NAVIGATING ENERGY-SAVING RETROFIT FINANCING: A PATHWAY THROUGH GAME THEORY AND COLLABORATIVE STRATEGIES
This paper explores the intricate dynamics of energy-saving retrofit financing, specifically focusing on the interplay between building owner-occupants and retrofitting providers. This arrangement establishes a symbiotic relationship, where building owners stand to gain from reduced utility expenses. In return, retrofitting providers recoup investments through a portion of cost savings resulting from energy-efficient enhancements. The study hones in on LED lamps as an energy efficiency product, outlining their benefits, shorter payback periods, and susceptibility to variations in operating hours and power costs. Addressing the challenge of split incentives – where retrofitting providers seek quick returns while owners' gains accrue gradually – the study advocates the application of game theory. This theoretical framework, modeling strategic interactions among rational agents, aids in resolving misaligned incentives between retrofit providers and building owners. The goal is to design contracts that encourage desired behavior, maximizing outcomes for both parties. The principle is to identify Nash equilibria where mutual benefits are maximized, reconciling providers' preference for short-term contracts with owners' interest in long-term schemes. Empirical evidence underscores the superiority of equitable partnerships over purely profit-driven approaches. To this end, the paper calls for co-creation of participatory ecosystems aligned with these principles. While game theory furnishes tools to analyze incentive conflicts and model solutions, the key lies in participatory processes engaging stakeholders to jointly develop partnerships, leveraging the insights from game theory and behavioral science. This amalgamation holds promise for achieving equitable retrofit financing, ultimately contributing to enhanced energy efficiency and reduced carbon emissions in the built environment.
Game Theory, Retrofit Project, ESA & ESPC, Profit-loss Incentive Split.