This work continues the methodological exploration illustrated in a correlated contribution presented by the Authors to this Symposium. In this advancement, the focus is on selecting the appropriate discount rate for the NPV calculation, evaluating alternative scenarios in the building construction sector. Assuming the presence of environmental and financial input variables in the DCF model, a “time preference” discount rate seems inappropriate. Thus, as an alternative, the environmental hurdle rate technique is explored. This is based on using different rates considering the negative contribution to the environment due to an input variable or, conversely, considering the technological development expectations toward energy consumption and CO2 emissions reduction over time. Simulations on two alternative scenarios are implemented: the retrofit scenario and the demolition and reconstruction scenario of an existing residential building. The results confirm the importance of the discount rate capability in influencing the DCF model output, even more in the presence of environmental input, highlighting their weight on increasing the asset residual value. Further, the environmental hurdle rate can perturb the final scenario ranking toward environmentally responsible investment decisions at different scales.

Building upcycling vs. building reconstruction investment decisions: a focus on the discount rate / Fregonara, Elena; Ferrando, Diego G.. - In: PROCEDIA STRUCTURAL INTEGRITY. - ISSN 2452-3216. - ELETTRONICO. - 64:(2024), pp. 1767-1773. [10.1016/j.prostr.2024.09.182]

Building upcycling vs. building reconstruction investment decisions: a focus on the discount rate

Elena Fregonara;Diego G. Ferrando
2024

Abstract

This work continues the methodological exploration illustrated in a correlated contribution presented by the Authors to this Symposium. In this advancement, the focus is on selecting the appropriate discount rate for the NPV calculation, evaluating alternative scenarios in the building construction sector. Assuming the presence of environmental and financial input variables in the DCF model, a “time preference” discount rate seems inappropriate. Thus, as an alternative, the environmental hurdle rate technique is explored. This is based on using different rates considering the negative contribution to the environment due to an input variable or, conversely, considering the technological development expectations toward energy consumption and CO2 emissions reduction over time. Simulations on two alternative scenarios are implemented: the retrofit scenario and the demolition and reconstruction scenario of an existing residential building. The results confirm the importance of the discount rate capability in influencing the DCF model output, even more in the presence of environmental input, highlighting their weight on increasing the asset residual value. Further, the environmental hurdle rate can perturb the final scenario ranking toward environmentally responsible investment decisions at different scales.
File in questo prodotto:
File Dimensione Formato  
Fregonara_Procedia_Structural_Integrity_2024_2.pdf

accesso aperto

Tipologia: 2a Post-print versione editoriale / Version of Record
Licenza: Creative commons
Dimensione 421.93 kB
Formato Adobe PDF
421.93 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11583/2995553