Energy-investment decision-making for industry: Quantitative and qualitative risks integrated analysis

Abstract

Industrial SMEs may take the decision to invest in energy efficient equipment to reduce energy costs by replacing or upgrading their obsolete equipment or due to external socio-political and legislative pressures. When upgrading their energy equipment, it may be beneficial to consider the adoption of new energy strategies rising from the ongoing energy transition to support green transformation and decarbonisation. To face this energy-investment decision-making problem, a set of different economic and environmental criteria have to be evaluated together with their associated risks. Although energy-investment problems have been treated in the literature, the incorporation of both quantitative and qualitative risks for decision-making in SMEs has not been studied yet. In this paper, this research gap is addressed, creating a framework that considers non-risk criteria and quantitative and qualitative risks into energy-investment decision-making problems. Both types of risks are evaluated according to their probability and impact on the company’s objectives and, additionally for qualitative risks, a fuzzy inference system is employed to account for judgmental subjectivity. All the criteria are incorporated into a single cost–benefit analysis function, which is optimised along the energy assets’ lifetime to reach the best long-term energy investment decisions. The proposed methodology is applied to a specific industrial SME as a case study, showing the benefits of considering these risks in the decision-making problem. Nonetheless, the methodology is expandable with minor changes to other entities facing the challenge to invest in energy equipment or, as well, other tangible assets.