Resources, Conservation & Recycling 146 (2019) 308–315

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Resources, Conservation & Recycling

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Full length article

Two-level optimization model for water consumption based on water prices T

in eco-industrial parks
⁎ ⁎
Rongshan Bia, , Chen Chena, Jiao Tanga, Xiaoping Jiab, Shuguang Xianga,
a
College of Chemical Engineering, Qingdao University of Science and Technology, Qingdao 266042, China
b
College of Environment and Safety Engineering, Qingdao University of Science and Technology, Qingdao 266042, China

A R T I C LE I N FO A B S T R A C T

Keywords: The eco-industrial park (EIP) is universally acknowledged as an important way to achieve resources sustain-
EIP ability by the plant cooperation. As an essential public resource in an EIP, the water resource is a primary
Water resource research focus for minimizing the water consumption in EIPs. Commonly, the water price was adopted to adjust
Optimization model the plant water consumption; however, this method was relatively single. In this paper, a two-level optimization
method was proposed based on the relationship between the water supplier and industrial plants and the in-
terrelationship among plants in the EIP. Two cases were investigated based on the proposed method, and the
results of different water prices and profit allocation ratios were presented in detail. Compared to the traditional
method, the two-level optimization could produce more effective guide on industrial plants for applying water-
saving and new technologies.

1. Introduction programming method. The heuristic method is based on the concept of

As a type of industrial park, the eco-industrial park (EIP) is built on
the guidelines of better industrial ecology and cleaner methods of
production. The aim of an EIP is to achieve the zero-release of pollu-
tants and sustainable development of industrial plants by the effective
integration of materials, energy and information. (Taskhiri et al., 2011;
Ghisellini et al., 2016; Tiu and Cruz, 2017; Liu et al., 2019; Huang et al.,
2019). As one of the indispensable public resources in the industrial
production process, the water resource and its utilization has always
been a key research field in an industrial park (Boix et al., 2015).
Therefore, it is essential to guide plants in the park to implement in-
novative technologies, such as, water saving and water recycling, to
minimize water consumption.
There are two research directions to minimize the water consump-
tion in the EIP. One is to set up a water network among plants in the EIP
and carry out an integrated design using the system synthesis theory of
process system engineering (Xu et al., 2015). The other is to guide
plants in the EIP to improve and upgrade technologies such as water-
saving and water-recycling technologies through the adjustment of
macro policies (Blanke et al., 2007; Hussain and Wahab, 2018;
Cuviella-Suarez, 2019).
The first direction stems from the integrated method of water net-
work within the EIP, including a heuristic method and mathematical
water pinch, which originated from the heat pinch analysis. Certain
researchers initially proposed the water pinch method in 1994, and
since then, many investigations have been conducted using this method
to minimize water consumption within the EIP (Wang and Smith, 1994;
Thevendiraraj et al., 2003; Alva-Argáez et al., 2007; Martínez-Patiño
et al., 2011; Mughees and Al-Ahmad, 2015; Priya and Bandyopadhyay,
2017; Fan et al., 2018). This method uses the measurement of con-
centration-flow rate to indicate the freshwater consumption and
quantity of discharged wastewater. This process is considerably in-
tuitionistic and can determine the optimal water network quickly
(Sujak et al., 2017).
A mathematical programming (MP) method is used to build all
possible matching schemes of water use and water demand units in a
super-structure mathematical model (Lavric et al., 2007; Castro et al.,
2007; Karthick et al., 2010). Generally, the model would be considered
as a linear programing (LP) (Teles et al., 2008; Wang et al., 2012) mixed
integer linear programing (MILP) (Oliver et al., 2008; Matijašević et al.,
2010; Boix et al., 2012a,b; Hong et al., 2017; Silori and Khanam, 2018),
or mixed integer nonlinear programming (MINLP) (Tokos and Novak
Pintarič, 2009; Chen et al., 2012; Boix et al., 2012a,b; Ahmetović et al.,
2014; Yan et al., 2016; Ma et al., 2018;) problem and the optimal water
usage network scheme and minimum water usage values can be ob-
tained by solving this kind of model. The advantage of the MP method

⁎
Corresponding authors.
E-mail addresses: birongshan@163.com (R. Bi), psechen@163.com (C. Chen), tangjiao64@163.com (J. Tang), jiaxp@qust.edu.cn (X. Jia),
xsg@qust.edu.cn (S. Xiang).

