Energy Performance Contracting Research Articles

Contract decisions analysis of shared savings energy performance contracting based on Stackelberg game theory

Energy Performance Contracting is a contractual arrangement between energy users and Energy Service Companies (ESCOs) and is currently the main mechanism for implementing energy-saving retrofitting measures in existing buildings. The paper centers around the decision-making conundrum pertaining to the energy-saving sharing percentage and initial project investment within the realm of shared savings Energy Performance Contracting. By formulating a Stackelberg game-based decision-making game model, we examine the optimal contract decisions of both the energy user and the ESCO. The results of numerical experiments demonstrate that this method yields significant advantages for both energy users and ESCOs. Additionally, we observed that the employment of more sophisticated energy-saving technologies by the ESCO and a higher share of investment by the energy users result in superior energy-saving efficiency.

Beyond Well-Being: The Assessment of the Energy Renovation in Latvia by the Residents

Abstract Multi-family building renovation represents a key policy area at the same time, predominantly affects the daily life of residents. The paper tackles the energy renovations of multi-family buildings in Latvia. Specifically, it investigates how the renovation process affects the residents’ health and well-being, their perception, and their understanding of the renovation process. To evaluate the residents’ perception, a survey was conducted in thirteen buildings renovated using energy performance contracting to assess the preparation, execution, and impact of the renovation project. The survey revealed the lack of communication between the parties involved and co-design as the roadblocks to upscale the renovation process in Latvia using energy performance contracting. The paper shows aspects of the process that need to be improved to scale up the renovation in Latvia.

Research on energy performance contracting with shared savings under stochastic market demand

In practice, the market risk caused by stochastic market demand is a main risk affecting the shared savings contract implementation in energy performance contracting. We develop a game-theoretic model to characterize the strategic interaction between the manufacturer’s ex-ante capacity decision and the energy service company (ESCO)’s investment decision on digitization and intellectualization to save energy, through which we unfold the impact of stochastic market demand upon all the stakeholders, the supply chain efficiency and the total energy consumption. The results show that the demand uncertainty can significantly affect the decisions of the ESCO and the manufacturer. Specifically, when there is no demand uncertainty, the manufacturer’s capacity decision is independent of the ESCO’s decision on energy-saving effort. By contrast, under stochastic demand there exists a complementary relationship between the manufacturer’s capacity investment and the ESCO’s energy-saving effort. Moreover, by comparing the optimal equilibria in shared savings with that under centralized supply chain, we find that decentralization causes inefficiencies in the form of lower energy-saving effort, underinvestment or overinvestment in capacity, and lower supply chain profit. In addition, it is more valuable for the supply chain to coordinate the ESCO and the manufacturer when the market demand is more stochastic. Furthermore, though always cutting the manufacturer’s total energy consumption without demand uncertainty, implementing the ESCO’s energy-saving service can increase the manufacturer’s total energy consumption and carbon emission in the society in the presence of demand uncertainty. Hence, governmental agencies should not ignore the impact of stochastic demand upon the total energy consumption with the interplay between the endogenous capacity setup decision and energy-saving service, and to reduce the carbon emission in the society governmental policies should be designed by taking into account such an increase of the total energy consumption.

EPCHC - energy performance contracting (EPC) model for historic city centres

The current predominant obstacle for the implementation of energy retrofitting projects at the neighbourhood level is attributable to restricted funding options, which is especially relevant for the expensive renovation of buildings of cultural heritage importance. The first aim of the article is to articulate and identify the main characteristics which influence the funding processes for energy retrofitting historic urban districts. The second objective is to build a comprehensive approach/procedural funding model based on these identified specifics/characteristics. The “energy performance contracting model for historical city centres” (EPC HC ) is constructed with procedural processes (steps) associated with the main specific characteristics of urban central districts. The principal attributes which define and influence EPC in historical city centres are “district-level retrofitting”, the “multi-stakeholder approach” and “cultural heritage preservation”. First demonstrated are the benefits of the district level EPC’s “economy of scale”. Secondly, city centres are specific neighbourhoods with several public (municipal, governmental) and private entities, necessitating a particular tailor-made EPC approach is necessary for each stakeholder. Thirdly, the article focuses on the issue of higher retrofitting costs because as a result of historical building status and finding an optimal solution to overcome the conflict between sustainable renovation and cultural preservation. The procedural model for EPC HC in historical city centres offers step-by-step guidelines with suggestions to be followed in order to approach and involve all the various stakeholders. EPC HC could open a new perspective on district green retrofitting and could facilitate municipalities’ decision-making processes upon deciding to retrofit historical central districts.

