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Cost Benefit Analysis of Green Building: A Case Study of Public Office Building
in Nepal

Article · October 2020

DOI: 10.36348/sjet.2020.v05i10.005

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 Saudi Journal of Engineering and Technology
Abbreviated Key Title: Saudi J Eng Technol
ISSN 2415-6272 (Print) |ISSN 2415-6264 (Online)
Scholars Middle East Publishers, Dubai, United Arab Emirates
Journal homepage: https://saudijournals.com/sjeat

Original Research Article

Cost Benefit Analysis of Green Building: A Case Study of Public Office

Building 1*in Nepal 2 3
Pujan Neupane , Dalila Afroze , Phonethida Phommasone
1
Department of Urban Development and Building Construction, Ministry of Urban Development, Kathmandu, Nepal
2
Department of Public Health Engineering, Ministry of Local Government, Rural Development and Co-operatives, Dhaka, Bangladesh
3
Department of Planning and Cooperation, Ministry of Public Works and Transport, Vientiane, Laos

DOI: 10.36348/sjet.2020.v05i10.005 | Received: 02.10.2020 | Accepted: 15.10.2020 | Published: 21.10.2020

*Corresponding author: Pujan Neupane
Email: [email protected]

Abstract
Buildings are the largest consumer of energy and a major source of greenhouse gas (GHG) emission. This incurs a large
sum of money to society. It is evident that incorporating green features in buildings can substantially save energy and
water consumption, and reduces GHG emissions; however, it is perceived to be costly both by public and private sectors.
Often, the investment decisions are made considering the initial cost of the project. Therefore, the purpose of this
research is to identify the costs and potential benefits of green buildings over the life cycle of the project using Cost
Benefit Analysis (CBA), which performs an economic assessment in project appraisal that helps investors and
policymakers in better decision making. The study involves a case study of a public office building from Nepal, which is
located at Dumre- Bhansar New Town. The existing building is retrofitted with green components such as solar panels
and rainwater harvesting for energy efficiency and water efficiency. The results show that investing in green buildings
reduce the life cycle cost of the project, and therefore generates value for money in public investment in the long run. A
policy recommendation on subsidy helps in scaling the project to private sectors especially residential buildings. The
most important contribution of this study lies in identifying the costs and benefits of green building and introducing the
concept of life cycle cost using CBA, which increases awareness and removes barriers in implementing green
technologies. This paper also acts as an introductory guideline for project appraisal and formulating policies for the
Government of Nepal.
Keywords: Green Building, CBA, life cycle costs, Sustainable Development Goals.
Copyright © 2020 The Author(s): This is an open-access article distributed under the terms of the Creative Commons Attribution 4.0 International
License (CC BY-NC 4.0) which permits unrestricted use, distribution, and reproduction in any medium for non-commercial use provided the original
author and source are credited.