https://doi.org/10.1016/j.resconrec.2019.04.004
Received 14 December 2018; Received in revised form 31 March 2019; Accepted 1 April 2019
Available online 06 April 2019
0921-3449/ © 2019 Elsevier B.V. All rights reserved.
R. Bi, et al.
is that it can be applied to both the single impurity water network and
multi-impurity water network; moreover, it can be applied to different
occasions by modifying the objective functions and constraints. How-
ever, as the MINLP model is a complex MP method, there is no reliable
algorithm to ensure a global optimal solution that can be achieved,
owing to the limitations of solving technology and computing capacity;
this, to some extent, limits its application. In addition to the traditional
numerical solution method, considering the MLNLP model of a water-
usage network can be solved using a genetic algorithm, simulated an-
nealing algorithm, ant colony algorithm, particle swarm algorithm, and
other bio-intelligence based algorithms. Moreover, a better ability to
search global optimal solution promotes the further development of this
kind of solving method.
The basic idea of both the heuristic algorithm and the mathematical
planning method is to match and integrate the water consumption and
water supply units by determining each water consumption unit in the
plant, to achieve the purpose of minimum water consumption. It in-
volves the improvement of the water consumption units and the im-
plementation of specific water saving technology. However, if the
technology for improvement of the units those consume water in each
plant is not developed and water demand increases, regardless of how
the technology is matched and optimized, it will not effectively achieve
water-consumption efficiency. Therefore, industrial plants are en-
couraged to introduce new technologies and adopt the most advanced
water-saving schemes under the guidance of macro control and policies,
which can achieve minimum water consumption and promote sus-
tainable development of an ecological park (Montastruc et al., 2013;
Nguyen et al., 2014; Weber and Saunders-Hogberg, 2018; Skouteris
et al., 2018).
Water price is an important tool used to control water consumption
for domestic usage. At present, most EIPs function with a fixed water
price and wastewater treatment costs as this mode of administration is
easy to manage uniformly; however, this type of management fails to
actively guide plants in adopting the most advanced energy-saving and
water-saving measures (Tang et al., 2013; Sahin et al., 2016; Cavaliere
et al., 2017). Therefore, many researchers studied the effect of different
water prices on the water consumption in an EIP. For example, Jia et al.
(2015) analyzed the water integration scheme among industrial plants
under different water prices and water supply constraints and demon-
strated that the price of water had a strong influence on the water in-
tegration process among the industrial plants in the park. In this case,
the water price was considered as an optimizer between the adminis-
trator and plants in the EIP to minimize the water consumption.
The optimization method has been employed in water networks
since ancient times. Water distribution in the river basin is reasonably
planned from the perspective of household water consumption and
agricultural irrigation; and the requirements of towns along the river
are comprehensively considered (Kucukmehmetoglu, 2012). For the
Fig. 1. Schematic diagram of the water network in an EIP.
309
Resources, Conservation & Recycling 146 (2019) 308–315
water usage network in the EIP, the optimization method was only
recently introduced to ensure minimization of water usage (Chew et al.,
2009; Ramos et al., 2016). However, only a few studies were conducted
based on the optimization between the water supplier and the industrial
plants those are the water users. Essentially, there are two kinds of
relationships regarding water consumption in the EIP. The first re-
lationship is as discussed above and the second is among plants in the
park. Considering that the price of the water can directly affect the cost
associated with water for each plant and the water supplier is re-
sponsible for the price, the relationship between the water supplier and
the water-consuming plant cannot be ignored.
In this paper, we proposed a two-level optimization of the EIP. The
first level optimization is between the water supplier and the water-
consuming plants in the park; and the second level optimization is
among the plants those are water consumers in the EIP. In the first-level
optimization, the water price was set as the manipulated variable to
adjust the relationship between the water supplier and plants to mini-
mize the overall water consumption. In the second-level optimization,
profit allocation ratio was used to harmonize the relationship among all
the plants that consume water to enhance the application of new
technology and production.
2. Methodology
2.1. Water usage network
A complete EIP usually has a water supplier, numerous plants that
use water, and a wastewater treatment plant. The water supplier is
responsible for providing freshwater that satisfies the requirements of
the water consumers, while the wastewater treatment plant is re-
sponsible for recycling or discharging the wastewater that meets the
discharge requirements of the relevant regulations. In the design stage
of the industrial park, a reasonable estimate for freshwater consump-
tion and wastewater discharge of plants in the park is crucial to design
the water supply capacity and wastewater treatment capacity. The
water consumer purchases the required freshwater from the water
supplier and the its discharged wastewater should be sent to the was-
tewater treatment plant by paying the treatment fee. For the water
consumer plants, both the water supplier and wastewater treatment
plant are the service providers for their normal production. A com-
prehensive strategy for the water usage network can be adopted to
achieve the minimum discharge of freshwater and wastewater within
and among plants. Therefore, the relationship among the three is as
shown in Fig. 1.
As shown in Fig. 1, the water supplier provides freshwater to plants
that are water consumers in the EIP, and the wastewater produced by
the water consumers is sent to the wastewater treatment plant. In the
EIP, the wastewater is regenerated and recycled to the water supplier to
R. Bi, et al. Resources, Conservation & Recycling 146 (2019) 308–315

