kSIST FprEN 17463:2021

Methodology for the Valuation of Energy Related Investments (ValERI)

This document specifies requirements for a valuation of energy related investments (VALERI). It provides a description on how to gather, calculate, evaluate and document information in order to create solid business cases based on Net Present Value calculations for ERIs. The standard is applicable for the valuation of any kind of energy related investment.
The document focusses mainly on the valuation and documentation of the economical impacts of ERIs. However, non-economical effects (e.g. noise reduction) that may occur through undertaking an investment are considered as well. Thus, qualitative effects (e.g. impact on the environment)– even if they are non-monetisable – are taken into consideration.

Methodik zur Bewertung von energiebezogenen Investitionen (ValERI)

Dieses Dokument legt Anforderungen für eine Bewertung von energiebezogenen Investitionen (ValERI) fest. Es enthält eine Beschreibung, wie Informationen gesammelt, berechnet, ausgewertet und dokumentiert werden, um solide Geschäftsfälle auf der Grundlage von Kapitalwertberechnungen für ERI zu erstellen. Die Norm gilt für die Bewertung von energiebezogenen Investitionen jeglicher Art.
Das Dokument befasst sich hauptsächlich mit der Bewertung und Dokumentation der wirtschaftlichen Auswirkungen von ERI. Es werden jedoch auch nichtwirtschaftliche Effekte (z. B. Lärmminderung) berücksichtigt, die durch eine Investition entstehen können. Somit werden qualitative Wirkungen (z. B. Auswirkungen auf die Umwelt) – auch wenn sie finanziell nicht bewertbar sind – berücksichtigt.

Méthodologie pour l'évaluation des investissements liés à l'énergie (ValERI)

Le présent document spécifie les exigences relatives à l'évaluation des investissements liés à l'énergie (VALERI). Il décrit comment recueillir, calculer, évaluer et documenter les informations en vue de créer des études de cas solides fondées sur les calculs de la valeur actualisée nette pour les ERI. La norme s'applique à l'évaluation de tout type d'investissement lié à l'énergie.
Le document se concentre principalement sur l'évaluation et la documentation des impacts économiques des ERI. Toutefois, les effets non économiques (par exemple, la réduction du bruit) pouvant découler d'un investissement sont également pris en compte. Ainsi, les effets qualitatifs (par exemple, l'impact sur l'environnement) – même s'ils sont non monétisables – sont pris en considération.

Metodologija za vrednotenje investicij v zvezi z energijo (ValERI)

General Information

• Status: Not Published
• Public Enquiry End Date: 31-Mar-2020
• ICS: 27.015 - Energy efficiency. Energy conservation in general
• Technical Committee: I11 - Imaginarni 11
• Current Stage: 5020 - Formal vote (FV) (Adopted Project)
• Start Date: 13-May-2021
• Due Date: 01-Jul-2021
• Completion Date: 11-Jun-2021
• Ref Project: FprEN 17463 - Valuation of Energy Related Investments (VALERI)

Standards Content (sample)

SLOVENSKI STANDARD
oSIST prEN 17463:2020
01-marec-2020
Metodologija za vrednotenje investicij v zvezi z energijo (ValERI)
Methodology for the Valuation of Energy Related Investments (ValERI)
Methodik zur Bewertung von energiebezogenen Investitionen (ValERI)
Méthodologie pour l'évaluation des investissements liés à l'énergie (ValERI)
Ta slovenski standard je istoveten z: prEN 17463
ICS:
27.015 Energijska učinkovitost. Energy efficiency. Energy
Ohranjanje energije na conservation in general
splošno
oSIST prEN 17463:2020 en,fr,de

2003-01.Slovenski inštitut za standardizacijo. Razmnoževanje celote ali delov tega standarda ni dovoljeno.

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oSIST prEN 17463:2020
EUROPEAN STANDARD
DRAFT
prEN 17463
NORME EUROPÉENNE
EUROPÄISCHE NORM
January 2020
ICS
English version
Methodology for the Valuation of Energy Related
Investments (ValERI)

Méthodologie pour l'évaluation des investissements Methodik zur Bewertung von energiebezogenen

liés à l'énergie (ValERI) Investitionen (ValERI)

This draft European Standard is submitted to CEN members for enquiry. It has been drawn up by the Technical Committee

CEN/CLC/JTC 14.

