PhD Dissertation Presentation v 2.4

ROBERT HICKEY
Cost Modelling
for Improving
Energy Efficiency
PhD
Dissertation
Defense

Robert Hickey
June 4th, 2015 | PhD Dissertation
 Anthropogenic climate change (APG) may be the biggest challenge facing
humanity;
 Knowledge of the potential negative consequences of continued
emissions levels have not stimulated action on a large enough scale to
adequately address it;
 A major reason given for inaction is that measures to address APG may
result in economic harm to economies;
 There is some evidence that energy efficiency measures can reduce
greenhouse gas emissions while delivering economic and social benefits.
Why was this topic chosen?

Robert Hickey
Thesis Hypothesis
 As a result of the age of the majority of the residential building stock in
Bulgaria, and the relatively high levels of energy poverty, it was
hypothesised that improving energy efficiency in the country though
basic residential building envelope retrofits could have significant
economic benefits for citizens while simultaneously reducing Bulgaria’s
production of greenhouse gases;
 It was also hypothesized that existing financial outlays for improving
energy efficiency in the country would not be sufficient to meet stated
emissions reductions targets or capture the benefits of these basic
building envelope retrofits.

Robert Hickey
 Forecasting greenhouse gas emissions for Bulgaria between 2015 and
2020;
 Calculating the costs (as a percentage of GDP) to achieve different levels
of emissions reductions from these forecasts, using three emissions
abatement cost models;
 Calculating the possible level of greenhouse gas emissions abatement
from basic building envelope retrofits and the theoretical costs for doing
so according to the models;
 Comparing this possible abatement amount and costs to real-cases;
 Determining the current financing available for energy efficiency
measures in residential buildings;
 Calculating the level of emissions that could be reduced with this
financing if it was used similarly to the real cases and if it was used
optimally according to the abatement cost models.
How was this investigated?

Robert Hickey
Thesis SUMMARY
BEGIN
Energy
Policy in
EU and BG
Calculating
Emissions
for 2020
Carbon
Abatement
Cost
Models
Available
Financing
for EE
The
Human
Element
END
Policy
Implications
Q&A
THE CASE
FOR EE
MEASURES
I
MTDS.
EMISSIONS &
ABATEMENT
COSTS
II
REAL CASES
OF EE IMP
IV
RETROFIT
COST CALC.
III
MAIN
FINDINGS
V
LIMITATIONS
VI
Compare
Models
and Cases

THE CASE
FOR EE
MEASURES
As of 2013, Bulgaria had the most
energy intense economy of the
twenty-eight member states of the
European Union, and high relative
levels of energy poverty.
I

Robert Hickey
 A McKinsey study from 2008 highlights that “depending on how new
low-carbon infrastructure is financed, the transition to a low-carbon
economy may increase GDP growth in many countries”;
 The energy intensity in Bulgaria increased between 2009 and 2011 (kg of
oil equivalent per 1 000 EUR) which was possibly linked to the global
financial crisis – although between 2011 and 2013 the energy intensity
has decreased by 13.5%. Nevertheless, Bulgaria’s energy intensity is still
the highest in the EU-28;
 Data for Bulgaria, from 2009, reveals that 93.8% of residential housing in
Bulgaria was built before 1990 when energy efficiency codes were
relatively weak.
The Case for Energy Efficiency
Measures

Robert Hickey
3.91%
17.26%
26.95%
18.73%
14.70%
12.25%
5.41%
0.79%
1946-1960
1919 - 1945
1971 - 1980
1991 - 2000
Up to 1919
1981 - 1990
Since
2001
1961 - 1970
Source: European Union Statistics on Income and Living Conditions
Residential Buildings in Bulgaria
by Period of Construction

Robert Hickey
 Data from the 2011 Census in Bulgaria showed that 15.5% of
households in Bulgaria had outside thermal insulation, while 29% have
low-energy windows or doors;
 Energy consumption in the residential sector in Bulgaria is characterized
by the consumption of low efficiency renewable energies (i.e. firewood)
and electricity. According to National Statistical Institute data from
2013, in Bulgaria, 34.1% of all households used wood as a main heating
source, 28.6% used electricity, 19.81% used coal, 16.37% used central
heating, and .68% used gas. Thus EE measures could help reduce the
need to burn these low efficiency fuels;
 Energy efficiency in buildings can aid in the alleviation of energy poverty,
as thermal comfort not affordable for many households in the country.
The Case for Energy Efficiency
Measures

