Practices

ALDREN - Methodology note on linking the EVCS to financial valuation

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As proposed in the initial roadmap and Grant Agreement, three stages were carried out to organise work: a state of the art to identify standards and existing initiatives to be used in the ALDREN protocol, the definition of the working framework to shape outcomes and interconnections with other tasks and the construction of the indicators and protocol themselves.

 

With mobilizing private finance and building owners for deep renovation as a starting point, it was chosen early in the project to focus on the financial benefits for the owners.

 

This first step was paramount to share a common understanding of the different types of economic and financial values and the different types of valuation and appraisal situations.

 

The financial benefits (benefits for owners) are both:

 

• direct benefits, directly cashed by the owner: costs savings that can be easily expressed (e.g. energy costs, maintenance costs, replacement costs) and have a direct impact on cash flows,

 

• indirect benefits resulting from benefits to other stakeholders: increased asset attractiveness, reduced obsolescence, higher rents… resulting from tenants’ preferences, and investor’s preferences… resulting in risk mitigation, impacts on building cash flow and improved financial value.

 

One of the main barriers hindering deep energy renovation stems from a gap existing between an engineer’s approach of sustainability topics in buildings and a financial analyst’s understanding of real estate assets.

 

To bridge this gap, the aim of ALDREN T2.5 is to propose a methodology to link EVC indicators resulting from T2.1, T2.2, T2.3 and T2.4 to economic and financial indicators so as to better highlight financial benefits of energy, health and comfort upgrades in terms of asset value and risk protection.

 

The aim of ALDREN project is to present additional economic indicators and guidance on how financial input parameters can be better assessed through the use of sustainability-related information (technical description, energy, health and well-being).

 

There is no intention of ALDREN project to estimate building mortgage lending value or market value in the heterogenic real estate EU markets. In order to do so, outputs from T2.5 consists in:

  • an additional list of economic indicators (cost, value and risk)
  • a stand-alone guidance protocol for data collection, indicators calculation and incorporation of information into financial decisions.