If this draft becomes a European Standard, CEN and CENELEC members are bound to comply with the CEN/CENELEC Internal

Regulations which stipulate the conditions for giving this European Standard the status of a national standard without any

alteration.

This draft European Standard was established by CEN and CENELEC in three official versions (English, French, German). A

version in any other language made by translation under the responsibility of a CEN and CENELEC member into its own

language and notified to the CEN-CENELEC Management Centre has the same status as the official versions.

CEN and CENELEC members are the national standards bodies and national electrotechnical committees of Austria, Belgium,

Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy,

Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Republic of North Macedonia, Romania, Serbia,

Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey and United Kingdom.

Recipients of this draft are invited to submit, with their comments, notification of any relevant patent rights of which they are

aware and to provide supporting documentation.Recipients of this draft are invited to submit, with their comments, notification

of any relevant patent rights of which they are aware and to provide supporting documentation.

Warning : This document is not a European Standard. It is distributed for review and comments. It is subject to change without

notice and shall not be referred to as a European Standard.
CEN-CENELEC Management Centre:
Rue de la Science 23, B-1040 Brussels

© 2020 CEN/CENELEC All rights of exploitation in any form and by any means Ref. No. prEN 17463:2020 E

reserved worldwide for CEN national Members and for
CENELEC Members.
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Contents Page

European foreword ............................................................................................................................................... 3

Introduction............................................................................................................................................................. 4

1 Scope ............................................................................................................................................................ 6

2 Normative references ............................................................................................................................ 6

3 Terms and definitions............................................................................................................................ 6

4 Symbols, abbreviations and subscripts ........................................................................................... 9

5 Valuation procedure ........................................................................................................................... 10

6 A Setting up the model ........................................................................................................................ 12

7 B Calculation .......................................................................................................................................... 18

8 C Assessment .......................................................................................................................................... 23

9 D Reporting ............................................................................................................................................. 24

Annex A (informative) The NPV calculation Table (basic version) with visible formulas ...... 26

Annex B (informative) Comprehensive version of the NPV calculation table ............................. 28

Annex C (informative) Selection of the appropriate valuation method ........................................ 39

Annex D (informative) Case study: Application of the valuation procedure to the integration

of a cogeneration unit within an industry company ................................................................ 49

Annex E (informative) Checklist for the Valuation Report ................................................................. 57

Annex F Annex F (informative) Consideration of risk ......................................................................... 59

Annex G Annex G (informative) Consideration of price variation ................................................... 62

Bibliography ......................................................................................................................................................... 63

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European foreword

This document (prEN 17463:2020) has been prepared by Technical Committee CEN/CLC/JTC 14

“Energy efficiency and energy management in the framework of energy transition”, the secretariat of

which is held by UNI.
This document is currently submitted to the CEN Enquiry.
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Introduction

In order to reach the energy related targets of the EU and its member states, energy related

investments (ERIs) have to increase. The current lack of investments may not only result from a lack

of the available capital but also from a lack of reliable financial evaluations of the benefits of ERIs.

Different investment ideas often compete for the available money within organisations. Therefore,

enhancement of the financeability of ERIs can be achieved by showing the full economical value that

they are able to generate. When this is done properly, priorities for budgets of ERIs should rise

automatically and thus more investments will be undertaken.

The state of the art of today’s energy related project valuation in practise reveals that in order to help

the user to undertake a firm and correct valuation it is necessary to avoid:

— incorrect results which result from the neglection of relevant parameters and cash flows;

— intransparent calculation models which are difficult to understand;
— models containing errors or that are incomplete;
— use of of calculated costs instead of cash flows;
— time value of money not beeing considered,
— discount rate beeing used in an unreflected manner;
— risks beeing not or not properly considered;
— missing sensitivity and scenario analyses;
— missing traceability;
— missing interpretation of results;

— price variation rates (very important for energy project valuation) beeing not appropriately

considered.
The objectives of this European Standard are

— to help proposers of energy related investments (ERIs) to valuate their ideas economically and

qualitatively in a uniform, transparent and understandable way by generating all material

information that is relevant for a decision;

— to generate comparable results (for this it is important to ensure that the estimation of the cash

flows is done in a comparable way by using correct price variations, the usage of marginal prices

for all cash flows etc.)