be reused. There is also a possibility of charging the plants for waste-

water produced by them in a permissible concentration and flow rate.
For the water consuming plants, both the water supplier and waste-
water treatment plant are service providers and they are required to pay
both for the requisite freshwater and discharge of wastewater. In the
system of optimization, the water supplier and wastewater treatment
plant play a unique role and can be treated as a single service provider
unit. Therefore, in this study, we only consider the water supplier in the
optimization models for this reason.

2.2. Relationship between water supplier and water consuming industrial

plants

The water supply in an EIP is generally provided by municipal de-

partments or non-profit organizations who can reasonably determine
the price of water supplied in accordance with relevant national and
government policies or regulations; moreover, the price can vary within
a limited range. As the water supplier is a non-profit organization, it
does not expect to gain profits by supplying water to plants but aims to
guide plants to use a minimum quantity of freshwater. The EIP is re-
sponsible for introducing a wastewater treatment plant that generally
charges a fixed unit price. In addition to procuring the amount of water
needed for production, plants in the park should also determine the
possibility of water demand reduction through upgradation of tech-
nology and introduction of water saving measures. When the im-
provement costs for upgrading technology or water saving measures are
significantly higher than the benefits of water saving, it is impossible to Fig. 2. Scheme of two-level optimization in the EIP.
perform improvements as plants are profit-seeking in nature; con-
versely, when the improvement costs for upgrading technology or water
supplier is the same as that in the first method.
saving measures is lower than the benefits acquired by water saving,
At present, most EIPs adopt the first method, believing that the first
plants are inclined to carry out such improvements.
method will be more conducive to the introduction of water-saving
In addition to these two situations, a more common situation is
measures for plants. It is also commonly considered that the second
when the improvement cost of technological upgradation or water
method leads to the non-water-saving plants sharing a part of the
saving measures is equivalent to the benefits acquired by saving water
profits of the water-saving plants without any incurred cost.
after improvement. Consequently, the plant will be in the dilemma of
Consequently, the water saving plants would be less motivated to up-
deciding the most appropriate action. Considering the long-term de-
grade the technology. This can be verified by the reasonable results
velopment and social benefits, plants have the motivation to upgrade
obtained from the residential tiered pricing strategy of water and
the level of technology. Conversely, they also need to take the high
electricity. However, the reason why the tiered pricing strategy is only
investment into account. Although it is profitable in the long term, the
targeted at specific users is that the number of water users and elec-
benefit of the investment is not high and the investment payback period
tricity users is so large that it is difficult for all groups involved to have
is long. At this point, there is a two-level optimization between the
complete communication and reach an agreement. Therefore, the
water supply plants and the water consumers. Thus, both parties have
second method will lead to a loss in benefits for the user who saves
the intention to save water; however, the incentive for the plant is
water and electricity. Therefore, the residents are in a non-cooperative
minor considering the large investment required, while the water
optimization instead of a cooperative one. At this point, the first ap-
suppliers strongly hope that the plants will adopt water-saving mea-
proach is appropriate.
sures. Therefore, it is possible for both parties to reach an agreement
However, there are relatively fewer water plants in the EIP and all
through negotiation, that is, the water supplier provides the plants with
plants are under a unified and coordinated management of the service
a reasonable water price to enhance the plant’s motivation to build the
department of the park; therefore, it is easy to reach a consensus and an
water-saving equipment. Therefore, a cooperative optimization adds
agreement. This is an important advantage and it would be detrimental
the possibility to introduce water-saving measures for the plants, thus
if the first method was considered by the EIP. When all the water
achieving a win-win situation. For the case that a plant that wants to
consumers can form a community sharing the common interests and
add new equipment results in the increase of the amount of water, the
risks by adopting the second method, it is conducive to promoting the
analysis is converse. The schematic diagram is shown in Fig. 2.
technological improvement and innovation of plants in the entire park.
Although, water-saving plants lose certain benefits in the short term,
2.3. Relationships among the plants that are water consumers
once the water consumption increases in the future, the increased risks
can be shared by other plants partially to reduce their investment
The two-level optimization between the water supplier and the
pressure in the long term. For example, if a plant wants to build new
water consumer will encourage the industrial plants to reduce water
equipment that will increase the water consumption of the plant and
consumption by upgrading technology and introducing water-saving
cause a certain amount of capital pressure, other plants would take
facilities. Generally, the water supplier will reduce the water price
some of the pressure and enhance the implementation of the new
within a limited range to share part of the capital risk of the plants. The
equipment. Therefore, short-term loss of benefits leads to long-term
water supplier has two methods to reduce the price: one method is that
stability and a coordinated development among all the water con-
the lower price is only applied to the water-saving plants, and the other
sumers in the EIP. Therefore, in this case, the second method can fa-
is that the lower price is applied to all plants in the EIP. However, for
cilitate the rational and effective integration of water networks among
the second method, the price reduction is usually lower than that of the
plants, as the reduction of water consumption would benefit all plants.
first method to ensure that the total economic interest of the water

