6.7.4 Regulatory barriers

A range of regulatory barriers has been shown to stand in the way of building-level distributed generation technologies such as PV, reciprocating engines, gas turbines and fuel cells (Alderfer et al., 2000). In many countries, these barriers include variations in environmental permitting requirements, which impose significant burdens on project developers. Similar variations in metering policies cause confusion in the marketplace and represent barriers to distributed generation. Public procurement regulations often inhibit the involvement of ESCOs or the implementation of energy performance contracts. Finally, in some countries the rental market is regulated in a way that discourages investments in general and energy-efficient investments in particular.

6.7.5 Small project size, transaction costs and perceived risk

Many energy-efficiency projects and ventures in buildings are too small to attract the attention of investors and financial institutions. Small project size, coupled with disproportionately high transaction costs – these are costs related to verifying technical information, preparing viable projects and negotiating and executing contracts – prevent some energy-efficiency investments. Furthermore, the small share of energy expenditures in the disposable incomes of affluent population groups, and the opportunity costs involved with spending the often limited free time of these groups on finding and implementing the efficient solutions, severely limits the incentives for improved efficiency in the residential sector. Similarly, small enterprises often receive higher returns on their investments into marketing or other business-related activities than investing their resources, including human resources, into energy-related activities. Conservative, asset-based lending practices of financial institutions, a limited understanding of energy-efficiency technologies on the part of both lenders and their consumers, lack of traditions in energy performance contracting, volatile prices for fuel (and in some markets, electricity), and small, non-diversified portfolios of energy projects all increase the perception of market and technology risk (Ostertag, 2003; Westling, 2003; Vine, 2005). As discussed in Section 6.8 below, policies can be adopted that can help reduce these transaction costs, thus improving the economics and financing options for energy-efficiency investments.