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

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.

Critical Factors to Overcome Project Scope Creep in the Oil and Gas Industry

“…Those are studied in terms of the general specification of each Contract's pricing model and how each one handles the Scope Creep (Jain & Khurana, 2015). In FTFP, the client and contractor agree on a total contract price & time for the final delivery of services, products, and applications before executing a project (Wheatcroft et al, 2021). Also, failures of completing the requirements or loosely worded drafting (i.e., missing specifications or misunderstanding of requirements) are mostly the case in the fixed-priced model.…”

“…As a result, a scope change and scope creep may occur during the project execution stage (Jain & Khurana, 2015). As all requirements are frozen in FTFP from the beginning and estimation, and the project schedule is prepared, any increase in the requirement is treated as scope creep and estimated separately (Wheatcroft et al, 2021). Accordingly, the FTFP model involves a lot of negotiation activities between client and vendor during the tendering stage and scope creeps or requirements gaps (Jain & Khurana, 2015).…”

“…The scope creeps can be mitigated by including special provisions for handling the scope creeps in the contract (Al Nasseri & Aulin, 2016). These FTFP contracts require a lot of monitoring and control during tendering and project stages; the client should monitor each milestone time interval execution and request for actual/test demonstration of each milestone application/scope for meeting the agreed requirements (Wheatcroft et al, 2021).…”

“…So, it is the responsibility of clients to monitor the scope, keep the Contractor's staff busy, and avoid billing with no efforts made by the contractor's relaxed team (Jain & Khurana, 2015). Regular communication & business negotiation between the two parties for clarification on the scope during the tendering stage will reduce the chance of scope creep and good PM and scope change management (Wheatcroft et al, 2021). Song et al (2018) state that flexible terms and conditions mentioned in a contract can add value to project execution.…”

“…There are two main pricing models, which are Fixed Time Fixed Price (FTFP) and Time & Material (T&M); the other models are simply variations of these two main categories (Jain & Khurana, 2015;Wheatcroft et al, 2021). Those are studied in terms of the general specification of each Contract's pricing model and how each one handles the Scope Creep (Jain & Khurana, 2015).…”