INNOVATIVE METHODS OF PERFORMANCE EVALUATION OF ENERGY EFFICIENCY PROJECTS.

Author:Tetiana, Hilorme
Position:Report - Abstract
 
FREE EXCERPT

INTRODUCTION

Substantiation of management decisions with regard to the implementation of energy efficiency projects based upon the use of alternative energy sources has a particular topicality in the conditions of survival of the economic entity in circumstances of nationwide energy dependence of industrial enterprises on traditional exhaustible energy sources. In our view, the fundamental issue of renewable energy is the lack of determinacy with regard to the scope of use and attraction of investment, available capacities and number of power stations as well as the connectivity to power networks, scientific and technological development and other issues that require elaboration and adoption of strategy for development of alternative power industry. Heightened interest towards the employment of alternative renewable energy sources in various sectors of economy is evidenced throughout the entire world. The driving force of this process lies within changes in the energy policy of countries, which undergo structural reorganization of fuel and energy industry in view of the ecological situation and transition to energy saving and resource saving technologies in the energy sector, industry, etc.

When forming methods for evaluating the effectiveness of energy saving projects, one must take into account the particularities of the mentality of the managers of a particular country (Crawley, 2008; Pohekar, 2004). So, Lo (2014) highlights the peculiarities of China's energy efficiency policy development. Usage The Green Business Strategies School of Business explores the evaluation of renewable energy projects: Kyriakopoulos (2016); Arabatzis & Chalikias (2018); Kolov & Chalikias (2010); Skordoulis, Galacid & Arabatzis (2017).

Evaluation of energy efficiency projects is possible from two standpoints: efficiency and investment attractiveness with due consideration of corresponding assumptions. Costs of energy efficiency project depend on the phase of the technology life cycle. Specifically, if the economic entity chooses the way of elaborating its own projects, the preproduction costs would include: development or purchase of patent for energy efficient equipment, manufacturing of technological tooling, tests and optimization of the equipment for its manufacturability and technological efficiency, equipment start-up and commissioning, purchase of required equipment. In case the economic entity selects the services of the Energy Service Company (ESCO), preproduction costs comprise: acceptance of services for development and implementation of energy saving and energy efficiency projects, projects for electrical power and heat generation, installation of various power equipment, etc.

In the course of implementation of energy efficiency projects, an economic entity faces the necessity to make a choice from available limited alternative resources: monetary resources, labor resources, material resources, etc. In such a case, three most effective ways of attracting required resources are possible: complete or partial use of existing resources or their distribution in accordance with the relation between marginal priority and energy efficiency costs.

Decision-making with regard to the implementation of energy efficiency projects is executed by the company management, which increases the subjectivity of such decision for a number of reasons: mentality, professional experience and judgment. To decrease the impact of the subjectivity in calculations of profit improvement connected with the implementation of the project it is vital to take into account methodologies of project evaluation from the sphere of social diagnostics.

In the process of evaluating effects that derive from the choice out of several alternative projects, it is imperative to take into consideration not only the economic effect (such as, on the part of the production, an achievement of highest performance results at lowest direct or materialized labor costs or decrease in the total product unit costs), but also social and environmental effects. In such case, it is essential to evaluate such effects from the point of their emergence: internal and external.

It stands beyond dispute that enterprises experience the scarcity of financial resources to be forwarded towards implementation of energy efficiency projects with the objective of maximizing an economic effect-it thus becomes expedient to perform the selection of projects on the basis of mathematical model:

[mathematical expression not reproducible], (1)

Where: [LCC.sub.i]-Project life-cycle costs of i-project in energy efficiency, USD; [B.sub.i]-budget for realization of energy efficiency projects in t-year, USD; [E.sup.Ec.sub.i]- environmental effect associated with the realization of i-project in energy efficiency, USD; [E.sup.S.sub.i]- social effect associated with the realization of i-project in energy efficiency, USD; [CoD.sub.i]-cost of delay associated with the realization of i-project in energy efficiency, USD.

In respect of environmental and social effects associated with the realization of i-project in energy efficiency, including the introduction of energy-active fencing, it is possible to single out internal and external effects. Thus wise, internal environmental effects refer to the decrease in amounts of environmental payments, reduction of environmental-related losses of enterprises; social effect-increase in the level of personnel motivation with regard to energy efficiency issues, decrease in occupational injury compensations, etc. External effect is achieved synergistically from constituents of aggregate effects: social, environmental, economic as the result of increase in capitalization, market value, competitive ability, security of the economic entity on the principle of interaction of stakeholders within the system of energy efficiency systems implementation.

In our viewpoint, it is indispensable to take into account cost of delay and deviations from standard costs. It is necessary to expose the peculiarities of the indicator of time estimation for return on investment into energy efficiency projects-Life-Cycle Costing (of the project) (LCC). Incorporating all costs and savings associated with a purchase for the life of the equipment can be used as a means of judging cost effectiveness of projects (Hansen, 1988).

LCC is a rigorous and time-consuming calculation however all the efforts of the enterprise are justified in the case of large purchases and/or limited capital. Life-Cycle Costing (LCC) aids at evaluating net profit for the duration of the project with the inclusion of all major costs and savings for the life of the equipment discounted to present value.

REVIEW OF PREVIOUS STUDIES

Other considerations (calculation of present worth, discounting factors and rates, LCC) require detailed analysis. For instance, these issues have been considered in the 'Life-Cycle Costing Manual' for the Federal Energy Management Program elaborated by National Institute of Standards and Technology of the US Department of Commerce (Hansen, 1988).

Cost of delay takes into consideration potential savings, which equal potential losses if the enterprise does not employ energy efficient technologies (Hansen, 1988).

In this view, we deem it viable that success criteria for projects in energy efficiency are as follows: decrease in the energy consumption of the enterprise (Ce [right arrow] min), increase in the energy efficiency (En [right arrow] max) and increase in the energy security of the enterprise (Se [right arrow] max). The key success criterion of innovative energy efficiency projects is selected according to the expert...

To continue reading

FREE SIGN UP