Robert Hickey
Percentage of Population "Unable to
Keep House Adequately Warm"
9.5
66.5
2010
9.8
46.3
2011
10.8
46.5
2012
EUROPEAN UNION AVERAGE BULGARIA
Source: European Union Statistics on Income and Living Conditions

Robert Hickey
NAME OF DOCUMENT TARGET
Third National Action
Plan on Climate Change
61,864 kt CO2e emissions by 2020 with “scenario
with existing measures”. (-7.8% compared to 2005)
54,578 kt CO2e emissions by 2020 with “additional
measures”
(-18.7% compared to 2005)
Energy Strategy of the
Republic of Bulgaria till
2020
Save 5.8 million toe of primary energy in comparison
with a reference BAU scenario in 2020
First National Energy
Efficiency Action Plan
2008-2010 (2007)
627 Ktoe of energy savings in final energy
consumption by 2016
ENERGY AND EMISSIONS TARGETS IN
POLICY DOCUMENTS
These is also a need to meet the energy saving targets laid out in a number
of policy documents.

Robert Hickey
 While official forecasts of
emissions in 2020 and 2030
exist for Bulgaria in public
documents, we wanted to
construct our own emissions
baseline;
 Additionally, the National
Energy Efficiency Action
Plans are based on
assumptions that did not
hold true in the years after
baseline emissions estimates
were constructed.
Forecast of emissions was
calculated, but why?
Source: Own Table Using Data from First National Energy Efficiency Action Plan 2008-2010, Eurostat – Final Energy
Consumption by Sector, and SPSS

METHODS FOR
CALCULATING
EMISSIONS AND
ABATEMENT COSTS
II

Robert Hickey
 Emissions projections for Bulgaria, through 2020, must be accurately
determined and used as a baseline against which potential emissions
reductions resulting from EE measures can be calculated. Some of the
calculation logic for the targets in the National Energy Efficiency Action
Plans linked emissions rates and energy consumption directly to the
GDP growth rate. This approach is appeared overly simplistic;
 William Cline (American economist and Senior Fellow at the Peterson
Institute for International Economics) deploys an approach that
considers population growth rates, changes in per capita income,
changes in the rate of energy efficiency, and changes in the carbon
intensity of energy production over a defined period of time in helping
to construct such a baseline.
Calculating Emissions Baseline in 2020

Robert Hickey
Developing Emissions Projections
CALCULATING
POPULATION
GROWTH
WHERE Nt IS EQUAL
TO THE POPULATION
IN YEAR t, No
INDICATES THE
REFERENCE YEAR, n
IS THE GROWTH
RATE OF THE
POPULATION.
CALCULATING REAL
GDP PER CAPITA
WHERE Qt IS THE
GDP PER CAPITA IN
2005 PPP DOLLARS
IN YEAR t, Qo IS THE
REFERENCE YEAR,
AND g IS THE
GROWTH RATE OF
PER CAPITA INCOME.
CALCULATING
OUTPUT PER UNIT
OF ENERGY
WHERE Λt EQUALS
THE OUTPUT PER
UNIT OF ENERGY
(ENERGY
EFFICIENCY) IN YEAR
t, Λ0 IS THE
REFERENCE YEAR
AND w IS THE
ANNUAL RATE IN
INCREASE IN
ENERGY EFFICIENCY.
ENERGY PER UNIT
OF CARBON
DIOXIDE
WHERE Yt EQUALS
THE ENERGY PER
UNIT OF CARBON
DIOXIDE (CARBON
EFFICIENCY) IN YEAR
t, Y0 IS THE
REFERENCE YEAR
AND c IS THE
ANNUAL RATE OF
INCREASE IN
CARBON EFFICIENCY
OF ENERGY.
1 2 3 4
𝑁𝑡 = 𝑁0 𝑒 𝑛𝑡 𝑞𝑡 = 𝑞0 𝑒 𝑔𝑡
𝜆 𝑡 = 𝜆0 𝑒 𝑤𝑡
𝛾𝑡 = 𝛾0 𝑒 𝑐𝑡
Using Cline Equation