310
R. Bi, et al.
The examples in the subsequent sections will illustrate this point.
2.4. Two-level optimization model
As described in Sections 2.3 and 2.4, the price of water and profit
allocation ratio, as two important control variables, can effectively
realize the regulation and control of the amount of water consumption
based on the relationship between the water supplier and industrial
plants and the interrelationship between plants in an EIP.
In this two-level optimization model, certain practical constraints
are required, including:
(1) The total water consumption of the park shall not exceed the
maximum water supply capacity;
(2) The cost of water for each plant shall not exceed its actual bearing
capacity;
(3) The price of water cannot increase or decrease indefinitely and can
only fluctuate within a reasonable range.
On the premise of meeting the above constraints, the water supplier
expects to reduce the water consumption as much as possible. The
strategy of the water supplier is to provide a fluctuating water price,
while plants hope to pay the minimum amount while meeting the
production requirements. The price of water fluctuates with the total
water consumption, which may cause the increase or decrease of water
cost for each plant in the EIP owing to the increase or decrease of the
water consumption of other plants, even if the water consumption of
their own plants does not change. In our model, we proposed a para-
meter named allocation ratio, which was used to represent the co-
operation between a plant that changed its water consumption quantity
and other plants. Subsequently, a fluctuation in water price occurs for
the plant whose water consumption has changed. We used the payback
period of investment as the objective, which can be computed using the
following equation:
Iinv
T= , was applied, the total water consumption of plants in the park would be
F1 + F2 + F3 (1)
where T is the payback period, Iinv is the total investment of the plant, F1
is the extra profit without the water cost owing to the investment; F2 is
the profit owing to the water price change; F3 is the profit owing to the
other plants’ contribution.
F1 usually is a constant. In the case of applying water saving tech-
nology, F1 is equal to zero; in case of building a new equipment, F1 is the
profit by the new equipment. F2 and F3 can be calculated by Eqs. (2)
and (3) as following:
F2 = Po wio − Pn win, (2)
⎡ ⎤
N
⎢ ⎥
F3 = c ⎢ (Pn − P0 ) ∑ wjo⎥,
j=1
⎢ ⎥
⎣ j≠i ⎦ (3)
Pn = f(P0, ∝), (4)
(1 − ∝) Po ≤ Pn ≤ (1 + ∝) Po; 0 ≤ c≤ 1;
where Po is the benchmark water price. Pn is the new water price owing
to the change in water consumption determined by the water supplier
in EIP; c is the allocation ratio ranging from 0 to 1; w is the water
consumption; wn is the consumption of water for the plant who adopts
the water-saving technology or adds a new equipment; ∝ is the coef-
ficient of fluctuation of the water price; N is the number of plants in the
EIP. The subscript o represents the initial state, n represents the
changed state, and i represents the plant that changed the water con-
sumption quantity.
In the model, the two-level optimization problems were considered
simultaneously. The first level optimization between water supplier and
311
Resources, Conservation & Recycling 146 (2019) 308–315
water users was represented by Eq. (4), where the water supplier uses
water price fluctuation to control the overall water consumption in the
EIP indirectly. The second level optimization between the plant that
changed the quantity of water consumption and the other plants was
represented by Eq. (3), where the allocation ratio was proposed to ex-