Uncertainty and sensitivity analysis to moderate the risks of energy performance contracts in building renovation: A case study on an Italian social housing district

One of the pillars of the policies undertaken to achieve climate neutrality by 2050 in the European Union is the decarbonisation of the construction sector. Massive energy renovation of existing buildings is expected in the coming years and encouraged by supporting incentives. A considerable amount of resources will be invested in this area and the large-scale interventions will be conveyed by Energy Service Companies that usually employ Energy Performance Contracts for the implementation of the restructuring interventions. This form of contract is generally bound to the achievement of a certain level of energy performance, which ensures an adequate profit margin for the Energy Service Company and the users subscribing the contract. But how reliable is the forecast of energy consumption and to what extent could it constitute a well-founded guarantee based on an Energy Performance Contract? The analysis proposed in this paper aims at investigating in this direction and proposes a design methodology based on Uncertainty and Sensitivity Analysis that can be validly applied to reduce the investment risk. A case study consisting of an Italian social housing complex is considered for energy, economic, and environmental evaluations. The results show that the Uncertainty and Sensitivity Analysis allows for identifying corrective measures at the design stage, making it possible to increase the chances of success of the intervention by 60%, raise the earning potential by 4% compared to the predictions, and obtain an additional reduction in CO2 emissions of 40%. This makes the investment more attractive and safe promoting the participation of Energy Service Companies in the renovation of the existing building stock.

Industrial CHP with Steam Systems: A Review of Recent Case Studies, Trends and Relevance to Malaysian Industry

Malaysia’s energy intensity (GWh/GDP) shows an increasing trend since the 1990s, leading to the government’s efforts to promote energy efficiency via policies such as the National Energy Efficiency Action Plan (NEEAP), which includes the Energy Performance Contracting (EPC) initiative. This paper reviews recent publications in industrial Combined Heat and Power (CHP) with a focus on international case studies relevant to Malaysian industries that use industrial steam and highlights trends within the research area. It also provides the basis for more case studies to be performed in the Malaysian industry to improve energy efficiency while also supporting further academic research in the area. Additionally, the paper documents the importance of data collection and analysis as well as demand forecasting, not only for a better understanding of industrial energy systems but also to increase profitability since system loads may vary throughout a typical year. A multi-criteria and comprehensive approach is recommended in future case studies to ensure energy efficiency, economic returns and environmental impact are considered to ensure long-term sustainability. A summary of barriers to CHP implementation in the industry is also included to provide a broad understanding of industrial CHP.

Application of energy performance contracts for rural remote areas electrification

The article is devoted to the application of energy performance contracts for the electrification of rural remote areas. The research presents a universal methodology for determining the main parameters of an energy performance contract. This methodology includes four main parts. The first part has a description of the climatic parameters on the territory under consideration and their use in mathematical modeling of isolated photovoltaic system operating modes. The second part has the mathematical models of an isolated photovoltaic system with battery energy storage system and diesel power plant. The third part consist of relevant questions and features of battery energy storage system operation in isolated energy systems. The fourth part is a hierarchical model of an energy performance contract. The model has the main indicators required for the client and contractor. These parameters are contract duration, contractor fee, modified levelized cost of energy and optimal composition of isolated energy system equipment. An isolated energy system located on the territory of Siberia was considered. The optimization results have the following key indicators: photovoltaic system (80 kW) with battery energy storage system (240 kW⋅h) reduces diesel fuel consumption by 68%. The energy performance agreement duration is 5 years and the modified levelized cost of energy is 15.53 RUB/kW⋅h.

