Co-benefits of Smart and Sustainable Energy District Projects: An Overview of Economic Assessment Methodologies

Abstract

The concept of “co-benefit” is commonly adopted to define any additional positive impact of a policy, program, or project, arising alongside the desired primary goal. Co-benefits relate to human health and well-being, as well as environmental, economic, and social aspects. The concept, investigated beginning in the 1990s, is recognized today, as supported worldwide by several notable organizations, to provide a better grasp of the economic value of foreseen or applied measures. Nevertheless, given the complexity of achieving complete pictures and understanding many interrelations or cascade effects, co-benefits are often only analyzed locally or measured qualitatively. Therefore, the aim of this paper is to provide an overview of the methodologies for economic assessment that are applicable to the monetization of co-benefits related to Smart and Sustainable Energy District Projects. Starting from a previously defined framework of expected co-benefits, we analyzed the various techniques, identifying the most appropriate with respect to target stakeholders and expected outcomes. As a result, we obtained a clear and comprehensive assessment model, tailored to a specific project type, and operationally applicable. This model would sustain the funding, public acceptance, and political commitment of Smart and Sustainable Energy District Projects, enabling the various stakeholders to better understand the entire economic value of a project, in addition to energy saving and greenhouse gasses reduction.

Appendix

Smart natural environment
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Local air quality improved	Air pollution emissions of SO2, NOx, and small particle matter (PM)	Value of reducing the harmful effect of air pollution: cost of illness (COI); willingness to pay (WTP) methods quality-adjusted life year (QALY) value of a statistical life (VSL)	The value of health benefits from air pollution decrease, achievable through the retrofitting of EU building stock and related energy-consumption reduction (both electricity and thermal), has been recently monetized as four to six billion EUR of annual gross benefit at EU level by Joyce et al. (2013) Bell et al. (2008) provides an overview on several approaches applied in scientific studies for economic valuation of averted health consequences Reduction of pollutants like PM10, Sox, NOx, CO and, O2 is defined in the indicators set up by Di Nucci and Spitzbart (2010) for CONCERTO projects Moreover, Chau et al. (2010) included the air-quality improvements within the set of attributes for a CE	Although urban air pollution-related health impacts are one of the most investigated co-benefits (Williams et al. 2012), and multiple studies provide strong evidence about their economic relevance (Bell et al. 2008), they remains underestimates, due to other unquantified or underestimated endpoints
	Cost of cleaning and conservation of cultural heritage	CV: WTP for avoiding damages to building materials	Pollicino and Maddison, cited by Ürge-Vorsatz et al. (2014), performed a CV study on the WTP for an increase in the frequency of a hypothetical cleaning cycle of the UK’s Lincoln cathedral: “Estimates of mean willingness to pay range from £15 to £23 per household per annum for those living in Lincolnshire” which in aggregate suggests an annual damage to the cultural monument valued between £0.4 m and £0.6 m (Pollicino and Maddison 2001)	Although the first goal of better air-quality measures is the improvement of human health, other avoided or reduced harmful effect of air pollution on building materials (like corrosion, stonework erosion, and blackening), especially on materials used in cultural monuments and historical buildings, should be taken into account at urban level (Aunan et al. 2004; Tidblad et al. 2012; Ürge-Vorsatz et al. 2014)
Better environmental resources management	Water consumption and sewage production	CV: Willingness to pay for reducing impact on environmental resources, such as water (consumption and treatment) CS: Hedonic Price model may identify the share of price premium for green buildings exceeding monetary savings related to water usage	Deng et al. (2012) adopt a hedonic pricing model on transactions involving green and non-green residential units in Singapore. Results suggests substantial economic returns for green buildings, reaching specific energy- and water-efficiency requirements Economics of “green” buildings have been widely analyzed by Eichholtz et al. (2010) Hoffman and Henn (2008) present economic benefits for green buildings recooping capital costs: referring to Capital E Analysis, they report a NPV over a 20-year life cycle equal to US $0.51/sq. ft. for reduced water use in green buildings In another example, the operating cost reductions in water, wastewater, and energy expenditures is around 10–30 % lower in ENERGY STAR certified buildings (Johnson Controls 2011)	Hoffman and Henn (2008) point out that, despite the measurable benefits, individuals perception of green buildings is affected by cognitive biases that negatively impact their awareness of environmental impacts

