The choice of energy saving modes for an energy-intensive manufacturer under non-coordination and coordination scenarios

Abstract

Energy-intensive manufacturers have two main options for improving their energy efficiency: design and implement energy efficiency projects on their own (we call this self saving), or enter into energy performance contracts (EPCs), which mainly include shared savings and guaranteed savings. In this paper, we will discuss an energy-intensive manufacturer facing self saving and shared savings options and how this manufacturer chooses the optimal energy saving mode under non-coordination and coordination scenarios. We first formulate several mathematical models of the two types of energy-saving modes based on the assumption of exogenous unit savings (EX). We show that when the unit energy-saving benefit from shared savings is greater than the unit energy-saving benefit from self saving, the manufacturer prefers shared savings under the non-coordination scenario; otherwise, the manufacturer prefers self saving. Furthermore, we find that the bargaining power of the manufacturer is also a key factor in addition to the difference of unit energy-saving benefits under the coordination scenario. Interestingly, sometimes the bargaining power of the manufacturer has no impact on the optimal choice of energy saving modes. Finally, the basic model is extended to endogenization of unit savings (EN), and we show that the optimal choices of energy saving modes are completely different from the basic model.