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

Tharindu Prabatha, Kasun Hewage and Rehan Sadiq
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Tharindu Prabatha: School of Engineering, University of British Columbia (Okanagan Campus), 1137 Alumni Avenue, Kelowna, BC V1V 1V7, Canada
Kasun Hewage: School of Engineering, University of British Columbia (Okanagan Campus), 1137 Alumni Avenue, Kelowna, BC V1V 1V7, Canada
Rehan Sadiq: School of Engineering, University of British Columbia (Okanagan Campus), 1137 Alumni Avenue, Kelowna, BC V1V 1V7, Canada

Sustainability, 2022, vol. 14, issue 7, 1-21

Abstract: 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.

Keywords: energy performance contract; energy retrofit; multi criteria decision making; Monte Carlo simulation; energy simulation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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