Robert Hickey
 Using these equations, Cline shows how emissions in year t can be
approximated by multiplying the population in year t, times real GDP per
capita in year t, divided by output per unit of energy in year t, times energy
per unit of carbon dioxide as
𝑁0 𝑒 𝑛𝑡
𝑞0 𝑒 𝑔𝑡
𝜆0 𝑒 𝑤𝑡 𝛾0 𝑒 𝑐𝑡 =
𝑁0 𝑞0
𝜆0 𝛾0
𝑒 𝑛+𝑔−𝑤−𝑐 𝑡
𝐸𝑡 = 𝐸 𝑜 𝑒 𝑛+𝑔−𝑤−𝑐 𝑡
 The percentage rise or fall of the value of this equation between year 0 and
year t is equivalent to the percentage rise or fall of emissions between these
years;
 How
𝑁0 𝑞0
𝜆0 𝛾0
will change over time is directly proportional to how 𝐸 𝑜 will
change over time;
 Thus, to calculate emissions in year t (or Et), we need to know emissions in
the base year 𝐸 𝑜 as well as:
𝑛 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 , 𝑔 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑖𝑛𝑐𝑜𝑚𝑒 ,
𝑤 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑒𝑛𝑒𝑟𝑔𝑦 𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 , 𝑎𝑛𝑑 𝑐 (𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 𝑜𝑓
𝑐𝑎𝑟𝑏𝑜𝑛 𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦).

Robert Hickey
Developing Emissions Projections
CALCULATING
POPULATION
GROWTH
USING THIS
FORECAST UNTIL
2020 (DAMPENED
TREND MODEL), WE
FIND THAT n=-.73%
BETWEEN 2015 AND
2020
CALCULATING REAL
GDP PER CAPITA
USING THIS
FORECAST UNTIL
2020 (BROWN
MODEL), WE FIND
THAT g=3.95%
BETWEEN 2015 AND
2020
CALCULATING
OUTPUT PER UNIT
OF ENERGY
USING THIS
FORECAST UNTIL
2020 ( ARIMA
MODEL), WE FIND
THAT w=6.6%
BETWEEN 2015
AND 2020
ENERGY PER UNIT
OF CARBON
DIOXIDE
USING THIS
FORECAST UNTIL
2020 (HOLT
MODEL), WE FIND
THAT c=-.48%
BETWEEN 2015
AND 2020
1 2 3 4
Using Cline Equation

Robert Hickey
𝐸𝑡 = 𝐸 𝑜 𝑒 −.73+3.95−6.6−(−.48 𝑡
 The last official figure for emissions levels in Bulgaria from the Europe
Environmental Agency was from 2012 and reported as 61,045.626 kt
CO2e. When applying the forecasted average annual rate of change
between 2015 and 2020 we find that in the 8th year after 2012 – 2020,
that
𝑁8 = 61,045.626𝑒−.029∗8
𝑁8 = 48,405.89
Source of the Estimation
Own Calculation
Based on the Cline
Model
EU Energy, Transport
and GHG Emissions –
Trends to 2050:
Reference Scenario
2013
Second National
Action Plan on
Climate Change
Third National
Action Plan on
Climate Change
(Scenario with
additional
measures)
Third National
Action Plan on
Climate Change
(Scenario with
Additional
Measures)
Emissions in 1000t CO2
equivalent in 2020
48,406 55,000 89,000 61,864 54,578

Robert Hickey
 Using this baseline emissions estimate and three cost models (CRED Model,
RICE Model, EMF-22 Model) we find the following costs for various levels
of emissions cutbacks in Bulgaria in 2020.

Basic Building
Envelope Retrofit
Cost Calculations
III

Robert Hickey
 Following the calculation of total emissions in 2020 and the theoretical upper limit
of possible emissions abatement (before costs turned infinite), the McKinsey
Marginal Abatement Cost Curve for Eastern Europe was scaled down to reflect
this theoretically possible emissions abatement level of 37.26 Mt CO2e in
Bulgaria (before costs tuned infinite) with the with the specific abatement
possible (.87 MtCO2) from basic building retrofits of building envelopes noted.
Basic Building Envelope Retrofits
Cost Calculation

Robert Hickey
 By overlaying the cost models with the cost curve above (the details of
how this was done can be seen in the dissertation itself), the following
costs for abating this .87 MtCO2 were calculated and can be seen in the
table below;
 Clearly, all of these costs are extremely low, which is due to the fact that,
in these models, the cost savings resulting from conserved energy makes
the costs for basic envelope abatement essentially free.
Available Cost Calculation
McKinsey Bottom-Up
Approach
CRED Model RICE Model EMF-22 Model
-49.48€ million (2005
Euros)
$11,247,197 2005 USD $5.335,913.71 2005 USD $26,879,744.66 2005 USD

