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Multiple-project discount rates for cost-benefit analysis in construction projects: A formal risk model for microgeneration renewable energy technologies

Torriti, J. (2012) Multiple-project discount rates for cost-benefit analysis in construction projects: A formal risk model for microgeneration renewable energy technologies. Construction Management and Economics, 30 (9). pp. 739-747. ISSN 0144-6193

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To link to this article DOI: 10.1080/01446193.2012.692165

Abstract/Summary

The traditional economic approach for appraising the costs and benefits of construction project Net Present Values involves the calculation of net returns for each investment option under different discount rates. An alternative approach consists of multiple-project discount rates based on risk modelling. The example of a portfolio of microgeneration renewable energy technology (MRET) is presented to demonstrate that risks and future available budget for re-investment can be taken into account when setting discount rates for construction project specifications in presence of uncertainty. A formal demonstration is carried out through a reversed intertemporal approach of applied general equilibrium. It is demonstrated that risk and the estimated available budget for future re-investment can be included in the simultaneous assessment of the costs and benefits of multiple projects.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Science > School of Construction Management and Engineering > Innovative and Sustainable Technologies
ID Code:28500
Uncontrolled Keywords:Cost-benefit analysis, discount rates, microgeneration renewable energy technologies, risk model
Publisher:Taylor & Francis

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