— to help the elaborator of the valuation to generate valuation results than can be easily understood

by those who decide upon them;

— to help the decision maker and possible financial institutions who decide on the basis of the

valuation results and expect the results to be correct and complete but also easy to understand,

retraceable and explicit (material);

— to complement other standards or protocols that focus on the technical determination of energy

savings and
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In order to accomplish these objectives this European Standard offers a valuation procedure, a

calculation methodology (just one), and a documentation structure that covers the following features:

— application of one calculation method only;

— correct and complete results (Net Present Value considering among other things also all relevant

cash flows and their price variation rates over the whole project lifetime);

— unequivocal (one indicator at the end which can be directly used for decision-making);

— uniform (a standard);
— easy to use (table based, one uniform calculation table);

— retraceable and easy to reproduce (calculations are transparent and the assumptions made are

explained);
— as simple as possible;

— flexible (the user can adjust parameters and can customise the calculation table);

— undertaking of sensitivity and scenario analyses;

— the standard contains templates for reporting the calculation results and all additional qualitative

effects.

Transparent calculations including retraceable assumptions that show the full value of ERIs will help

organisations as well as households to identify the added value resulting from such ERIs. The

proposed methodology could also be used in energy reviews/audits (according to EN 16247-1), when

prioritising energy improvement potentials.

An easy to use and standardized procedure would be helpful as energy management teams might not

always include personell that is equipped to translate technical ideas into conclusive economical

results in order to ensure a solid basis for decision-making.

This European standard relates to standards regarding energy in general. The most relevant

standards on the international and European level might be EN ISO 50001 and EN 16247-1,

EN 15900. Those standards state, that ERIs should be evaluated and prioritised but give no guidance

on the methodology and procedure.

This standard proposes the use of “Net Present Value” (NPV) calculations and its result as a basis for

decision-making.
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1 Scope

This document specifies requirements for a valuation of energy related investments (VALERI). It

provides a description on how to gather, calculate, evaluate and document information in order to

create solid business cases based on Net Present Value calculations for ERIs. The standard is

applicable for the valuation of any kind of energy related investment.

The document focusses mainly on the valuation and documentation of the economical impacts of ERIs.

However, non-economical effects (e.g. noise reduction) that may occur through undertaking an

investment are considered as well. Thus, qualitative effects (e.g. impact on the environment)– even if

they are non-monetisable – are taken into consideration.
2 Normative references
There are no normative references cited for this document.
3 Terms and definitions
For the purposes of this document, the following terms and definitions apply.

ISO and IEC maintain terminological databases for use in standardization at the following addresses:

• IEC Electropedia: available at http://www.electropedia.org/
• ISO Online browsing platform: available at http://www.iso.org/obp
3.1
adjustment parameter
quantifiable parameter affecting the results of the valuation process

Example: energy savings (kWh), discount rate, project lifetime, energy price variation rates etc

3.2
degradation
decrease in the performance characteristics or service life of a product

Note 1 to entry: The degradation rate is measured as performance decline per year (e.g. 1 %/a).

Note 2 to entry: For the purpose of this document deterioration (decline in the performance of an efficiency

measure) is included in the concept of degradation.
[SOURCE: EN 60194:2007-03 – NOTE added]
3.3
benefits
positive effects resulting from an investment

Note 1 to entry: Benefits can have a qualitative, quantitative, or a financial/fiscal nature.

Note 2 to entry: Benefits can be direct or indirect effects
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3.4
cash flow
movement of money
Example: Initial payment of an investment
Note 1 to entry: Depreciation is not a cash flow
Note 2 to entry: In this document cash flow is also refered to as payment (P).

Note 3 to entry: Energy savings are considered as cash flows into a business or project as they reduce the

payments for energy consumption.
3.5
discount factor “q”

multiplier (1+r) of a cash flow to calculate the present value (PV) depending on the discount rate (r)

and the period (t)
t t

Note to entry 1: For each period (t) the cumulated discount factor is calculated with (1+r) or q .

3.6
discount rate “r”
interest rate that reflects the time value of money
Note 1 to entry: Abbreviated by “r” (“r” for required rate of return).