Robert Hickey
 This result seemed like it was too good to be true, and since whenever
something seems too good to be true, it probably is, we wanted to cross
check these theoretical models with real cases of building envelope
retrofits in the country;
 There is a plethora of academic literature which shows that it is common
for renovated buildings to be used in ways that reduce or eliminate the
benefits of the retrofit (i.e. that the retrofits are not done correctly, that
increases in energy use result because more benefit is now derived from
such use, or that consumers may pursue EE measures only when they
want to consume more);
 Data from a survey of Bulgarian and other European citizens was also
analyzed and showed that around 9.8% of the 102 Bulgarian’s would not
be willing to reduce their personal consumption compared to 6.6% of
1026 European citizens from 11 European countries;
 Thus, would these calculated benefits really result from basic
envelope building retrofits?
Basic Building Envelope Retrofits
Cost Calculation

Real Cases
of Energy
Efficiency
Retrofits
IV

Robert Hickey
 Three real cases of building envelope retrofits were investigated to
determine how the abatement costs, calculated using the cost models
and McKinsey estimates, compare with reality.
 It was found in these multi-family blocks that around 50% of total
emissions could be abated using insulation of external walls, insulation of
the roof, insulation of the floor, and changing of existing wooden and
metal doors and windows to insulated PVC doors and windows.
However, the renovation costs per M2 were much higher than in the
McKinsey estimate.
 In the McKinsey estimate, the renovation package included improving
building air tightness by sealing baseboards and other areas of air
leakage; weather strip doors and windows; insulate attic and wall
cavities, add basic mechanical ventilation system to ensure air quality –
but not changing windows and doors. It was assumed that this would
result in a 15-25% heating savings potential and up to 10% cooling
savings – so much less that was experienced in the actual renovations.
Real Cases Energy Efficiency
Retrofits

Robert Hickey
 We determined how much financing is available for energy efficiency in
Bulgaria to determine how much carbon could theoretically be abated
according to the cost models and how much could be abated if it was
used in the same way as in these real cases
Available Financing for Energy
Efficiency
Фонд „Енергийна
ефективност и
възобновяеми
източници“ /
ENERGY
EFFICIENCY AND
RENEWABLE
SOURCES FUND
Оперативна програма
„Иновации и
конкурентоспособнос"
2014 - 2020 /
Operative program
"Innovation and
competitiveness“
НАЦИОНАЛНА
ПРОГРАМА ЗА
ЕНЕРГИЙНА
ЕФЕКТИВНОСТ НА
МНОГОФАМИЛНИ
ЖИЛИЩНИ СГРАДИ
2015 - 2016 г. /
National Programme
for energy efficiency
of multifamily
buildings
ОП „Региони в растеж
2014-2020“ /
Operative program
"Regions in
development" 2014
- 2020
Програма BG04
"Енергийна
ефективност и
възобновяема
енергия" - Грантова
схема BG 04-04-05
- BG04
PROGRAMME
ENERGY
EFFICIENCY AND
RENEWABLE
ENERGY
67,800,000 лв. 516,502,700 лв.
Divided by the 7
years of the
program:
73,786,100 BGN
1,000,000,000 лв.
Divided by the 2
years of the
program:
500,000,000 BGN
435,954,507 лв.
Divided by the 7
years of the
program:
62,279,215 BGN
31,293,280 лв.

Robert Hickey
 Keeping in mind the calculated level of emissions for Bulgaria in 2020 of
48,406 KtCO2:
 Using this financing exactly the same way as it was used in the real cases
would equate to a savings of 290 KtCO2 (.6%) annually following the
completion of the refurbishment;
 According to the CRED-Two Parameter Model 26,400 KtCO2, or a
54.5% cutback ( .0264 GtC02 or .0072 in GtC) could be abated by 2020
with this financing annually;
 According to the Nordhaus RICE Model 27,890 KtCO2, or a 57.6%
cutback (.02789 GtC02 or .0076 in GtC) could be abated by 2020 with
this financing annually;
 According to the EMF-22 Model 17,610 KtCO2, or a 36.4% cutback
(.01761 GtC02 .0048 in GtC) could be abated by 2020 with this
financing annually.
Compare Models And Cases