press the profit/risk sharing among the plants in the EIP. Then, the two-
level optimization problems were coupled into a single objective of the
payback period of the investment. Subsequently, the original problems
to find a proper water price (the first level optimization) and a proper
allocation ratio (the second level optimization) were altered to meet the
requirement of the payback period.
The managers of the EIP should analyze and evaluate the water
consumption situations and the technology level of each plant to de-
termine a reasonable overall water consumption quantity and establish
the benchmark water price. When the total water consumption exceeds
the determined amount, the water price would be increased within a
limited range as a penalty to all plants in the EIP; Conversely, when the
water consumption is lower than the determined amount, the water
price would be decreased within a limited range as an encouragement
to the water saving plans of the plants in the EIP.
3. Case study
A hypothetical case of five plants in an EIP is presented. The total
water consumption was determined to be 1000 t/h and the water
consumption of each plant was 200 t/h. If the benchmark water price
was set to 5 CNY/t, then the total cost of water used in the EIP was 5000
CNY/h, and the water charge for each plant was 1000 CNY/h.
3.1. Case 1: water saving
3.1.1. Optimization between water supplier and plants
Considering a case where one of the plants (F5) wants to use a new
technology to reduce the water consumption by 50% with the cost for
implementation of technology at CNY 10 million. If the new technology
reduced to 900 t/h. To encourage the water-saving plan, the EIP’s water
supplier changes the price to 4.50 CNY/t, and the total cost of water is
4050 CNY/h. Consequently, the water cost of other plants (F1–F4)
becomes 900 CNY/h, while the cost of the plant with the new tech-
nology falls to 450 CNY/h. After adopting the new technology, the total
benefit for the plants in the park is 950 CNY/h, where the benefit for
the plant adopting the new technology is 550 CNY/h while the com-
bined benefit for other plants is 400 CNY/h.
If an economic evaluation is conducted for F5, it is easy to compute
that the payback period of the cost of technological revamp is 735 d,
marginally more than two years. Therefore, it would be beneficial for
plants to employ the new technology even if the subsidy from other
favored plants in the park is not taken into account.
However, the above case usually doesn’t happen in practice for the
following reasons. Firstly, the new technology usually cannot reduce
the amount of water consumption by as much as 50%; secondly, the
water supplier is unlikely to decrease the water price to a value as low
as 4.50 CNY/t. Therefore, the more realistic cases and the effects of the
changes in water price should be investigated in detail. Based on the
assumptions that the cost of the technical update is CNY 10 million, the
water consumption after the technical update is reduced from 200 t/h
to 150 t/h, and the new water rate fluctuates between 5.0 CNY/t and
4.5 CNY/t. The water cost and savings in water cost of all plants in the
EIP are listed in detail in Table 1. Table 1 lists the water cost and cost
saving of all plants assuming an extreme condition that plants F1-F4
obtained all the benefits of water saving implemented by F5 without
sharing the profits with F5. That implies that the plants F1-F4 gained a
profit without taking any risk.
As observed from Table 1, when the water cost is 5 CNY/t, the plant
implementing the water-saving renovation will save 250 CNY/h. With
R. Bi, et al. Resources, Conservation & Recycling 146 (2019) 308–315