Note 2 to entry: The risk may also be taken into account when setting the value of the discount rate.

3.7
efforts
negative effects resulting from an investment

Note 1 to entry: Efforts can have a qualitative, quantitative, or a financial/fiscal nature.

Note 2 to entry: The negative effects may occur in a direct or indirect way.
3.8
energy related investment (ERI)

any kind of investment in which energy consumption or energy generation plays a role irrespective

whether it is an energy efficiency measure or an energy supply system project
3.9
internal rate of return (IRR)

discount rate at which the net present value (NPV) of all cash flows of a project equals zero for the

lifetime of the project
3.10
investment risk

the volatility of the return of an investment, particularly the likelihood of occurrence of losses relative

to the expected return on any particular investment

Note 1 to entry: Investment risks may derive from credit risk, construction risks, operational and maintenance

risks, performance risks etc.
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3.11
lifetime of an investment
period during which the investment causes cash flows
3.12
monetisation
transformation of benefits and efforts into cash flows

Note 1 to entry: This is usually done by multiplying the quantitified benefits and efforts with the specific price

per unit.
3.13
net present value
(NPV)
sum of discounted cash flows over the whole lifetime of an investment
3.14
non-energy effects

effects that result from an ERI but are not directly related to the energy consumption or generation

Example: motivation of employees, increased production capcity, less noise, better working

conditions etc
3.15
payback period
time required to recover the outpayments of an investment
3.16
risk premium

compensation for investors accounting for the given risk compared to that of a risk-free asset

Note to entry 1: Risk premium can be included in the interest rate or defined as an additional cash flow.

3.17
scenario analysis
procedure to calculate extreme but still realistic results
3.18
sensitivity analysis

procedure to assess the impact of changes of adjustment parameter settings on the NPV

3.19
valuation of energy related investments
(VALERI)

procedure of assessing and reporting financial and non-financial effects of an ERI in order to lay a

foundation for decision-making
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4 Symbols, abbreviations and subscripts

For the purposes of this document, the specific symbols, abbreviations and subscripts listed in Table 1

apply.
Table 1 – Symbols, abbreviations and subscripts
Symbol / Name of quantity Unit
Abbriviation
AW Annual Worth (or Annuity) €
degrad Annual degradation
CHP Combined Heat and Power system
ded Deduction to account for risk in period t (=∑P × f ) €
risk, t t ded_risk
DPB or DPP Discounted Payback Period years
epr Annual price variation energy
E Annual energy savings for energy carrier “A” without considering kWh/year
savings, A
degradation
f Risk deduction factor (= p × R )
ded_risk loss loss
IRR Internal Rate of Return
it Income tax rate
LCC Life Cycle Cost €
NPV Net Present Value €
NS Net Savings €
P Payment (in payment or outpayment) €
PI Profitability Index
p Probability of the occurrence of the net return loss
loss
pr Annual price variation not energy
PW Present Worth or Present Value €
q Discounting factor (= 1+r)
r Interest rate for debt capital
debt
bt Interest rate for debt capital (before taxes)
rdebt
at bt
rdebt Interest rate for debt capital after taxes (= r × [1–it])
debt
r Interest rate for equity capital
at bt
r Expected return on equity after taxes (= r × [1–it])
eq eq
bt Expected return on equity (before taxes) (= r + β × [r – r ])
r f m f
r Interest rate for a risk-free investment
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Symbol / Name of quantity Unit
Abbriviation
R Risk expressed in a quantified return loss
loss
r Nominal discount rate
nominal
r Real discount rate
real
r discount rate in period t
Share Share of debt capital (= Debt capital/Total investment capital)
debt
Share Share of equity capital (= equity capital/total investment capital)
SpecPrice Specific energy price (energy carrier A) in period t €/kWh
energy_A,
SPP or SPB Simple Payback Period years
SIR Saving Investment Ratio
SSIR Simple Savings to Investment Ratio
t period year
T Lifetime of the investment years
T Depreciation period (only relevant if taxes are considered) years
tax
VAT Value Added Tax
WACC Weighted Average Cost of Capital after taxes in first year
at at
(= Share × r + Share × r )
eq eq debt debt
WACC Weighted Average Cost of Capital before taxes in first year
bt bt
(= Share × r + Share × r )
eq eq debt debt
5 Valuation procedure
For the valuation of an ERI the organization shall (as shown in Figure 1):
A. Setting up the model