Feasibility of Using Energy Performance Contracting for the Retrofit of Apartment Buildings in Slovakia

Abstract This study is focused on the feasibility of using energy performance contracting (EPC) for the retrofit of two apartment buildings constructed using precast concrete technologies in Slovakia decades ago. The retrofit packages were defined, and their suitability for EPC was evaluated through discounted payback. The uncertainties in the profitability calculations were covered by designing five possible economic developments and defining input ranges instead of just single inputs. The measures in the technical systems were shown to be more feasible than the retrofit of the building envelopes. The potential to finance the selected measures for technical systems through EPC was further evaluated. It was shown that, for at least one of the two buildings studied, the EPC was recommended only for the economic developments with a notable increase in energy prices compared to the baseline that referred to the situation before the Covid-19 pandemic. In the best case, the payback was four years for one building and seven years for the other; thus, both were potentially suitable for EPC. However, for a complex retrofit, the EPC must be combined with a different funding source to also finance other retrofit measures.

Enhancing green economic recovery through green bonds financing and energy efficiency investments

This study investigates the effect of green-bond financing on energy efficiency investment for green economic recovery. The fuzzy Analytic Hierarchy Process (AHP) technique was used to achieve the research objective. The study’s findings showed that green bonds are currently the primary financing source for energy efficiency projects, enhancing economic growth by 4.9% and potentially increasing green economic recovery by approximately 17% per annum. The fuzzy analysis technique and alternative models of fuzzy modeling were applied in this study. An alternative to project-based financing is energy performance contracts (EPCs). Green bonds also invest in public and private funds for energy efficiency and economic growth. Alternatively, such bonds may finance environmental initiatives or companies. Testing energy-efficiency projects with low payback rates may be expensive. Expanding the green economy through green bonds is essential for financing to successfully promote energy efficiency finance and green growth. This study also has policy implications for stakeholders.

Decision Support Tool to Enable Real-Time Data-Driven Building Energy Retrofitting Design

The availability of near-real-time data on energy performance is opening new opportunities to optimize buildings’ energy efficiency and flexibility capabilities and to support the decision-making and planning process of building retrofitting infrastructure investment. Existing tools can support retrofitting design and energy performance contracting. However, there are well-recognized shortcomings of these tools related to their usability, complexity, and ability to perform calculations based on the real-time energy performance of buildings. To address this gap, the advanced retrofitting decision support tool is developed and presented in this study. The strengths of our solution rely on easy usability, accuracy, and transparency of results. The automatic collection of real-time building energy consumption data gathered from the building management systems, combined with data analytics techniques, ensures ease of use and quickness of calculation. These results support step-by-step thinking for retrofitting design and hopefully enable a larger utilization rate for deep building retrofits.

Student energy-saving in higher education tackling the challenge of decarbonisation

PurposeThis study aims to explore students’ sustainability attitudes and behavioural intentions and their relation to energy use, to promote energy saving and decarbonisation in higher education settings.Design/methodology/approachThe authors used a validated energy literacy survey to assess undergraduate students’ attitudes and behavioural intentions towards energy saving in two countries (Brazil and Belgium). The questionnaire, administered online, comprised 23 Likert scale questions and three questions eliciting socio-demographic information. Results were analysed using a linear regression model and compared with previous research using the same energy literacy instrument.FindingsThe research identified three dimensions of sustainable attitudes: citizens’ role, scientists’ role and government’s role, explaining 65.5% of respondents’ energy-related attitudes. Three dimensions of sustainable behaviours were identified, explaining 64.5% of energy-related behavioural intentions: consumption of eco-friendly products, financially driven behaviours and household energy saving. The linear regression model identified scientists’ role, consumption of eco-friendly products and financially driven behaviour as the key predictors of student energy use. Differences between the two contexts also emerged.Research limitations/implicationsIndividual action to improve energy saving is necessary, but not sufficient for decarbonisation. However, student attitudes and behavioural intentions towards energy are an important element of campus decarbonisation: these “micro” experiments can become a “network” searching for synergies at the campus level (in collaboration with the neighbourhood) and act as a catalyst towards a more profound carbon-free society. Limitations of the research include the use of a survey to ascertain estimates of energy use; however, the study offers a model for further research and a mode of analysis that would be useful to other researchers.Practical implicationsThis research enables universities to better understand the drivers and barriers to student energy-saving activities and thereby promote decarbonisation on campus. This is a crucial underpinning in the creation of sustainable universities, linking education and campus developments. This survey was one of the catalysts to set up a total new maintenance energy performance contract (MEPC) at one of the authors’ institutions, where energy efficiency was realised alongside other sustainability aspects, such as water saving, circular renovation and waste reduction.Social implicationsThis research illustrates the challenges and opportunities of working with key stakeholders in university settings for university-based decarbonisation efforts. Intensive involvement of students and teachers in the new MEPC offers an example of co-creation with building “users” – which may have implications for other university building developments. Increasingly, universities need to consider the need for a new business model in which shared and multiple value creation is a key feature. Treating societal challenges as business opportunities is an important new dimension of corporate strategy and a powerful path to social progress, which higher education institutions should not overlook.Originality/valueStudent attitudes and behavioural intentions towards energy are an important element of campus decarbonisation and can act as a catalyst towards a carbon-free society. Although energy literacy research has been undertaken in the USA and UK, this research is the first of its kind for Belgium and Brazil, and the mode of analysis – using a linear regression model – differs from the earlier work, offering a novel methodological approach.