Smart services
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Health and well-being increased	Reduced number of visits to general practitioners, hospitalizations, days off school, days off work declared by households leaving in retrofitted houses	Value of health and well-being can be measured by: cost of illness (COI); willingness to pay (WTP) methods quality-adjusted life year (QALY) value of a statistical life (VSL)	Health benefits from improved indoor climate are evident, although uncertain to clearly assess. A study concerning the deep energy-efficient renovation of EU building stock estimate them (including a rebound effect of 20 %) close to 88 billion EUR annual gross benefits at EU level: i.e., more health benefits than savings from lower energy bills, which are estimated as 75 billion EUR per year (Joyce et al. 2013). Other studies report that, for private sector, such benefit may amount to the same order of magnitude as the energy-related benefits (Jakob 2006) Di Nucci and Spitzbart (2010) identified an appropriate indicator for CONCERTO projects assessment as the indoor-comfort improvement in buildings Several approaches for economic valuation of averted health consequences are reported by Bell et al. (2008) and Williams et al. (2012)	Well-being measurement, according to OECD (2011), should include indicators dealing with quality-of-life and material living conditions, such as health status, life satisfaction, social connection, income and wealth, etc. Here only health status is considered, to avoid co-benefits double counting Additionally, looking at the working conditions in green buildings, it has been found how they can lead to relevant productivity gains (Johnson Controls 2011; Lovins 2004), as well as better performances of users in public and commercial buildings, such as offices or schools (Ürge-Vorsatz et al. 2014). Lovins (2004) argues that in efficient buildings “labour productivity typically rises by about 6–16 %. Since office workers in industrialized countries cost ~100× more than office energy, a 1 % increase in labour productivity has the same bottom-line effect as eliminating the energy bill”

Smart community
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Tackling fuel poverty	Reduced number of excess winter deaths attributable to cold housing Reduced number of excess summer deaths attributable to hot housing Changes in number of households spending more than 10 % of their income in energy bills	Economic evaluation of mortality impacts may be related to reduced lifespan due to premature mortality	Severe thermal stress due to cold homes in winter, as well as heatwaves in the hot season, can even cause death; therefore the borderline between heath benefit and fuel poverty can be set as passing from morbidity to mortality. In Hungary, more than 1,000 fuel-poverty-related excess winter deaths per year have been recently reported, affecting mostly seniors over 60 years old (Ürge-Vorsatz et al. 2010). Bone et al. (2010) reports that a radicalization of summer climate conditions is expected in the next year in UK, where during the 2003 summer, characterized by intense heatwaves, over 2,000 extra deaths occurred A cost-benefit analysis of a randomized trial on retrofitting low-income communities in New Zealand with insulation is reported in Chapman et al. (2009) According to US EPA, as cited in Williams et al. (2012), the economic valuation of mortality impacts should include: ∙ the value of reduced lifespan due to premature mortality; ∙ medical expenditures (e.g., for hospitalizations, medicines); the value associated with pain and suffering	To avoid double counting between “tackling fuel poverty” and “health and well-being increased”, here only extreme events, leading to death, related to the inability to ensure adequate indoor termal conditions should be measured
Users awareness on energy-related issues increased	Number of end users who received training in the field of SSEDPs and number or hours of training	HC approach can provide a monetary estimation of knowledge gained through training or courses participation	From a quantitative point of view, an UK study estimates that “energy-efficiency behaviors” account for 51, 37, and 11 % of the variance in heat, electricity, and water consumption, respectively, between dwellings” (Gill et al. 2010) Assessment of training effectiveness can be done by applying several models, as the Kirkpatrick’s four-level evaluation model (reaction, learning, behavior, results) and consequently it is possible to measure the return on investment (Roi) in human resources development (Votta 2012) Di Nucci and Spitzbart (2010) identify as appropriate indicators for CONCERTO Projects assessment the awareness creation about energy topics, the changes in energy consumption behavior, and the willingness to invest in energy saving measures or to pay more for RES/EE/green electricity	As argued by Lewis et al. (2013) training activities are often cost-effective, because they can result in significant financial savings Schweiker and Shukuya, cited by Rae and Bradley (2012), demonstrate the effectiveness of users’ education, suggesting how “technological and behavioural improvements should go hand in hand”