1. determine all benefits and efforts that result from the given ERI (including all relevant

energy flows);

2. quantify the benefits and efforts of the potential investment, and describe in a qualitative

manner all those effects that can’t be quantified;

3. monetise the benefits and efforts to outpayments and inpayments (the relevant cash flows)

taking into account the expected price variations for each cash flow, and estimating price

variation effects and degradation; specify non-monetisable effects;

4. determine the number of periods that should be considered (regularly the lifetime/lifespan

of an investment) and specify the points in time when the cash flows occur;
5. estimate all relevant risk factors, as appropriate;
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6. determine the appropriate discount rate for discounting the cash flows;
B. Calculation

7. calculate the Net Present Value of the ERI using the most likely parameter-settings, which

will result in the most likely case scenario;

8. perform a sensitivity analysis under variation of all adjustment parameters that are fraught

to uncertainty, as apropriate;

9. perform a scenario analysis including at a minimum a worst-case, and best-case scenario;

C. Assessment
10. interpret the quantitative and the qualitative results;
D. Reporting

11. present the calculation and its results in a transparent and retraceable manner.

Figure 1 – Valuation procedure
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For explanation purposes the valuation procedure is outlined by using an example for an ERI (here:

exchange pumps for a cooling system).
6 A Setting up the model
6.1 Determination and qualitative description of benefits and efforts

In the beginning, all benefits and efforts that result from an ERI shall be described as qualitative data.

This process requires thinking beyond the obvious financial effects in order to account for all relevant

benefits and efforts which might be relevant for the investment decision.
The organization shall divide “benefits and efforts” into the sub-categories
— “energy flow effects” (expressed as energy and financial effects),
— “additional financial effects” (that go beyond the energy flow effects), and
— “miscellaneous effects”,
as shown in Table 2.

Visualization of energy flow effects might improve the overall understanding. This could be done by

setting up an energy flow chart (see example in Annex D).

“Additional financial effects” and “miscellaneous effects” are considered as “non-energy effects”

which may have a strong influence on the profitability of an investment (e.g. subsidies, increase in

productivity, marketing effects etc.) and should therefore be included in the valuation.

Qualitative effects such as noise reduction, cleaner air, less pollution, less GHG emission etc. shall be

checked. All effects shall be listed and later be included in the valuation report to show all finacial and

other impacts of the investment.

When determining the benefits and efforts of the ERI indirect effects may occur that result from the

investment, including:
— cost reduction resulting from lower CO taxes and GHG emission allowances,
— other tax related invcentives connected with energy related investments.

Example: A measure leads to a reduction in electricity use of 150 000 kWh per year. Assuming an

individual CO factor for electricity of 486 g/kWh the measure leads to a CO reduction of 72,9 tons

2 2

per year. Shoul the CO -tax amount to 80 € per ton this would lead to an aditional financial benefit of

5 832 € per year.

At this stage benefits and efforts are listed, but they are not quantified or monetised. At the end of this

step the results could look like Table 2.
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Table 2 – Benefits and efforts of the given example
here: replacement of pumps in a cooling system
Effects of the ERI
in order to increase the energy efficiency
Initial investment for new pumps
additional financial effects
Efforts Designing a new pump system
miscellaneous effects Production losses during set up
energy flow effects Annual energy savings (electricity)
Less maintenance and repair costs
additional financial effects Scrap value of old pumps
Benefits Potential incentives (e.g. tax reductions)
Noise reduction
miscellaneous effects Enhancement of production reliability
New pumping system takes up less space

The investment measure to be valued usually has a defined effect on a process section (n) in a longer

process chain. When determining the benefits and efforts of the planned measure, the effects on the

directly preceding (n-1) and downstream (n+1) processes or any other preceding or downstream

processes shall be taken into account. The efforts and benefits may have impact on different

processes.

Sometimes energy efficiency measures require additional energy flows in order to generate a net

energy efficiency advantage (e.g. CHP systems, see example in Annex D). These additional energy

flows shall also be considered at this stage (in section “efforts”).
6.2 Quantification of the benefits and efforts

In the second step all effects that were gathered in step 1 shall be quantified, if possible.

