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Model-Based Contract Design for Low Energy Waste Heat Contracts: The Route to Pricing

Author

Listed:
  • Edward Wheatcroft

    (Department of Statistics, London School of Economics, London WC2A 2AE, UK)

  • Henry P. Wynn

    (Department of Statistics, London School of Economics, London WC2A 2AE, UK
    Alan Turing Institute, 96 Euston Rd, London NW1 2DB, UK)

  • Victoria Volodina

    (Alan Turing Institute, 96 Euston Rd, London NW1 2DB, UK)

  • Chris J. Dent

    (Alan Turing Institute, 96 Euston Rd, London NW1 2DB, UK
    School of Mathematics, University of Edinburgh, Edinburgh EH9 3JZ, UK)

  • Kristina Lygnerud

    (IVL Swedish Environmental Research Institute, 41133 Göteborg, Sweden)

Abstract
Urban Waste Heat Recovery, heat recovery from low-temperature urban sources such as data centres and metro systems, has a great deal of potential in terms of meeting domestic and commercial heat demands whilst significantly reducing carbon emissions. Urban sources of heat are advantageous in that they tend to be close to areas of high heat demand and are therefore highly suitable as inputs to existing and newly constructed district heating networks. This paper has two main focuses. Firstly, the issue of efficiency in waste heat recovery is addressed with a focus on Technical, Economic, Social, and Environmental (TESE) efficiencies, which we consider should be given equal consideration. Secondly, we address the question of contractual efficiency and argue that contracts should be underpinned by mathematical modelling. We then focus on the contractual relationship between the owner of the waste heat and the district heating operator and consider the question of waste heat pricing. We suggest a profit sharing approach in which the price per unit of waste heat is allowed to vary according to important aspects such as demand and the electricity price. A demonstration of this approach is presented using a simple model of a waste heat recovery system that extracts heat from a data centre in Brunswick, Germany.

Suggested Citation

  • Edward Wheatcroft & Henry P. Wynn & Victoria Volodina & Chris J. Dent & Kristina Lygnerud, 2021. "Model-Based Contract Design for Low Energy Waste Heat Contracts: The Route to Pricing," Energies, MDPI, vol. 14(12), pages 1-15, June.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:12:p:3614-:d:576838
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    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Keith J. Crocker & Kenneth J. Reynolds, 1993. "The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 126-146, Spring.
    3. Farrell, Joseph, 1987. "Information and the Coase Theorem," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 113-129, Fall.
    4. Black, John & Hashimzade, Nigar & Myles, Gareth (ed.), 2012. "A Dictionary of Economics," OUP Catalogue, Oxford University Press, edition 4, number 9780199696321.
    5. Howells, Mark & Rogner, Holger & Strachan, Neil & Heaps, Charles & Huntington, Hillard & Kypreos, Socrates & Hughes, Alison & Silveira, Semida & DeCarolis, Joe & Bazillian, Morgan & Roehrl, Alexander, 2011. "OSeMOSYS: The Open Source Energy Modeling System: An introduction to its ethos, structure and development," Energy Policy, Elsevier, vol. 39(10), pages 5850-5870, October.
    6. Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
    7. Lygnerud, Kristina & Wheatcroft, Edward & Wynn, Henry, 2019. "Contracts, business models and barriers to investing in low temperature district heating projects," LSE Research Online Documents on Economics 101286, London School of Economics and Political Science, LSE Library.
    8. Joseph Schumpeter, 1909. "On the Concept of Social Value," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 23(2), pages 213-232.
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    Citations

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    Cited by:

    1. Kristina Lygnerud & Sarka Langer, 2022. "Urban Sustainability: Recovering and Utilizing Urban Excess Heat," Energies, MDPI, vol. 15(24), pages 1-11, December.
    2. Ziemele, Jelena & Dace, Elina, 2022. "An analytical framework for assessing the integration of the waste heat into a district heating system: Case of the city of Riga," Energy, Elsevier, vol. 254(PB).

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