	Energy behavior’s changes based on different kind of feedbacks	Direct monetary value	The European Environment Agency (EEA 2013) reports successful experiences in changing consumer behavior (up to 20 % energy savings) through direct and indirect feedback, where the first include information provided directly to consumers’ ICT devices or in-home displays. The latter concern increases in energy-bill frequencies or inclusion of historical and/or comparative information To measure the energy behavior’s changes Hori et al. (2013) propose the following variables: (i) Energy saving behavior, (ii) global warming consciousness, (iii) environmental behavior and (iv) social interaction Moreover, methods of impact evaluation of feedbacks on energy behaviours are in Khandker et al. (2010)	Studies on barriers to energy efficiency (Sorrell et al. 2004) or to renewable sources penetration (Painuly 2001) identify the social, cultural, and behavioral mechanisms as a relevant category. Within this category, remarkable elements are identified, such as: unknown product, resistance to change, and inadequate or imperfect information Feedback can be proposed in various forms and can have positive impacts on household energy behaviors (Brandon and Lewis 1999)
Enhancement of neighborhood identity	Social support, in terms of frequency of contacts and perception of possibility to count on someone else	CV: WTP for better social support CE technique can help to identify positive changes to neighborhood’s key attributes defining its identity	The Organisation for Economic Co-operation and Development uses the term of social support as fundamental element to measure the quality of life (OECD 2011). People count on social support for spending time with others and being more satisfied with activities. Furthermore, contacts can increase neighborhood identity Lee (2008) defined a conceptual model to investigate neighborhood quality of life (QOL) in Taipei, including identify and related variables and Di Nucci and Spitzbart (2010) assessed the improvement of the sense-of-place and communities’ social well-being as well as the perception of the demo site of selected CONCERTO projects Population living in areas with integrated urban-development strategies is also an indicator suggest by EU (2013) for projects assessment	The district approach that characterizes the SSEDPs, upgrading the whole living area or community instead of a single building, effects a great impact, that results in a neighborhood’s image enhancement OECD (2001) recall how “investment in individual and group identity can lead to the creation of dense social networks and ultimately better economic and social outcomes”

Smart governance
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Innovation in processes and decision making	Number of people with increased professional capacity due to their participation in interregional cooperation activities in the field of SSEDPs Human capital and social learning Social capital in arena of decision maker. Acceptance of process and outputs	HC approach can provide a monetary estimation of increased professional capacity	According to Borgatti (1998), in innovation and decision-making processes, involved parties draw their needs, values, and expectations. In smart governance, the innovative process also involves participants in social-learning processes, in increasing human capital, and in creating new networks of social capital that are able to promote local contacts	The SSEDP environment, as a temporary organization and new system of relationships, forces actors to step away from their usual way of doing, the so-called comfort zone (Beurden 2011), and results in enhancement of motivation, knowledge, and skills
Territorial attractiveness increased	Number of learning exchanges undertaken to demo sites and offices or departments involved in the SSEDPs	Direct monetary value CS estimated with travel cost methods	Maabjerg “BioEnergy” (ECOSTILER project), one of world’s largest biomass plants, received 5,000 international visitors in 2012 (IEA 2014a); the “Fossil Fuel Free Växjö” district (SESAC project) has become an attraction with at least 100 visiting delegations per year. Within the SORCER project, a scientific conference with more than 100 participants was organized Campbell (2012) quantifies per each delegation 7-person team staying for 4 nights, with an average local expenditure of US$ 800 per capita EU (2013) suggests to consider as an indicator the increase in expected numbers of visits to supported sites and attractions, and this could be explored with the travel cost method Additionally, Di Nucci and Spitzbart (2010) identify assessment of the increased visibility of the case-study area as an appropriate indicator for CONCERTO projects	Transforming an existing city district into a (or developing a new one) smart and sustainable district means developing an attractive location for households and business from outside, and additionally a demonstration site for interested in innovative and green-solution visitors (institutions, professionals, students, etc.) Moreover improving the smart and sustainable image of the city increase green tourism
