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Sustainability 2015, 7(12), 16273-16289; doi:10.3390/su71215816

Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model

1
Sustainable Building Research Center, Hanyang University, 55 Hanyangdaehak-ro, Sangrok-gu, Ansan-si, Gyeonggi-do 426-791, Korea
2
School of Architecture and Architectural Engineering, Hanyang University, 55 Hanyangdaehak-ro, Sangrok-gu, Ansan-si, Gyeonggi-do 426-791, Korea
*
Author to whom correspondence should be addressed.
Academic Editor: Rachel J. C. Chen
Received: 7 August 2015 / Revised: 15 November 2015 / Accepted: 25 November 2015 / Published: 8 December 2015
(This article belongs to the Special Issue Sustainable Business and Development)
View Full-Text   |   Download PDF [1759 KB, uploaded 8 December 2015]   |  

Abstract

This paper seeks to determine the value of Energy Service Company (ESCO) contracts based on the guaranteed savings contracts, which are relatively widely used among ESCO contract models. A framework is proposed based on the collar option model to qualitatively calculate the profit distribution ratio between energy users and the ESCO. The profit distribution model is defined with the guaranteed and target savings, changes in energy cost reductions, and volatility. The model determines a profit distribution ratio such that the energy user offers the ESCO profits equivalent to the value of the guarantee. The model is evaluated using a case study. The model suggested in this study is expected to resolve previous issues with making decisions based on past experiences, as the profit distribution ratio is determined objectively. Moreover, it is possible to effectively assess various profit structures in guaranteed savings contracts according to changes in the guaranteed and target savings. Ultimately, this model is expected to assist in revitalizing the Korean ESCO market. View Full-Text
Keywords: guaranteed savings contract; ESCO; collar option model; profit distribution ratio; real options guaranteed savings contract; ESCO; collar option model; profit distribution ratio; real options
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Lee, S.; Tae, S.; Shin, S. Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model. Sustainability 2015, 7, 16273-16289.

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