INTRODUCTION emission [4]. The Paris Agreement of 2015 restates the

need to minimize net global emissions close to zero
Background before the end of the century; so, most of the cities are
Buildings are one of the main energy users by trying to be carbon neutral [11]. To achieve this target,
sector, which is responsible for consuming 73% of one of the objectives is to promote green building
electricity, 40% of raw materials, 13.6% of potable technologies. Green building is a broad concept;
water, and 30% of carbon emissions in the US [1]. The however, enhancing energy and water efficiency in both
building energy use is projected to be doubled by 2050, new and existing buildings provides the most diverse,
and the greenhouse gas (GHG) emission in this area is largest, and most cost-effective energy usage and GHG
projected to reach 14.3 GtCO2e by 2030 due to mitigation opportunities. Both the existing and new
population growth, increase in building stock, and buildings can be energy efficient by 23% with the
lifestyle changes [7,8]. This continued rise in energy reduction of GHG by 55% by incorporating green
use is increasing the operating cost of building, for features in the building. by 2030 and 2050, respectively
example, the Australian Government annually spends [10]. In monetary terms, this equates to around $20
over $1 billion on energy and water consumptions [9]. billion in energy savings by 2030 [10]. The average
Moreover, the GHG generated from building energy water saving in green buildings is Taiwan was
consumption is responsible for an increase in earth approximately 37.6% [5]. Over the last three decades,
temperature, which contributes to disasters linked to researchers have been demonstrating energy and water
climate change. The impact of GHG on society can be savings can be achieved by retrofitting buildings [3],
monetized that ranges from $10/ t to $20/t of carbon
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 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
and recently it has been observed reductions of 30–40% often desirable to deliver benefits and create value for
is often achievable in buildings [2]. Many studies have money. There are several ways to access whether the
been published on CBA of the green building in project is profitable; however, CBA is particularly
developed countries [39]; however, this research appropriate for a public-funded project [15]. Therefore,
investigates CBA of the existing public office building this study aims to increase knowledge on the usefulness
by incorporating green features in Nepal. The green of CBAs as a basis for project selection since many
building concept is also new to developing countries public and private investors, and government officials
like Nepal, Bangladesh, and Laos. Therefore, the lack a proper understanding to develop the cost-
incorporation of green features in the building sector effectiveness of any intervention. This paper also
can make a significant contribution towards achieving outlines the concept of green building with its potential
the net-zero carbon emission goals as well as can result costs and benefits. The specific research objectives are
in significant financial savings globally. as follows:
 To determine the costs and benefits of Green
RESEARCH NEEDS Technology
Public buildings are one of the major sources  To use a CBA as a tool for the feasibility of a
of energy and water consumption. In China, public project
buildings comprise 20% of the total floor areas of the  To help decision-makers in policy formulation.
total building stock, but it consumes 31% of energy and
generates 27 % of carbon dioxide emissions [12]. In the The current study is limited to the public
context of rising energy and water prices and severe building since green building policies targeted at the
budget constraints, energy and water costs become a private sector have little or no credibility unless the
major burden to public budgets. To ease these government itself is practicing. The energy and water
pressures, the public sector needs to cut energy and efficiency in public buildings can also have highly
water costs in the building sector effectively without visible significant effects throughout the local economy.
compromising the comfort of users. In recent years Moreover, public buildings can also serve as a testbed
green building technologies have been recognized as and training ground to help familiarize contractors,
the fastest, most cost-effective, and often the easiest installers, and facility operators with innovative
path to reduce energy and water use; however, concerns technologies and practices of green building systems.
have been raised about the upfront construction cost of To examine the effectiveness of an intervention, a case
green buildings. It is not widely understood that study of the government office building is used to
although the initial cost of the green building tends to illustrate the procedure of cost-benefit analysis. The
be higher than conventional buildings, the operational office building is retrofitted with PV solar panels and
and maintenance costs comparatively low [6]. The U.S. rainwater harvesting technology, which can be easily
General Services Administration found that green implemented. The result of this research is intended for
buildings have 19% lower average maintenance costs, public and private sector practitioners to conduct an
25% of lower energy costs, and 34% lower CO2 effective, robust economic assessment of not only green
emissions [14]. The potential energy and water savings buildings but also for other interventions for better
in public buildings could be achieved by installing or decision making for the welfare of society.
retrofitting with green solutions; however, some
implementation obstacles hinder even more than in the LITERATURE REVIEW
residential sector. Many home builders, public and Green Building
private stakeholders, and decision-makers are struggling In recent years there has been considerable
with the details and concepts of green homes, growing interest in green buildings, and several studies
particularly with the increased initial costs versus the suggest that green building is efficient in energy
long-term benefits of added green features. The main consumption, environment friendly and structurally
barrier to the adoption of green buildings is customers' sustainable throughout the building life cycle. The
unwillingness to pay additional construction costs. The concept of green building was first introduced in 1970
decisions are often made based on initial project cost during the energy crisis. Since then, it has been widely
rather than considering the operation and maintenance applied to achieve a safe and resilient society through
costs, which account for almost 55% of the total cost, optimal utilization of natural resources such as PV solar
for 40 years in building projects [13]. This inability panels, and rainwater harvesting. The design of a green
could impede in formulating effective and efficient building is different from a conventional building, and
policies; therefore, the costs and benefits of green recent research outlines several green technologies can
buildings must be clearly illustrated to allow be incorporated in the building. For instance, one of the
prospective owners to evaluate the option of investing zero-emission buildings in Korea introduced 95
in green buildings with confidence. different green solutions so that the energy consumption
is only 1.82 kWh/m2, and the excess energy generated is
RESEARCH AIM AND SCOPE connected to the national grid [29].
Public projects are often implemented for the
welfare of society. Public investment in any project is Costs and Benefits of Green Buildings