The estimation of the
— expected energy savings through the measure or
— energy generated through the usage of new or improved energy supply systems

shall be based on solid technical calculations. These calculations can be conducted by the organization

or an external service provider.

Calculations should also take into account information on possible degradation over time (see 6.3).

NOTE Guidance for calculations of energy savings can be found in e.g. EN 15459-1 or ISO 50046. The

methodology for such calculations however is not part of this standard.

Table 3 shows this data for the given example in which the quantified values reveal the most likely

case.
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Table 3 – Quantification of benefits and efforts
Effects of the ERI Quantity
Initial investment for new pumps 5 pumps
additional
financial effects
Designing new pump system 100 h
Efforts
miscellaneous 15 h during the exchange of
Production losses during set up
effects the pumps
energy flow
Annual energy saving (electricity) 150 000 kWh/a
effects
Less maintenance and repair costs 5 h less every two years
additional
financial effects
Scrap value of old pumps 5 pumps
Benefits
Noise reduction reduction from 90 — > 65 dB
miscellaneous Enhancement of production reliability not quantifiable
effects
New pumping system takes up less
10 m of space saving
space

Effects which cannot be quantified could also be relevant for the decision. Therefore, they shall be

described, weighted regarding their relevance and – if relevant for the decision – be assessed (see

8.1) and considered in the valuation report (see 9.1).

6.3 Monetisation, determination of the relevant points in time, consideration of price

variations and of degradation

Quantified benefits and efforts shall be transferred into cash flows, if possible. In order to do that, the

quantities are multiplied by the specific value for each unit whereas the multipliers reveal the most

likely case.
For each cash flow the organization shall determine:

— whether it is a regular or a single cash flow and when the cash flow will occur (point in time);

— what the expected price variation for each cash flow-series will be over the whole lifetime of the

investment; and
— the effect of the degradation.

Price variations may vary for different goods and services; therefore, differentiated price variation

rates shall be used, as appropriate. All assumptions for price variations shall be mentioned and

explained in the valuation report. The applied degradation rate shall be mentioned in the valuation

report as well as the source of information.

Quantifiable effects that cannot be monetised could also be relevant for the decision. Therefore, they

shall be described, weighted regarding their relevance and – if relevant for the decision – be assessed

(see 8.1) and considered in the valuation report (see 9.1).
Consideration of price variation effects:

In general, there are two options to consider price variation effects within the NPV calculation:

— One way is to calculate the NPV with inflation-adjusted cash flows (i.e. after removing the effects

of inflation), so with “real” values.
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— Another option is to use nominal values (i.e. revealing the price variation of the cash flows over

time).

For valuations of energy related investments only nominal values (not real values) as cash flow

streams shall be used (= option 2). Inflation adjustment should be avoided as long as models deal with

different price variation rates such as energy investments (see explanation in Annex G).

For the given example the price variation rates were set at 3 % per year for energy and 2 % per year

for maintenance (see Table 4).

The assumptions for the price variation rates shall be described in the valuation report.

Consideration of degradation:
Degradation is the decline of performance over time, differentiated in either
— an ongoing reduction of power supplied (energy supply systems) or

— a change in the performance of energy efficiency measures after implementation, leading to a

decrease in annual energy savings (also referred to as “deterioration”). It may be related to

system characteristics (e.g. by fouling of the heat exchanger in the boiler) or to behavioural

changes of people reverting back to their old habits/behaviour on energy use or even consuming

more energy as a reaction on reduced specific energy costs (rebound).
The degradation rate is measured as performance decline per year (e.g. 1 %/a).

For the given example the degradation is set to 0 %. The results for the given example are shown in

Table 4.

Table 4 – Overview of all effects, their characteristics and the time allocation of cash flows

Value
To be
Monet per
Point Price include
Effects of the isation unit Degrad
Quantity Amount in varia d in
ERI possib (specif a-tion
time tion final
le? ic
report?
costs)
Initial
investment 10 50
5 pumps yes year 0 – n.a.
for new 000 € 000 €/a
pumps
Designing
new pump 100 hours yes 50 €/h year 0 – n.a.
000 €/a
...