Institutional relationship and networks created	Social capital in and between cities (trust, reciprocity, cooperation) Number affiliations in national, international networks or groups SNA considering: number of nodes and number of relationships between nodes; diversity of nodes (e.g., in terms of kind of institutions and project’s objectives); social capital surplus or deficit (in terms of competences of nodes); reputational power of leader	Investigating the influence of social capital through a social network analysis (SNA) on the WTP for new energy efficiency technology	Through the involvement in projects, institutions develop social capital that means networks, values, norms, and viewpoints. Such elements facilitate the cooperation between the involved institutions in exchanging resources, reaching project’s results, and participating in new calls for projects funding, becoming more competitive (Franceschetti et al. 2015). For further resources, see Borgatti (1998), Franceschetti et al. (2015), Krishna and Shrader (2000), and OECD (2001) EU (2013) suggests to consider as an indicator the number of research institutions and enterprises involved or the number of enterprises cooperating with research institutions To our knowledge, a WTP study in this topic has never been published yet. However, Jones et al. (2009) carried out an evaluation of the interaction of social capital and WTP in the environmental field, which could be applied in the networking field	Territorial attractiveness concerns more dissemination and the target groups are public, students, or other projects that want to learn from you; but networking is learning together and its target groups are governors and international networks Valuing social capital is a very complex task, creating a reliable hypothetical scenario may be very hard

Smart economy
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Positive changes to local-tax revenue	Local income tax or labor income tax revenues	Direct monetary value	An estimation of effects in investments and tax revenues, related to an extent and deep renovation of the European building stock, concludes that public finances at EU level will benefit from an annual net improvement of € 6 billion due to reduced outlay on subsidies, although balanced by an equal loss of tax revenues from energy taxation (Joyce et al. 2013). Nevertheless, due to increasing economic activity, a positive impact on EU GDP of € 291 billion is expected, generating additional revenues: e.g., from corporate income tax or labor income tax, VAT (Joyce et al. 2013)	At local level, the change in tax revenues is expected to be positive per Immendoerfer et al. (2014): “Thinking the actual installation and maintenance of renewables, new buildings and retrofitting measures, the required work is typically undertaken by local professionals”. Usually, at least part of labor and corporate tax remain at local level, instead of VAT, excise, and tax paid on energy, that are harvested at regional or governmental level
Easier loans conditions	Financing formulas and private investment	Direct monetary value	In the US some banks and other lenders recently started to offer energy-efficiency or green loans with special financing conditions (Hoffman and Henn 2008) Di Nucci and Spitzbart (2010) identify the payback period length as an appropriate indicator for CONCERTO projects assessment Moreover, private investment matching public support to enterprises (grants) and in innovation or R&D projects are indicators suggested by EU (2013)	Tirado Herrero et al. (2011) argue that even if large-scale renovation programs are costly, especially on the upfront cost side, some interesting financing formulas are suitable, e.g., pay-as-you-save, where the state provides interest-free loans
	Additional funds drawn	Direct monetary value	Immendoerfer et al. (2014) point out that although “CONCERTO funding (was) very small in comparison to total capital cost (it) was enough to stimulate other investment”. Involved municipalities “mobilised their own resources to subsidise projects further or drew on regional or national funding pots. These often came from urban renewal schemes or environmental funds”	Considering additional funding sources and revenues from feed-in tariffs “the picture would look very different for many projects” (Immendoerfer et al. 2014)