Risk allocation for energy performance contract from the perspective of incomplete contract: a study of commercial buildings in China

PurposeThis article aims to establish a dynamic Energy Performance Contract (EPC) risk allocation model for commercial buildings based on the theory of Incomplete Contract. The purpose is to fill the policy vacuum and allow stakeholders to manage risks in energy conservation management by EPCs to better adapt to climate change in the building sector.Design/methodology/approachThe article chooses a qualitative research approach to depict the whole risk allocation picture of EPC projects and establish a dynamic EPC risk allocation model for commercial buildings in China. It starts with a comprehensive literature review on risks of EPCs. By modifying the theory of Incomplete Contract and adopting the so-called bow-tie model, a theoretical EPC risk allocation model is developed and verified by interview results. By discussing its application in the commercial building sector in China, an operational EPC three-stage risk allocation model is developed.FindingsThis study points out the contract incompleteness of the risk allocation for EPC projects and offered an operational method to guide practice. The reasonable risk allocation between building owners and Energy Service Companies can realize their bilateral targets on commercial building energy-saving benefits, which makes EPC more attractive for energy conservation.Originality/valueExisting research focused mainly on static risk allocation. Less research was directed to the phased and dynamic risk allocation. This study developed a theoretical three-stage EPC risk allocation model, which provided the theoretical support for dynamic EPC risk allocation of EPC projects. By addressing the contract incompleteness of the risk allocation, an operational method is developed. This is a new approach to allocate risks for EPC projects in a dynamic and staged way.

Evolutionary Game Study on the Supervision Strategy in the Operation Phase of Green Public Buildings Based on System Dynamics Simulation

In the energy performance contracting (EPC) mode, an effective way to achieve green public buildings, the information asymmetry among stakeholders in the operation phase is critically adverse to the energy-saving effect of green public buildings. This paper constructs an evolutionary game model between energy users and energy-saving companies (ESCOs) in the operation phase of green public buildings under the premise of limited rationality. Vensim PLE software is used to build the corresponding simulation model to simulate the strategy evolution of players under different initial strategies. Typical scenarios with different government punishment, penalties from energy users, and opportunistic gains of ESCOs, respectively, are set up to conduct sensitivity analysis. The results show that dynamic alternation exists in the strategy evolution of players during the operation phase of green public buildings under the EPC mode, and it is influenced by the simulation period and players’ initial strategies. And the evolution in different typical scenarios is influenced by the aforementioned parameters with different significance. This study can provide a basis for the supervision strategy of ESCOs in the operation phase of green public buildings by local governments and energy users thus promoting the energy-saving operation of green public buildings for final carbon reduction.

