Water-Saving Revenue Guarantee Optimization in Water Saving Management Contract Based on Simulation Method

Water saving management contract (WSMC) is an innovative water saving strategy based on market mechanism. As the minimum annual project water-saving revenue agreed with water saving service company (WSSC) and water user, water-saving revenue guarantee (WRG) is one of the key elements in WSMC projects. This paper attempted to establish a model to determine the optimal WRG based on simulation method. First, a nonlinear relationship between water-saving amount and initial investment was built by industry standards. Then, the quantitative influence of water-saving awareness on water-saving amount was built based on Markov chain. Next, a random process with decreasing variance over time was used to describe the fluctuation. Next, the failure maintenance cost in water-saving system was described by renewal function. After that, an unconstraint WRG optimization model of the WSMC was constructed with the WSSC total profit difference net present value (NPV) as the objective function and a solution algorithm was designed. Then, the sensitivity analysis was performed on fluctuation coefficient, estimated model parameters and project original variables. Next, the validities analysis on water-saving revenue and water-saving cost was provided. Finally, a WSMC project case in China was studied and the solutions were compared with traditional model. The results showed that the optimized WRG in this paper was 17% higher than the original one, and the WSSC total profit difference NPV was reduced by about 1200000 yuan. Reducing appropriate initial investment and increasing assistance to water user, like enhancing its water-saving awareness, are efficient methods to improve WRG for WSSC.