Stimulation of local job’s market	Number and value of full time employment (FTE) positions created for: the implementation of the project (construction sector, design, etc.); planning and development of the project (management)	Direct monetary value	A recent report by Janssen and Staniaszek (2012), commissioned by the Energy Efficiency Industry Forum (EEIF), analyzing several reputable studies, concedes that, on average, 19 new direct local and non-transferable jobs in the construction sector for each € 1 million invested in energy efficiency refurbishment of EU building stock can be expected. This result is particularly relevant, because building renovation activities are much more labor-intensive than other types, such as road infrastructure (Ürge-Vorsatz et al. 2010) At EU level, the investments in a large-scale refurbishment program of existing building stock could generate annual employment opportunities: due to the actual time of economic underperformance, for 760,000–1,48 million job opportunities, equal to a benefit to EU GDP of €153–291 bn depending on the level of investments (Joyce et al. 2013) Number of job opportunities created in course of project activities and the number of new business created in project area are considered within the indicators defined by Di Nucci and Spitzbart (2010) for CONCERTO Projects assessment	A broad global overview on the possible impact of the various low-carbon economy sectors on the creation of new green jobs, with adequate working conditions and wages, is discussed in UNEP/ILO/IOE/ITUC (2008)
Local energy-supply chain development	Avoided cost of by-products disposal (e.g., urban waste, sewage, or animal slurries)	Direct monetary value	An overview of investment costs and benefits related to a very large-scale biomass plant in Denmark, able to cover the demand for district heating in 5,000 homes and power consumption of 12,000 homes, are reported in IEA (2014a). In this example a socio-economic value of 1 bn DKK over 20 years is declared, including avoided CO2 emissions and animal-slurries disposal Increase in local control of energy supply and in local energy production are defined in the indicators set up by Di Nucci and Spitzbart (2010) for CONCERTO projects assessment	Since the exploitation of local renewable-energy sources is usually mentioned as a main SSEDP goal, the revenues generated by selling clean energy, as well as feed-in tariffs and avoided fossil-fuel consumption, should not be considered. The same for avoided CO2 emissions
Energy services establishment	Number of ESCOs developed during the project and expected revenues	Direct monetary value	In the last decades, ESCOs have founded $20-billion-worth of projects worldwide, about $4-billion in the US, more than a quarter of which is intended to design, install, operate, and maintain energy-efficiency measures in buildings (UNEP/ILO/IOE/ITUC 2008) Stimulation of local economy is defined in the indicators set up by Di Nucci and Spitzbart (2010) for CONCERTO Projects assessment	The SSEDPs’ neighborhood approach can offer up options for financing solutions other than direct investment (Immendoerfer, et al. 2014). Larger scale may provide better conditions due to the dimension of the intervention itself and multiple implementable measures
Innovation in technology development and adoption	Incomes from additional sales of the involved firms after the adoption of new technologies	Direct monetary value	EU (2013) suggests to consider as an indicator the number of enterprises supported to introduce new-to-the-market products According to Damm and Monroy (2011), innovative joint activities might sustain product or process innovation, therefore generally increasing revenues. Ahearne et al. (2013) propose a Technology Performance Usage Model (TPUM), to look for usage levels that lead to optimum effect on sales performance. This work was applied to 131 firms of various sectors, when focusing on the co-benefit effect this model could be replicated by surveying the effects on the local firms involved in the project
Professional skills development	Number of professionals who received training in the field of SSEDPs and number or hours of training	HC approach can provide a monetary estimation of knowledge gained through training or courses participation	Providing analyses of three different methods of estimating the monetary value of HC can be done following techniques suggested by Dagum (2006) and by Nosvelli (2009) Assessment of training effectiveness can be done by applying several models, as the Kirkpatrick’s four-level evaluation model (reaction, learning, behavior, results) and consequently, it is possible to measure the return on investment (Roi) in human-resources development (Votta 2012) Number of training activities/courses offered is considered by Di Nucci and Spitzbart (2010) for CONCERTO projects assessment and the number of participants in joint education and training schemes is suggested by EU (2013)	Tirado Herrero et al. (2011), analyzing three different retrofitting scenarios for the Hungarian building stock, found that in the deep retrofitting scenario the crew composition should be on average 30 % architects/professionals, 47 % skilled workers, and 23 % unskilled workers. These figures show how marginal is the involvement of unskilled workers. Cam (2012) stress how crucial are capacity-building programs, delivering highly-skilled professionals and technicians, to ensure an adequate design and operation of active design solution in buildings. It is therefore clear how knowledge development, which is a dominant part of HC (Dagum 2006), support the high-technology economy and building sector (Hanushek 2002)

