Behavioural issues Behavioural market failures (sometimes called bounded rationality) exist when buyers make, or are perceived to make, choices which are against their own best interest. [OBPR 2013] Even though buyers may have access to sufficient information, they may make sub-optimal decisions, as their knowledge and processing abilities may be limited, loss aversion, or because rather than using this information they resort to rules of thumb or cultural/organisational norms. In terms of equipment this could result in buyers who place an excessively high discount rate on future running costs, and focus instead on upfront cost, or have a bias towards standard equipment (the quo’) rather than considering more efficient equipment [OBPR 2013]. ‘status is evidence that fan-unit buyers place an excessively high discount rate on future running costs, with suppliers reporting that 58.8% of buyers require a payback of 2 years or less if they are to purchase a more efficient fan-unit. [EG2015a] The mechanical services designers surveyed noted that paybacks of 2 to 5 years were generally required by their clients, although government and institutional clients might accept a longer payback (8 to 10 years). The typical average (50%) life of a fan-unit ranges from 12 to 20 years. Given than energy costs are estimated to account for around 67% of the overall life cycle costs of the fan-unit, this requirement for a very rapid payback period means that life cycle costs are not as low as they could be. There is also evidence that a significant proportion of buyers are either unable to assess information on energy efficiency or lifecycle costs or do not have the time to do so (especially for the smaller, < 4 kW units) [EG 2015a], and that some buyers (e.g. mechanical services designers and other consultants) tend to use tried and tested standard solutions rather than consider alternative higher efficiency solutions which could minimise the lifecycle costs for the end-user [E3 2012]. One of the mechanical services designers stated: vast majority of consultants “The are re-using specifications that were written decades ago. Most don’t even check that their designs and the selection of the contractor comply with the BCA energy efficiency requirements.” [SV 2016] Consultation questions
Behavioural issues Behavioural market failures (sometimes called bounded rationality) exist when buyers make, or are perceived to make, choices which are against their own best interest. [OBPR 2013] Even though buyers may have access to sufficient information, they may make sub-optimal decisions, as their knowledge and processing abilities may be limited, loss aversion, or because rather than using this information they resort to rules of thumb or cultural/organisational norms. In terms of equipment this could result in buyers who place an excessively high discount rate on future running costs, and focus instead on upfront cost, or have a bias towards standard equipment (the ‘status quo’) rather than considering more efficient equipment [OBPR 2013]. is evidence that fan-unit buyers place an excessively high discount rate on future running costs, with suppliers reporting that 58.8% of buyers require a payback of 2 years or less if they are to purchase a more efficient fan-unit. [EG2015a] The mechanical services designers surveyed noted that paybacks of 2 to 5 years were generally required by their clients, although government and institutional clients might accept a longer payback (8 to 10 years). The typical average (50%) life of a fan-unit ranges from 12 to 20 years. Given than energy costs are estimated to account for around 67% of the overall life cycle costs of the fan-unit, this requirement for a very rapid payback period means that life cycle costs are not as low as they could be. There is also evidence that a significant proportion of buyers are either unable to assess information on energy efficiency or lifecycle costs or do not have the time to do so (especially for the smaller, < 4 kW units) [EG 2015a], and that some buyers (e.g. mechanical services designers and other consultants) tend to use tried and tested standard solutions rather than consider alternative higher efficiency solutions which could minimise the lifecycle costs for the end-user [E3 2012]. One of the mechanical services designers stated: “The vast majority of consultants are re-using specifications that were written decades ago. Most don’t even check that their designs and the selection of the contractor comply with the BCA energy efficiency requirements.” [SV 2016] Consultation questions
170428_E3%20Consultation%20RIS%20-%20Fans_0.docx