Understanding Governments, ESCOs, and Clients’ Behavioral Strategies in Public Building Energy-Efficiency Renovation Based on Evolutionary Game Theory

Abstract

Energy performance contracting (EPC) overcomes the financial and risk barriers hindering energy conservation. The public building sector possessing the energy-intensive nature embraced this mode but is far from its market potential due to the complex interaction and different interests for decision making among stakeholders. This study establishes a tripartite evolutionary game model based on the assumptions of bounded rationality and the interaction behavior of energy service companies (ESCOs), clients, and governments to examine how strategies are changing for three stakeholders. Particularly, public buildings are categorized as commercial and noncommercial public buildings since they share different considerations. The effect of the initial state, potential loss, social pressure, governmental subsidies, and penalties on EPC adoption are examined. Results demonstrate that: (1) overestimated potential loss by clients is the critical hindrance to EPC adoption; (2) ESCOs’ development relies on governmental subsidies in the initial stage when both parties show little willingness; and (3) government penalties exert a pronounced influence in regulating stakeholders’ behavior; nevertheless, their efficacy diminishes notably as the market attains a state of relative maturity. This research may contribute to the current understanding of the interactions of stakeholders in EPC projects, as well as provide valuable policy implications for the governments to promote ESCO industry development. The government, ESCOs, and clients are the three primary stakeholders in public building energy service (PBES) projects. This study constructs a tripartite evolutionary game model to examine how the strategies of these three stakeholders dynamically change and influence each other over time. The findings suggest that during the initial stages of PBES development, the government should employ high-intensity incentives to stimulate market growth and prevent it from stagnating due to low participation. However, in a mature market, the marginal impact of increased subsidies or penalties diminishes, suggesting that the government should reduce intervention to save on regulatory costs. The perceived potential loss by clients is identified as a significant barrier to EPC adoption. Therefore, it is crucial for both the government and ESCOs to enhance clients’ knowledge about EPC projects and alleviate their perceived challenges in project management. The evolution of strategies varies among different types of public building clients. Commercial public buildings are primarily driven by profit motives, while noncommercial public buildings are influenced more by social pressures. Ultimately, this study enhances the understanding of the interaction and evolution of strategies in PBES, facilitating stakeholders in making optimal strategic decisions. Additionally, the study provides a universal framework for exploring the PBES market, which can be adapted to different national contexts.