Applying property valuation to on-site energy investments – a discounted cash flow approach

Niina Leskinen

Research output: ThesisDoctoral ThesisCollection of Articles


Fast transitioning to renewable energy production is required for climate change mitigation. The real estate sector accounts for approximately 40% of global energy use and carbon emissions, and stores approximately 60% of all wealth. It is estimated that on-site energy, such as solar photovoltaics and heat pumps, could produce up to 20% of the energy in an energy ecosystem based on renewables. Hence, the real estate sector has a significant role in enabling the energy transition. However, there is a fundamental difference in the value-creation logic of traditional off-site energy production compared to on-site energy production from property investors' perspective, which this dissertation examines. The purpose of this dissertation is to research how property valuation, especially the discounted cash flow approach, can be applied to on-site energy investments in income-generating investment properties. Two viewpoints are examined: How on-site energy production impacts the cash flow parameters of a property and how property yields reflect the relevant investment risks. The dissertation follows mixed methods research design utilising both qualitative and quantitative data. According to the results, on-site energy production offers several benefits for property investors. First, it can decrease the operating expenses of properties. Second, it can protect properties from increasing energy prices and tightening environmental regulation, which decreases risks. Third, it may appeal to tenants, and accordingly, improve rental income. Evaluating on-site energy investments as part of the property's cash flow enables the capitalisation of the financial benefits into the property value. This dissertation also found that investment risks are evaluated differently in the real estate and energy industries. From property investors' perspective, the risks of on-site energy production may vary even in adjacent buildings, not merely between countries and technologies as traditionally thought. If the value of on-site energy investments is evaluated as part of properties' cash flows, property yields are used as discount rates. It was concluded that property yields reflect the risks of on-site energy investments well and reveal the profitability variation by property location. This research contributes to the evaluation of the economic feasibility of on-site energy investments. Applying property valuation to on-site energy investments reveals the otherwise hidden value of on-site energy production for property investors and the variation of risks (profitability) precisely. Rational property investors adopt on-site energy production when the capitalised value of the benefits exceed the investment costs, i.e. when the return of the on-site energy investment is higher than the property yield. Applying property valuation to on-site energy investments changes the way the profitability is perceived, potentially enhancing it in areas with low property yields.
Translated title of the contributionKiinteistöjen tuottoperusteisen arvonmäärityksen soveltaminen kiinteistökohtaisen energiantuotannon kannattavuuden arvioinnissa
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
  • Junnila, Seppo, Supervising Professor
  • Vimpari, Jussi, Thesis Advisor
Print ISBNs978-952-64-0103-4
Electronic ISBNs978-952-64-0104-1
Publication statusPublished - 2020
MoE publication typeG5 Doctoral dissertation (article)


  • renewable on-site energy investment
  • decentralised clean energy production
  • real estate investment
  • property value
  • discounted cash flow


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