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Investment planning in energy efficiency programs: a portfolio based approach

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Abstract

The Portuguese energy efficiency programs are usually run through grant awards that support energy efficient technologies, which require the establishment of rational investment plans considering distinct budget level inputs to each program. The current evaluation of energy efficiency programs mainly relies on the economic analysis of demand-side programs and projects. One of the weaknesses of this type of approach is that it cannot capture the complexities of decision-making processes, mainly relying on the device costs targeted for funding. This paper aims at developing a methodological framework to support public authorities in investment planning for energy efficiency programs based on portfolio theory explicitly considering the energy spent in the manufacturing and installation of each energy efficient technology. The applicability of the methodology herein proposed is illustrated by considering the potential investment in distinct portfolios of industrial lighting systems. Finally, a new solution methodology for computing possibly efficient solutions is also suggested which allows exploring distinct types of investment strategies, according to the public investor’s preferences. Our findings suggest that LED lamps and T5 technologies should be considered as a valid option for replacing T8 and HPS technologies. Additionally, despite the investment cost involved in the installation of light control systems, they should be elected for funding. Finally, it is worth mentioning that the substitution of T8 and Halogen lamps with LED lamps has never been considered with the modelling framework used in spite of being effectively selected for public support, highlighting the need of adopting approaches that encompass a life-cycle perspective.

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(Adapted from Singh et al. (2018b))

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Notes

  1. A solution is “possibly” efficient to an interval MOLP problem if it is efficient for at least one feasible combination of the objective function coefficients.

  2. Available at: http://www.wiod.org/.

  3. The computation of the net present value of costs of energy savings should theoretically include the forecast of energy prices. Nevertheless, in practice this is difficult to predict since energy prices fluctuate at unexpected rate.

  4. A highly conservative strategy assumes that the DM is more risk averse, being more concerned with risk than return. Hence, a higher weight is given to the attainment of the risk ideal target than to the return ideal target (i.e. \(\updelta_{1} = \partial_{1}\) = 0.8 and \(\delta_{2} = \partial_{2}\) = 0.2, respectively). Furthermore, coefficients are considered to be closer to a worst case scenario, i.e. \(\lambda_{1}\) = φi   \(\eta_{i} = 0. 8\), for all i = 1, …, 9, and \(\lambda_{2}\) = 0.2.

  5. A highly aggressive strategy assumes that the DM is more risk prone, being more concerned with return than risk. Hence, a higher weight is given to the attainment of the return ideal target than to the risk ideal target (i.e. \(\delta_{1} = \partial_{1} = 0.2\) and \(\delta_{2} = \partial_{2}\) = 0.8, respectively). Furthermore, coefficients are considered to be closer to a best case scenario, i.e. \(\lambda_{1}\) = φi = \(\eta_{i}\) = 0.2, for alli = 1, …, 9, and \(\lambda _{2}\) = 0.8.

  6. E.g. for the case of L2 the value of 5% obtained irrespective of the strategy followed is obtained considering the following expression (25% + 25% + 0% + 0% + 4% + 0% + 0% + 0% + 0% + 0% + 0%)/11.

Abbreviations

BAT:

Best available technology

BAU:

Business as usual

DM:

Decision-maker

EE:

Energy efficient

EIO-LCA:

Economic input–output life-cycle analysis

EPBT:

Energy payback time

GHG:

Greenhouse gas

HPS:

High pressure steam lamps

IO:

Input–output

LCA:

Life-cycle analysis

LED:

Lighting emitting diode

MOLP:

Multiobjective linear programming

P-LCA:

Process-based LCA

RES:

Renewable energy systems

SIR:

Savings to investment ratio

TFL:

Tubular fluorescent lamps

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Acknowledgements

This work was partially supported by the European Regional Development Fund in the framework of COMPETE 2020 Programme through project UID/MULTI/00308/2020 and the FCT Portuguese Foundation for Science and Technology within project T4ENERTEC (POCI-01-0145-FEDER-029820) (IIA - 02/SAICT/2016).

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Authors and Affiliations

  1. ISCAC- Coimbra Business School, Polytechnic Institute of Coimbra, Coimbra, Portugal

    Carla Oliveira Henriques & Maria Elisabete Duarte Neves

  2. INESCC, Coimbra, Portugal

    Carla Oliveira Henriques & Dulce Helena Coelho

  3. ISEC- Coimbra Engineering Academy, Polytechnic Institute of Coimbra, Coimbra, Portugal

    Dulce Helena Coelho

  4. CETRAD-UTAD, Vila Real, Portugal

    Maria Elisabete Duarte Neves

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  1. Carla Oliveira Henriques
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Henriques, C.O., Coelho, D.H. & Neves, M.E.D. Investment planning in energy efficiency programs: a portfolio based approach. Oper Res Int J 22, 615–649 (2022). https://doi.org/10.1007/s12351-020-00566-6

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