© 2020 |Published by Scholars Middle East Publishers, Dubai, United Arab Emirates 383
 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
A growing body of literature has examined the cost, lack of client's interest, knowledge, and awareness
costs and benefits of green buildings. The costs on the benefits of green buildings.
associated with the green buildings are often the direct
costs such as initial cost, operating and maintenance To overcome these barriers, the costs and
cost, and replacement cost. Several studies [30,31] benefits associated with green buildings need to be
illustrates the benefits of green buildings in four major delineated. Several authors have recommended using
categories: economic, social and community, cost-benefit analysis as a toolkit to identify and
environmental, and government. monetize the real costs and the benefits items and to
determine the economic feasibility of the project
Economic aspect: Green buildings have [15,24,25]. Until now, in most studies, the cost-benefit
several economic benefits. Firstly, it creates a analysis of green buildings has only been applied in the
competitive marketplace for renewable energy, which context of developed countries, and very few
creates a new job. Secondly, it reduces the life cycle researchers have introduced it to developing countries.
cost of the building, for instance, the installation of the In developing countries like Nepal, Bangladesh, and
solar panel reduces energy consumption and saves the Laos, the characteristics of green technologies are not
operating cost remarkably. Thirdly, homeowners well understood. The concept of green building is also
capture values from a green building with higher rent not widely understood among public officials,
and increased productivity with lower medical policymakers, and decision-makers. Therefore, a
expenses. number of questions regarding the use of cost-benefit
analysis in the project appraisal and the policy
Social and Community aspect: Green building formation of the green building remain to be addressed
enhances job opportunities for local people thereby in developing countries.
reducing unemployment. The experienced employee
gets the opportunity for knowledge transfer through Principles of Cost-Benefit Analysis
training, workshops, which generates additional Cost-Benefit Analysis (CBA) is a toolkit to
economic benefits. The green solutions involve the determine the economic feasibility of an individual
potential for lots of research activities. The results and project that compares the benefits and costs for the
recommendations of the study increase global whole society [16,17]. CBA provides consistent and
networking with the sharing of best practices for the objective criteria of project selection from a social
welfare of communities. welfare point of view. CBA is not about money; it is
about welfare. Money is used as an alternative way of
Environmental aspect: Environmental aspects measuring welfare. CBA involves evaluating the social
are the most widely recognized benefit of green value achieved from the project outputs with the value
building in reducing the negative externalities in of other goods sacrificed elsewhere for the sake of the
society. Green building reduces CO2 and increases the project [16]. Conducting a CBA supports the
proper utilization of renewable energy, which is aligned identification of interventions that offer the best value
with sustainable development goals. for money and positively contribute to social welfare.

Government aspect: Since the green building In the CBA social opportunity cost (shadow
saves costs, increases economic activities, addresses price) is applied in costing. The producer benefits are
social and environmental issues; thus, from the measured as producer surplus changes while consumer
government perspectives, it helps the government to benefits are measured as consumer surplus changes.
achieve sustainable development goals. The sunk costs are not to be included in CBA since
sunk costs are past opportunity costs that are partially or
Barriers in Green Building Implementation irretrievable and, therefore, should be considered
A significant number of researchers irrelevant to future decision making. Various taxes and
[32,33,34,37] indicates that high initial investment cost simple income transfer for distributional purpose are
and client demand are the key obstacles in not included as benefits or costs because it represents
implementing green construction. The cost of the green transfer payments, which are to be ignored [17, 18]. All
building starts in the design phase. According to Green the costs and benefits are aggregated and discounted.
Building costs (2016), if the green building features are Un-monetarized welfares, which do not have market
considered in the design stage, it reduces 10% cost at value are to be disclosed. CBA estimates welfare
the construction stage against a 3% increase in the changes of difference between with-the-case and
initial cost [38]. Besides, other researchers [35-37] without-the-case scenario, which is a comparison of
identify the lack of knowledge and awareness on green “with-the-case” and “without-the-case”. It is not a
construction, and the reluctance of contractor to use comparison of "before" and "after" situation [17].
new technologies act as a barrier in implementing green
building. In summary, the main challenges to
implement green buildings are higher initial investment

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Steps of CBA

Fig-1: Steps of Cost Benefit Analysis [2,15,16,17,18]

