Abstract

Why do industrial firms require quick paybacks on energy efficiency measures? Real options pricing models can shed light on this question. The discounted cash flow (DCF) model that energy analysts typically use to assess energy efficiency projects fails to consider the dynamic setting in which firms operate. Requiring quick paybacks may be an ad hoc way for firms to consider the flexibility and timing considerations that are absent from the DCF approach. In other words, maybe requiring quick paybacks on energy efficiency projects is economically rational after all.

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Panels of

Panel 1. Investing in Energy–Saving Technologies

Panel 2. Selling Energy Efficiency in Your Organization

Panel 3. Energy Efficiency: Using Other People's Money

Panel 4. Regulatory Aspects and Incentives to Energy–Efficient Investments

Panel 6. Energy Efficiency as a Co–Benefit

Panel 5. Energy Efficiency: Investing in Time of Uncertainty