Bridging barriers for multi-party investments in energy efficiency – a real options based approach for common utility systems design and evaluation

Panel: 4. Undertaking high impact actions: The role of technology and systems optimisation

This is a peer-reviewed paper.

Authors:
Johanna Mossberg, SP Technical Research Institute of Sweden, Sweden
Roman Hackl, Chalmers University of Technology, Sweden
Simon Harvey, Chalmers University of Technology, Sweden
Christian Jensen, University of Gothenburg, School of Business, Economics and Law, Sweden
Anders Sandoff, University of Gothenburg, School of Business, Economics and Law, Sweden
Gabriela Schaad, University of Gothenburg, School of Business, Economics and Law, Sweden
Andreas Furberg, University of Gothenburg, School of Business, Economics and Law, Sweden
Mattias Haggärde, University of Gothenburg, School of Business, Economics and Law, Sweden

Abstract

Total Site Analysis (TSA) is a tool for identifying energy savings potentials in larger production sites or clusters. Using TSA, followed by retrofit design, solutions can be found in which sites/companies are exchanging excess energy with each other, thus reducing the overall need for external fuels. Compared to energy efficiency investments identified for single companies, similar investments identified for clusters hold an inherent complexity; they assume joint investments and multi-party collaboration, a potential barrier for implementation. Real Options Analysis (ROA) is commonly used for evaluating long-term, complex investments which are influenced by different types of market uncertainties. However, previous research almost exclusively concerns single companies/actors and not joint investments.

This paper presents a novel approach, showing how ROA can be applied not only to handle uncertainties regarding market development but also reduce complexity associated with multi-party cooperation in a joint energy efficiency investment identified by different retrofit design options based on TSA.

The approach is applied to a case study of a joint energy efficiency investment in a Swedish petrochemical cluster. The cluster consists of five companies producing a variety of chemical products. Previous research using TSA and retrofit design has shown that up to 50% (~60MW) of the fuel used for energy production could be saved if the companies invest in a common heat and utility system. Using ROA, the case study shows how the identified solution can be modified and divided into “investment packages” distributed over time, allowing for an initial investment by only two actors and permitting for an evaluation of both the cooperation and the market development before expanding the investment and the number of actors involved. Further, an economic evaluation of the project is presented together with an analysis of the cost/benefit of gradually expanding the investment.