Defining ‘cost effectiveness’ for energy efficiency improvements in buildings

There are many different ways to define and assess cost effectiveness. The Scottish Government needs a sound, evidence-based definition of cost effectiveness to use in the Energy Efficient Scotland programme, which proposes to bring all Scottish homes up to an Energy Performance Certificate Band C by 2040, where technically feasible and cost effective.

This report looks at the pros and cons of using different definitions of cost effectiveness in relation to energy efficiency investments in homes and non-domestic buildings.

We found that cost effectiveness definitions vary in how energy savings are predicted or measured, in what other costs and benefits are included, and in the metrics used. We identified nine methods of evaluating cost effectiveness, summarised in the table below, along with our assessment of the pros and cons of each.

 The definitions of cost-effectiveness is discussed in relation to:

•  Packages versus single measures
• Wider benefits to society
• Differences in domestic and non-domestic sectors
• Variations in application
• Sources of funding
• Acceptability of payback periods
• Uses in practice
• Practical lessons