Main
Findings
Based on an analysis of the findings
a number of conclusions are given.
V

Robert Hickey
 It appears that the energy efficiency retrofits in the three real cases,
while beneficial in halving energy consumption and emissions, may not
optimize the environmental benefits of the available financing for energy
efficiency. It is speculated that this may be because these retrofits are
deeper than would be environmentally optimal;
 According to the McKinsey and cost models, 870 KtCO2 (.87 MtCO2) or
1.8% of emissions could be prevented from being emitted in 2020 at
negative or near zero cost ;
 Possible baseline emissions cutbacks with existing financing were
calculated at between 36% to 57% if interventions were implemented in
the most cost optimal way possible. This would easily achieve energy
targets. There is a caveat here though that must be noted. The values for
the constants in these cost curves were calculated as if action started in
2010, when initial research for this dissertation took place.
Main Findings

Robert Hickey
 These findings point towards the idea that, while any building envelope
retrofit would appear economically beneficial, the degree of this benefit is
highly contingent upon the depth of the refurbishment – with basic
refurbishments having faster payback periods and greater negative costs;
 A thorough examination of all possible (or at least multiple competing)
interventions would be one approach in ensuring that such financing is
achieving its goals in a cost optimal way. For example, less intensive
retrofits on a higher number of buildings, such as providing weather-
stripping on doors and windows, and hiring knowledgeable technicians to
install it, may be better placed than deep renovations and innovations like
nearly zero-energy buildings. Further research would be needed to confirm
or refute this;
 Further consideration of this issue can reveal more complicated motivations
for choosing a particular program or policy over another, and may reveal
the social dimensions to energy policy. Just because an intervention is
economically or environmentally beneficial does not necessarily mean that
it is socially beneficial.
Policy Implications

Limitations
There are a number of assumptions
and limitations in the study.
VI

Robert Hickey
 The growth rate of the Bulgarian population, the growth rate of GDP per
capita, the output per unit of energy, and the carbon efficiency of energy
all have varying degrees of inherent uncertainty;
 For the three cost models that were deployed, assumptions had to be
made as to which cost parameters to use in each model;
 It was assumed that McKinsey accurately included every possible carbon
abatement intervention and did so in the correct order according to cost;
 When trying to locate real case-based data to gain insights into the costs
and benefits of energy efficiency interventions, there were limitations on
the number of cases where raw data could be found;
 It is only possible to roughly approximate the financial outlays that are
available for energy efficiency improvements in Bulgaria;
 There are some issues with the data from the survey of Bulgarian citizens
in that it was not necessarily representative of Bulgarian society and/or
the viewpoints held by Bulgarian citizens.
Study Limitations

Robert Hickey
 The dissertation work was supported by two experts in the field of energy
efficiency – one of these experts was the Chairwoman of the Management
Board of the Sofia Energy Agency (SOFENA), Mrs. Nadya Nikolova-
Deme. The other was provided by a researcher working at the Building
Performance Institute Europe (BPIE) in Brussels, Mr. Francesco
Mariottini.
Letters of Support

Robert Hickey
 This research aims to illuminate how environmental benefits need not come
at economic costs. However, reductions in emissions at the levels outlined
here are extremely small compared to what is needed to keep global mean
temperatures from rising by under 2˚ Celsius – the threshold under which
the most serious negative affects of global warming can be avoided;
 With global concentrations of CO2 now over 400 ppm, and without a
slowdown of emissions in sight, the possibilities for keeping temperatures
under 2˚ Celsius seem like somewhat of a dream.
 World-renowned economist Jeffery Sachs said in a recent interview “If
China and India continue to completely depend on coal as they are…if it’s
true that the major parts of the world don’t participate, then it does not
matter what you and I do and that is why we need a global understanding
and a global agreement.”
 Thus, if anything, I hope that this dissertation highlights that
individual action, anywhere, can contribute to the solution, while
benefitting individuals in the process.
Final Comments

Robert Hickey
E-MAIL
rfhickey@gmail.com
TWITTER
twitter.com/rfhickey
LINKEDIN
bg.linkedin.com/in/hickeyrobert
Contact Me
You can find all dissertation related documents at: goo.gl/QTTv3N

Questions?
YOU
THANK
FOR COMING

PhD Dissertation Presentation v 2.4

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