Step 1: Define the Objective and Scope of the Benefits can be measured through individual
Project: Before evaluating the objective of the project willingness to pay, sometimes observed. The costs are
has to be clearly defined. In this stage, the analyst has to measured in opportunity cost.
examine relevant alternatives to achieve similar results
and have to answer whether the proposed intervention is Step 5: Aggregate Benefits and Costs: The
the best way of solving the problem. The analyst should benefits and costs project is aggregated to a lifetime. In
also define the scope of the project. the time horizon calculated costs and benefits will need
to cover the entire economic/functional lifetime of a
Step 2: Identify Cost and Benefits Items: The project. The number of years adopted for this will
project's direct cost and benefits are identified. Indirect largely depend on the nature of the intervention being
impacts such as social, environmental, and economic chosen, with benchmarks often varying depending on
should be taken into consideration. the sector in question. The time horizon chosen for
CBA will play a large role in determining the overall
Step 3: Analyse the impacts of the project reliability and outcome of model outputs. This is due to
(Quantification of costs and benefits): CBA estimates the decline in the direct effect of an intervention over
welfare changes of difference between with-the-case time.
and without-the-case scenario. It replicates the world
without the project and imagines the world with the Base year: Adopting an appropriate base year
project. It forecasts the main changes to the for discounting, from which the costs and benefits of
counterfactual. Excepted changes are the comparison alternative interventions will be compared, forms an
with the counterfactual. CBA assesses the costs and integral part of any CBA approach.
benefits from a proposed project (intervention) against
what would happen otherwise the status quo or Choice of social discount rate: An important
baseline, also known as the counterfactual [16]. point to note at this stage is that all future costs
Converting as many of the costs and benefits into associated with intervention will need to be
monetary values, including those that are not usually appropriately adjusted. There are two major theories to
bought or sold under market conditions, allows the SDR, which are Social rate of time preference (SRTP)
analysis to generate a single value such as a social Net and Marginal Social Opportunity Cost (MSOC) [17,18].
Present Value, which estimates whether the proposed
project is better for society than the status quo. This Step 6: Calculate NPV, B/C, and IRR: The
approach is generally most useful when most of the criteria for CBA analysis are B/C (Benefit-Cost Ratio),
impacts identified can be monetized. NPV (Net Present Value), and IRR (Internal Rate of
Return) [2,16].
Step 4: Monetize the Impacts: A key
prerequisite of any CBA modeling is that the costs and Net present value (NPV): The Net Present
benefits associated with any chosen intervention must Value (NPV) discounts all the monetized future costs
be easily identifiable and monetized where possible, to and benefits, which are anticipated from intervention to
maximize the robustness of the analysis undertaken. their present value or the selected base year. If the NPV

© 2020 |Published by Scholars Middle East Publishers, Dubai, United Arab Emirates 385
 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
is positive, the benefits outweigh the costs and generate public office building in Nepal. The building has 4
positive cash flow. If the NPV is negative, the project floors with a total floor area of 1,100 m2 and a roof area
will never pay back its investment. The higher NPV of floors of 275 m2. The annual power and consumption
values assure a greater rate of return on investment. of the building are 47,872 kWh and 505,450 liters
Also, the NPV effectively determines the payback respectively. The data for this study is collected from
periods associated with an intervention. various sources, which includes some primary data and
metadata. The usefulness of the CBA model in
Internal rate of return (IRR): The IRR is the evaluating the green building intervention is discussed.
discount rate for which the NPV of the project is zero, Finally, a policy recommendation is done for scaling up
which represents the rate of return on investments. If it to private sectors.
the IRR is higher than the rate of return on other
alternatives, then the project is economically viable. It
can be easily interpretable; however, in the case of more
than one alternative, its result can be misleading. For
example, a project with a short life cycle might have a
high IRR and yield high returns for few years while a
project with a lower IRR but with a longer life cycle,
might yield higher total investment return over the long
term; therefore, it should be used in conjunctions with
other parameters.

Benefit-cost ratio (B/C): Benefit-Cost Ratio is

one of the primary outputs of CBA that will help to
determine the overall cost-effectiveness of an
intervention [2, 16]. It is the ratio of net monetized
benefits to net monetized costs for a given base year.
The intervention with B/C value less than one is an
inefficient investment while the B/C ratio greater than
one represents cost-efficient intervention.

