Keywords: energy services, ESCO, real options, cogeneration, Monte Carlo simulation, guaranteed savings contracts, energy performance contracting, EPC, energy savings, fair value, risk sharing, modelling, cogeneration plant, paper mills, design of experiments, DOE
A real options–based approach in guaranteed energy savings contracting
The full development of the energy services company (ESCO) industry is still inhibited by the difficulties during the negotiation between customers and ESCOs. Contractual arrangements are traditionally based on energy performance contracting (EPC). Improvements on EPC schemes are required in order to achieve the success of the negotiation. This work focuses on a particular type of EPC, named guaranteed savings (GS) contract, where a minimum energy saving is guaranteed to the customer by the ESCO. A model based on real options theory to share risks among contractual parties is proposed in order to estimate the fair value of main contractual parameters. A Monte Carlo simulation is adopted for evaluating the most critical factors influencing the overall risk sharing. A numerical example concerning a cogeneration plant of a paper mill is presented. A two level full factorial design of experiments (DOE) analysis is carried out in order to estimate single and compound effects of model parameters.