Design of Investment Potential Analysis Model of Integrated Energy Project Based on Deep Learning Neural Network

Under the background of energy conservation and emission reduction and large-scale promotion of electric energy substitution, fully exploring the complementary potential of various energy systems and realizing the optimization of comprehensive energy utilization are the most critical development goals of the current energy system. The key to achieving this goal is the investment potential analysis of integrated energy projects. In order to effectively solve the problems of difficult scientific determination of evaluation index weight and low accuracy of evaluation results in the analysis of investment potential of integrated energy projects, an investment potential analysis model of integrated energy project based on deep learning neural network is designed. The design process of the integrated energy project is summarized. The RBF-BP neural network model is established to obtain the correlation between the factors of the evaluation unit, further analyze and process the training results, and calculate the weight of the evaluation index. The obtained weight is substituted into the TOPSIS comprehensive evaluation model for the investment potential analysis of integrated energy projects. According to the investment potential analysis results, the investment potential analysis value of energy performance contracting (EPC) mode is 0.9122, which is the best operation mode. The results show that the analysis results reflect the investment potential of integrated energy projects more objectively and scientifically.

Energy Performance Contracting in a Supply Chain under Cap-and-Trade Regulation and Carbon Tax Policy

Energy performance contracting (EPC) is a new tool for supply chain members to cooperate in emission reduction. This paper investigates a two-tier supply chain composed of a supplier and a capital-constricted manufacturer with carbon reduction demand under different low-carbon policies (Cap-and-Trade Regulation and Carbon Tax Policy, respectively). The manufacturer is motivated to cooperate with the supplier to reduce carbon emissions through EPC services. Different from other research, the emission reduction decision maker of EPC services in this paper could be any supply chain member. The results show that cap-and-trade regulation and carbon tax policy have the same impact on the optimal pricing and emission reduction decisions in the monopoly supply chain, but the manufacturer’s profit is higher under cap-and-trade regulation. And when the cost-sharing coefficient is within a low range, the emission reduction targets decided by the manufacturer are lower. Otherwise, the targets decided by the supplier are lower. Moreover, supply chain members can obtain higher profits when the reduction targets are determined by themselves, and supply chain coordination under different decision models could be realized through revenue sharing contracts. Considering the total profit of the supply chain, when the cost-sharing rate is within a low range, the supply chain can achieve a Pareto improvement if the supplier determines the emission reduction targets. Otherwise, the reduction targets decided by the manufacturer can realize a Pareto improvement.

Social Housing Net-Zero Energy Renovations With Energy Performance Contract: Incorporating Occupants’ Behaviour

This article examines how the behaviour of occupants is assessed in a project with ambitious targets for energy use reductions and within the framework of an approach based on an energy performance contract. Its starting point is the observation that there may be significant disparities between the consumption threshold required by the regulations or the labels and the actual building consumption in its post-delivery existence. While behaviour cannot be the only factor explaining this overconsumption, the promoters of high-performance renovation operations often marginalise their importance. The recent surge in requirements for energy consumption reductions in new or renovated buildings in Europe further exacerbates these problems. In light of these challenges, there is a strong demand for compulsory verification of post-delivery performances and for developing energy performance contracts. In this context, the behaviour of a building’s occupants can no longer be considered as a simple adjustment variable. Through the analysis of Energiesprong, a net-zero energy renovation approach for the social housing developed in the Netherlands and in France, built around the principle of an energy performance contract over a long timeframe, the article highlights the injunctions to behavioural changes, the strategies, the negotiations, and the adjustments deployed by the project leaders. It finally shows that there is still a long way to go before the occupant’s behaviour in a high-energy performance renovation project is fully taken into account.

An Energy Performance Contract Optimization Approach to Meet the Competing Stakeholder Expectations under Uncertainty: A Canadian Case Study

Energy performance contracts (EPC) can address economic sustainability challenges associated with residential energy retrofitting projects, including funding limitations, poor quality of project delivery, and landlord-tenant dilemma. Literature has overlooked the impact of weighted average cost of capital (WACC) and funding sources in EPC planning. However, the WACC, stakeholder priorities, and uncertainties can alter the project outcomes. This study proposes a Monte-Carlo simulation based non-linear multi-objective optimization approach to address the aforementioned challenges. A case study conducted in British Columbia indicated that the maximum overall project profitability can vary between $18,035 and $20,626 with decision priorities. The overall project profitability can vary over 9% due to uncertainties. The project profits can change over $3000 due to changes in the WACC. These observations confirmed the criticality of accounting for WACC, stakeholder priorities, and uncertainties in EPC planning. The risk of compensating for the performance compromises and profits increases simultaneously for the energy services company with the increasing contract periods, while it is inverse for the owners. Therefore, the contract period must be decided considering the profit expectations and risk tolerance of the stakeholders. Extended contract periods allow lower capital contributions from the building owners, potentially solving the principal-agent disputes in rental buildings.