Step 7: Conduct Sensitivity Analysis: It is the

technique to determine the robustness of CBA results Fig-2: Research Methodology
by accounting for different levels of uncertainties.
Sensitivity analysis is performed to determine the Cost-Benefit Analysis of Green Building
overall effect that changes in input data and model The cost-benefit analysis of green building is
assumptions have on CBA outputs [16]. It analyses how conducted using the procedure identified in the
sensitive the CBA model is to changes in assumptions literature review. The following section describes each
of the analysis such as changes in the discount rate, and stage of the assessment process.
changes in assumptions on demand.
Step 1: Objective and Scope of the Project
Step 8: Interpret results and make a decision: The objective of the project is to reduce the
The results of CBA are interpreted with the help of operating costs of public buildings and reduces GHG
standard economic evaluation parameters that help in emissions. The scope of the project is to retrofit the
effective decision making. existing building with PV solar panel (Hybrid) on its
roof for energy efficiency and to install rainwater
METHODOLOGY harvesting (RWH) technology to improve the water
The research is designed to carry out costs and efficiency of the building. In this study, the installation
benefits associated with green building. Cost-Benefit period is considered as one year, and it is assumed that
Analysis (CBA) is used as a tool to carry out the the project will generate cash flow after one year.
effectiveness of proposed green building intervention
since it has been identified as one of the appropriate Step 2: Cost and Benefit Items
methodologies for socioeconomic assessment During an economic appraisal, it is a
[15,24,25]. To demonstrate the application of CBA in prerequisite to identify the most significant costs and
identifying costs and benefits of green building, a case benefits associated with the project. The costs and
study is carried out in the existing government office benefits items of PV solar panel and rainwater
building, which is referred to as a "project" in this harvesting, identified within the scope of the study, are
study. The concept of green building is applied in the private cost, which includes capital cost and annual
integrated office building of the New Town Project operating and maintenance. The benefits include private
Office (NTPO), Dumre-Bhansar, Tanahun, Nepal benefits and social benefits.
because this could be a representative of a typical

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 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
Benefits
Capital Cost The benefits considered in this study are power
The capital cost is the initial installation cost saving from PV solar panels, water-saving for rainwater
for a PV solar panel and rainwater harvesting facilities. harvesting, and reduction in CO2 emission. The power
The office building will be retrofitted with 40 kW of generated from a solar panel is calculated in reference
solar panel and 8 units of rainwater harvesting tank. The to the excepted power output from a solar system
installation cost for the PV panel was collected from the installed in MPID. The average annual power output
Ministry of Physical Infrastructure Development per kW of PV solar panel is 153.89 kWh. The excess
(MPID) of Gandaki Province. The ministry has recently energy generated from the system is connected to the
installed a solar system on its roof; so, the installation grid. The water collected from the rainwater harvesting
cost of a solar panel for this study is $1,728.70/ kW, system is calculated by using the rational method. The
which is the bid price. However, no references have runoff coefficient, rainfall intensity, and drainage area
been found on the installation cost of rainwater are 0.9, 90 mm/hr, and 275 m2.
harvesting in Nepal; so, a detailed cost estimate has
been carried out. For this study, $ 625.6/unit has been The annual amount of water harvested is
estimated. 334,125 liters considering 30 days of rainfall for 5
hours. Since the CBA tool carries project appraisal
Operating & Maintenance Cost: considering the welfare of the society; therefore, the
In this study, energy cost and water reduction of CO2 emission due to energy and water
consumption cost has been considered as the operating saving is considered as a social benefit in this study.
cost. The average annual power consumption is The CO2 emission from energy and water consumption
calculated in reference to similar government buildings is 7.07*10^-4 ton/kWh and 0.35 kg/1000 liters
in Kathmandu, Nepal, which is 43.52 kWh/Sqm. The respectively [20,21].
power consumption data of a similar nature of the
building is acquired from the Nepal Electricity Step 3: Analyse the impacts of the project (costs and
Authority (NEA), and the details on the total floor area benefits)
are provided by the Ministry of Urban Development. The CBA replicates the world without the
However, the records for water consumption in public project and imagines the world with the project. In this
buildings in Nepal were difficult to acquire; so, the rate case study, CBA evaluates the costs and benefits of a
of annual water consumption is considered as 459.5 proposed green building retrofitting project
liters/m2 based on the result of other researchers [19]. (intervention) against what would happen otherwise
Other maintenance costs included in the study are (the baseline) and estimates whether the proposed
annual routine and periodic maintenance that is project is better than the status quo. Fig 3 shows the
included in the capital cost. Apart from this, there is world with the green building project and without the
also a battery replacement cost for solar panels in every green building. The negative value of CO2 indicates a
five years. reduction in its emission.

