Quantitative risk analysis the key to success of energy efficiency projects

Energy efficiency projects (EEP) are about risk management. Energy users demand energy service companies (ESCOs) to provide total technical and financial solutions with guaranteed savings and/or payback, hence the EEP risk has been transferred from energy users to ESCOs and financial institutions involved. Most ESCOs and financial institutions are aware of the EEP risk but do not have the right means to quantify it and then manage it effectively. This paper discusses how quantitative risk analysis can be applied to EEP, and introduces a new methodology to profile EEP risk, which includes the separation of engineering and management roles, introduction of Monte Carlo simulation, and the use of industry databases and/or expert opinion in the process of detailed facility studies. A possible risk management strategy for EEP, which incorporates the principles of risk pooling, risk premium, retention and loss control, is also presented.