Smart built environment
Co-benefit	Evaluation indicators	Monetization techniques or approaches	Reference literature	Strengths/shortcomings
Increased assets value	Number of households with improved and certified energy performances	CS: Hedonic price model may identify the share of price premium for certified buildings exceeding monetary savings related to energy efficiency	Economics of green buildings has been widely analyzed by Eichholtz et al. (2010) A recent review on US green-buildings-market analysis reports an increased resale value from 5.8 to 35 % and increased rental rates from 2 to 17 %, coupled with an higher occupancy rates from 2 to 18 % (Johnson Controls 2011) Bonifaci and Copiello (2015), studying the Italian residential market, found that there is a positive gap between building-price premium and the achievable monetary savings given by reduced energy consumption. In the upper class “A”, the incidence of capitalized savings on average market value, with reference to worst class “G”, is 13.3 %, where the market price premium is 21.9 % Di Nucci and Spitzbart (2010) define the increase in real-estate and flats values as an appropriate outcome indicator for CONCERTO projects, while EU (2013) suggests to consider the number of households with improved energy-consumption classification	Energy performances of buildings are certified, therefore energy costs predictable. Building’s sustainable certification contributes to rent premiums according to (Fuerst and McAllister 2009). Nevertheless, consumers appreciation has high variability in different territorial contexts and countries (Bonifaci and Copiello 2015; Johnson Controls 2011; Popescu et al. 2012)
	Price of houses in the surrounding of demonstration site (not directly interested by refurbishment measures) where renewable energy sources are adopted	CS: Spatial hedonic price model	Won Kim et al. (2003) measured the benefits of air-quality improvement in Seoul metropolitan area applying a spatial hedonic approach to the housing market. They found that where SO2 pollution levels are higher than standard, they had a significant impact on housing prices: the marginal willingness to pay (WTP) per 4 % SO2 mean—concentration reduction is about $2,333, i.e., 1.43 % of mean house value
Buildings life-cycle costs reduction	Life-cycle costs of refurbished green buildings (except for energy expenditures)	CV: WTP for reducing the need of intervention, spare parts, and replacement hassles	As reported by (Hoffman and Henn 2008) construction cost for green buildings, like LEED certified, are today slightly higher than conventional buildings on average on the order of 2 %, or even lower. For example, citing Lockwood, they declare savings in construction costs per retail branch by building to LEED standards around US$ 80,000 Moreover, introducing energy-efficient technologies reduces maintenance, repair, and operation costs: e.g., longer lifetimes of hard-to-reach fixtures reduces the need of spare parts and replacement hassles (Ürge-Vorsatz et al. 2014). Nevertheless, to our knowledge, a WTP study in this topic has never been published yet According to Immendoerfer et al. (2014), the SSEDPs approach of tackling retrofitting at neighborhood scale has the potential for standardizing the approach, leading to economies of scale, due to similarities in buildings typologies	In buildings retrofitting, especially social housing, the containment of the cost for interventions, as well as management and maintenance, up to demolition costs, deserves careful consideration (Boeri et al. 2011)
Resilience of energy infrastructures increased	Avoided cost of blackout interruption Physical intervention of maintenance workers	Direct monetary value	Schweitzer and Tonn (2002) analyzing non-energy benefits of The National Weatherization Assistance Program for low-income houses in the US, report, as service provision benefits, a transmission and distribution-loss reduction estimated in a NPV of US$ 33–80 per participating household. This is because efficient dwellings need less electric power, and consequently less energy has to be transported. Similarly, regarding thermal services, they recognize how, avoiding emergency calls, utilities save staff time and resources, which constitute a monetary benefit having NPV from $77 to 394 Reduction of energy costs is defined as appropriate indicator for CONCERTO Projects by Di Nucci and Spitzbart (2010) EU (2013) suggests to consider as an indicator the number of additional energy users connected to improved energy systems (i.e., smart grids)	Achievement of more resilient systems is needed to prevent damage and blackouts acting on soft and hard components. This can be done by coupling predictive solution-and-metering systems, to prevent or manage demand peaks, with physical changes in the architecture of the system and diversification of supply systems and sources