Fig-3: The world With Project vs Without Project

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 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
Step 4: Monetize the Impacts price collected from various sources as shown in Table
The costs and benefits of green buildings are 1.
monetized with reference to market rate and shadow
Table-1: Monetization of Costs and Benefits
Cost Item Value ($) References
Capital Cost
Solar PV Panel with Accessories (40 kW) @ 1728.70/kW 69148 MPID
Rainwater Harvesting (8 Unit) @ 625.6/unit 5004.8 Detailed Cost Estimate
Operating Cost
Annual Energy (Electricity) Consumption (36050 KWh) @ $ 4787.20 Building Inventory & Tariff Rate of
0.1/ KWh NEA
Annual Water Consumption (505450 liters) @ $0.00054/liter 274.55 Local Water Distribution Tariff Rate
Battery Replacement every five years (24 Nos) 4000 Market Price
Benefit Items
Annual Power Saving (73867.2 KWh) @ $ 0.1/ KWh 7386.72 MPID & NEA
Annual water saving (334125 liters) @ $0.00054/liter 181.49 Rational Equation & Local Tariff
Reduction in CO2 Emission (21.75) @ $10/ton 523.40 World Bank Carbon Pricing

Step 5: Aggregate Benefits and Costs  Date (i.e base year) when the green building project
Since the life of PV solar panel and rainwater is undertaken: The effect on cost and benefits of
harvesting is 20 years, the time horizon for CBA is set delaying the investment in green building by 5, 10,
at 20 years from the start of the installation. The 15, and 20 years is examined.
benefits and costs of the project are aggregated to
lifetime for the economic assessment. The base year for The project generates positive cash flow until
discounting is considered as 2020. The social discount the discount rate is 7.48%. The project generates $
rate is calculated from the Social rate of time preference 41801.27 at a discount rate of 2%, and -$10862.63 at a
(SRTP) approach since it is suitable for public sectors discount rate of 10%. So, the discount rate should be
that have no well-defined market value [22]. The SRTP cautiously selected to examine the economic viability of
is calculated as a maximum of Development Bond and the project. As explained above, there are chances of
Treasury Bill. As per the central bank of Nepal, the the fluctuation in power output. If the power output
interest rate on development bond is 5% for 15 years decreases by 20%, then the project will not generate
and 4.28% for the treasury bill over 364 days [23]; so, positive cash flow; therefore, careful assessment should
the social discount rate is considered as 5%. be conducted for the power generation because it is
adversely affecting the project viability. If the
Step 6: Calculate NPV, IRR, and B/C ratio commencement of project is deferred by 5 years, 10
The output of CBA is measured against years, 15 years, and 20 years, it will impose a financial
standard parameters: NPV, IRR, and B/C ratio. All the burden to taxpayers by $35,032.44 ($31.84/m2),
costs including replacement cost and benefits are $62,481.27 ($56.80/m2), $87,695.00 ($79.72/m2), and
considered; however, salvage value is ignored since the $100,839.35 ($91.67/m2) respectively.
NPV of salvage value is negligible. The NPV, IRR, and
B/C ratio of the project are $14,997.51, 7.48%, and
1.252 respectively.
Step 7: Sensitivity Analysis
Sensitivity Analysis measures uncertainty
during project implementation. It measures how the
proposed intervention in green technology performs in
the long run. Three factors are considered for scenario
analysis: SDR, net benefits, and date as follows:
 Social Discount Rate: The effect of SDR on NPV
is observed by varying discount rates from 2%
(Low) to 10% (High).
 Net Benefits: The major benefit item is the power
yield from the solar panel. During the analysis, the Fig-3: The financial burden on taxpayers from Project Delay
maximum expected power output was taken to
quantify benefit; however, it is sensitive to the Step 8: Interpret the result and make a decision
weather conditions. So, the monetary value of Over a period of 20 years, the initial
predicted benefits is varied by -10%, -20%, and, - installation cost of solar panels & rainwater harvesting
30% to study its impact on project feasibility. is $74,152.80, which is only a small cost compared to
the higher benefit. The NPV of $14,997.51, being

