUA.This approach was used to analyze the savings uncertainty in an ESPC for a large federal agency. The QUA was seamlessly integrated into the ESPC development process and the incremental effort was relatively small with user-friendly tools that are commercially available. As the case study illustrates, in some cases the QUA simply confirms intuitive or qualitative information, while in other cases, it provides insight that suggests revisiting the M&V plan. The case study also showed that M&V decisions should be informed by the portfolio risk diversification. By providing quantitative uncertainty information, QUA can effectively augment the M&V decisionmaking process as well as the overall ESPC financial analysis.

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“…Mills et al [9] first identified the risks inherent in performance-based EE projects and classified them into five categories, namely http://dx.doi.org/10.1016/j.enbuild.2015.01.054 0378-7788/© 2015 Elsevier B.V. All rights reserved. economic, contextual, technology, operation, and measurement and verification (M&V) risks.…”

Section: Introductionmentioning

confidence: 99%

“…There are a number of factors affecting the successful delivery of expected energy savings, including the degradation rate of system performance, quality of system operation and maintenance (O&M), environmental conditions (e.g. change in weather pattern) as well as accuracy in estimating expected savings [9,10]. Since the ESCO often pays the upfront capital for project implementation, other aspects, such as ownership of equipment and payment arrangement, become critically important in risk management in EPC projects.…”

Section: Introductionmentioning

confidence: 99%