Improving the Efficiency of Energy Consumption in Buildings: Simulation of Alternative EnPC Models

The construction sector and the operation and maintenance of buildings largely contribute to energy consumption and emission of greenhouse gases (GHGs) in the European Union (EU). Therefore, it is of utmost importance to improve the energy performance of buildings. Yet, this frequently involves high short-term investments, which may not be compatible with owners’ budgetary constraints. In this research we analyze the importance of Energy Performance Contracting (EnPC) for the improvement of energy efficiency in buildings. These models allow bypassing budgetary restrictions of owners (public and private ones) and bring private capital to finance energy efficiency measures. The paper analyses different models of contracting Energy Service Companies (ESCOs), from traditional models to alternative models, and exposes the versatility of the new contracting models and the associated risks. Several applications of energy performance contracts implemented in European countries are presented to identify the main characteristics that lead to successful contracts. The paper also includes the discussion of energy performance contracts applied to a public building (a school) that seeks to reduce its annual energy consumption, by testing the use of three types of energy performance contracts. The results show that there is potential in the use of EnPC but it is critical to select the most adequate model, especially when defining the contract duration, to balance both owners’ and companies’ interests.

An energy performance contracting parameter optimization method based on the response surface method: A case study of a metro in China

As an effective mechanism for improving energy efficiency, energy performance contracting (EPC) is receiving increasing attention. However, due to many uncertain factors that affect contract parameters, a reasonable distribution of participants' interests is necessary. To reasonably determine EPC contract parameters, this paper proposes a framework based on Geometric Brownian motion (GBM) and the response surface method (RSM) to optimize EPC contract parameters. First, GBM is used to simulate the energy prices, energy savings, energy-saving revenue allocation, etc. Then, the RSM is proposed to optimize multiple contract parameters. Finally, the proposed method is applied to the Wuhan Metro Line 2 lighting system renovation project. The results demonstrate that (a) the contract parameter optimization framework based on the GBM-RSM provides an effective method for optimizing the combination of EPC contract parameters. (b) The GBM-based method of quantitative simulation effectively expresses the uncertain factors of energy-saving performance in EPC renovation and provides reasonable data support for optimizing EPC contract parameters. (c) The established response surface optimization model of EPC contract parameters is an efficiently fitted model. A comparison between the optimization results and actual application results shows the feasibility of response surface optimization of EPC contract parameters, which improves the benefits for the owner of energy-saving renovation and thus increases the owner's enthusiasm, while guaranteeing a reasonable return for energy-saving companies. Hence, this study provides an effective method for optimizing EPC contract parameters and offers a reference for similar problems.

Market fragmentation of energy resource prices and green total factor energy efficiency in China

This paper studies the market fragmentation condition of energy resource (such as coal, gasoline, diesel and electricity) prices by using the relative price method and analyzes its impact on China's green total factor energy efficiency. Results shows that: (1) Market fragmentation of China's energy resource prices presents an inverted U-shaped curve in 2004–2009, and then tend to be stable in 2010–2018 with a peak in 2007. The market fragmentation of China's energy resource prices of energy transfers out provinces is more serious than that of energy transfer in provinces. (2) The trend of China's green total factor energy efficiency presents N-shape curve in 2004–2014, and then it tends to be stable around 0.850 in 2015–2018. The green total factor energy efficiency of energy transfers out provinces is lower. Phenomenon of “energy efficiency curse” is significant in China. (3) Impact of market fragmentation of energy resource prices on green total factor energy efficiency also presents an inverted U-shaped curve. And at current stage, reducing the degree of market fragmentation of China's energy resource prices is conducive to the improvement of green total factor energy efficiency. According to the study results, we believe that reduce the market fragmentation of energy resource prices and promote the internal opening of the energy market, promote demand side management measures such as energy performance contracting, reduce the proportion of coal consumption in total energy consumption and improving energy efficiency, increase green total factor energy efficiency of energy transfer out provinces are all effective ways to improve China's green total factor energy efficiency.