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 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
greater than zero, and the IRR 7.48%, which is higher cost-effective for a government office building;
than the discount rate, indicate that the project is however, the benefits should be carefully quantified.
economically viable. The payback period is calculated This paper has also highlighted that the green building
as 11.15 years; hence, solar panel & rainwater reduces public building operating costs and free up
harvesting will be operating as positive cash-generating budgets for other uses, and the reduction of GHG
more years of benefits than years of paying it. These emissions helps to mitigate the impacts of climate
findings are consistent with that of previous studies change. The use of renewable energy also helps the
conducted in the neighboring region [26, 28]. Thus, the government to align with sustainable development goals
results of the cost-benefit analysis demonstrate the no 7,11, and 13, which are renewable energy,
installation of solar panel & rainwater harvesting as a sustainable cities and communities, and climate change.
favorable investment option. By incorporating green However, it is noted that if the government delay
features, New Town Project Office will decrease its life implementing green building projects in the public
cycle cost of building by $14,997.51 over a period of 20 sector, it has to bear the additional cost; therefore, the
years. However, delaying the project adds a financial evidence from this study suggests implementing and
burden to the government, and the result of sensitivity upscaling the green building project in the public sector
analysis shows that each year of delay increases the at the earliest so that it will have a more visible impact,
government current expenditure, consequently, budget and public buildings can lead other building owners.
allocation for capital expenditure will be less. Furthermore, the subsidy framework helps in upscaling
Therefore, the government should not only implement the green building concepts in the private sector. It is
this project by the earliest but also develop a policy expected that the result of this study draws the attention
framework for scaling it to other buildings including of all stakeholders in better decision making. In
private sectors. summary, the CBA provides a proof-of-concept on the
usefulness of intervention since it anticipates the world
SUBSIDY POLICY with and without the project and identifies potential
The CBA shows that green building is costs and benefits along with cost savings and return on
beneficial to society, and it generates value for money. investment. The CBA methodology described in this
Besides, it aligns with sustainable development goals paper also acts as a standard project appraisal guideline
that help to make cities and communities resilient; so, for any government intervention.
there is a necessity for scaling it to private sectors. The
question that needs to be addressed is how much This study has some limitations. Primarily, the
subsidy is needed to make a project viable for the present study considers only PV solar panel and
private sector such as a residential building in Nepal. To rainwater harvesting; so, future work may consider
examine this, the private benefits and social benefits of other green components such as improving building
a green building need to be identified properly. The thermal envelope and using water efficiency faucets.
private benefit considered in this study is energy-saving Then, the result and conclusion presented are from a
and water-saving while a reduction in CO2 emission is a case study of one public office building in Nepal. Even
social benefit, but the private sector does not account though results are promising, it should be validated on a
for social benefits in project appraisal. They are more larger scale. Finally, the current work has investigated
concerned about the Revenue Expenditure (R/E) ratio. the power consumption in the low scenario since most
The R/E value for this project is 0.82 considering the of the buildings in Nepal do not have proper heating
worst-case scenario where the excepted power and cooling system. The authors of this research are
decreases by 30%. Therefore, the minimum subsidy public officials from developing countries; so, the
required to make the project viable is $12.74/m2 for the authors believe that if a public building has poor
private sector. More specifically, the subsidy needed for heating and cooling facilities, the employees not only
a solar panel is $326.16/kW, which is in line with an feel uncomfortable but also there is a decrease in
earlier study in India [26], and the subsidy required for productivity. Thus, it is also recommended to carry out
rainwater harvesting is $3.7/m2. CBA considering enhanced heating and cooling system
in building to boost the productivity of employees in
CONCLUSION developing countries.
Green building can save the substantial
operating cost of building over the project life cycle; ACKNOWLEDGMENTS
however, it is often criticized for having a high upfront This study is developed from the group project
cost compared to a conventional building. The work in the class of Public Investment Management,
knowledge of costs and benefits of green buildings is Fall 2019; so, we thank Prof. Dr. Hyeon Park, Dean of
also limited among government officials and decision- International School of Urban Sciences, the University
makers. Therefore, this study proposes CBA as an of Seoul for his valuable guidance.
assessment tool for project appraisal of green building.
The study carried out detailed costs and benefits of
green building within its scope. The result of CBA
demonstrates green building intervention is feasible and

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 Pujan Neupane et al; Saudi J Eng Technol, October, 2020; 5(10): 382-391
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