Energy Cities proposition 18 - Integrate future energy prices in the economic calculations made prior to investment decisions
Rethink financing solutions
2014
Energy Cities is a network of more than 1,000 cities in 30 different countries. Convinced that energy transition is more than a question of renewable energy or advanced technologies, Energy Cities proposes to use resources in a reasoned way, to strengthen local participation and to improve the quality of life in a democratic Europe. In 2014, the network presents 30 proposals for the Energy Transition of Territories.
They are a source of inspiration to think and act differently. To finally turn the page on unsustainable practices that lead us into energy, climate and perhaps economic and social dead ends.
Para descargar: cahier_short_jan2014_en.pdf (6,8 MiB)
Energy Cities proposition 18 - Integrate future energy prices in the economic calculations made prior to investment decisions
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.
Proposal
Integrate 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
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Getting elected representatives and financial officers used to anticipating energy price increases so as to make better decisions.
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Presenting future price scenarios, either possible or probable. They will help decision-making.
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Getting into the habit of presenting operating costs generated by any investment, regardless of its nature, as “plus” or “minus” points.