Table 1
Water cost and water cost saving of all five plants with different water price.
Water F1-F4 F5 Total F5 Total cost F1–F4
Price water water saving in water
cost cost in EIP cost
EIP saving
(CNY/t) (CNY/ water cost (CNY/h) cost saving CNY/hr CNY/hr
h)
(CNY/h) CNY/h

5.00 1000 750 4750 250 250 0

4.95 990 742.5 4702.5 257.5 297.5 10
4.90 980 735 4655 265 345 20
4.85 970 727.5 4607.5 272.5 392.5 30
4.80 960 720 4560 280 440 40
4.75 950 712.5 4512.5 287.5 487.5 50
4.70 940 705 4465 295 535 60
4.65 930 697.5 4417.5 302.5 582.5 70
4.60 920 690 4370 310 630 80
4.55 910 682.5 4322.5 317.5 677.5 90
4.50 900 675 4275 325 725 100

Fig. 3. Payback period for F5 with different profit allocation proportions and
the reduction of water price, the cost savings gradually increases. When
prices of water.
the water price is 4.50 CNY/h, the cost saving per unit hour reaches
CNY 325, while the total saving in the park is 725 CNY/h. Considering
an annual production capacity of 8000 h, the technological renovation Table 1 has demonstrated that with the decline of water price, the
achieved a saving for the plant of CNY 2.6 million, and the total cost benefits of all plants have increased. Fig. 3 illustrates that the payback
savings of the park was CNY 5.8 million. From the perspective of the period for the F5 plant varies corresponding to the different profit al-
revamped plant, the investment payback period of the plant will vary location ratios. If we assume that the F5 plant would consider im-
from 3.8 years to 5 years under different water rates. In this case, F5 plementing the water-saving technology on the condition that the
would be in a dilemma of using the new water saving technology, be- payback period of the investment is less than three years, then there are
cause a static payback period of 3.8 years to 5 years, which implies 6 two methods to meet this condition: the first is to lower the water price,
years to 7 years for cost recovery, is an unprofitable period for the in- and the other is to change the profit allocation ratio between F5 and
vestment. Therefore, it is probable that F5 would cancel the new other plants. Alternatively, both the methods could be used together.
technology revamp because of the high risk. In Fig. 3, it can be observed that when other plants do not share
profits with plant F5, even if the water rate is reduced from 5 CNY/t to
4.5 CNY/t, it still cannot meet the requirements of the investment
3.1.2. Two-level optimization in EIP
payback period being less than three years. Another extreme scenario
As discussed in the earlier section, if we merely consider the opti-
occurs if the other four plants return all the profits to F5 so that the
mization between the water supplier and plants that want to implement
investment payback period is decreased to the range from 1.7 years to
new technology, there is a considerable lack of progress. However,
4.2 years. In this case, we identify the maximum allowable water price
when we consider the other plants (F1–F4) in the EIP, we find that the
value point where the payback period is just three years, and we de-
other four plants would obtain extra profits by the water price reduc-
fined it as Pmax. This implies that if we require F5 to implement the
tion, therefore, these plants (F1–F4) also encourage plant F5 to imple-
renovation process, the water price cannot exceed Pmax, otherwise it
ment the renovation process. Considering this scenario, if plants F1–F4
would be impossible to ensure a payback period of less than three years.
had to contribute a part of the profits they would obtain because of
Corresponding to Pmax, there also exist a Pmin, which implies that when
plant F5’s renovation process, then F5’s risk would be reduced to a
the water price less than Pmin, F5 would be certain to implement the
certain extent. Consequently, the renovation process of F5 becomes
revamp process because the payback period would always be less than
advantageous for the water supplier, F5 plant, and the other four plants.
three years. The values of Pmax and Pmin define the water price range
For the water supplier, the reduction in the water consumption supports
within which the two-level optimization between F5 and the other four
the full use of water resources and achieves sustainable development;
plants happens. When the price of water is outside the range of Pmax and
the other plants in the EIP can obtain benefits without any input or
Pmin, the two-level optimization between F5 and the other four plants
incurring any renovation costs; and the F5 plant obtains a new and
don’t occur. And so, there will be only one-level optimization between
advanced technology to replace the old one, which aids in strength-
the water supplier and F5 plant. Therefore, the water supplier should
ening the competitiveness. Further, the technological development
establish the price of water between Pmax and Pmin.
process will also bring more profits in the long term. Thus, the only
Fig. 3 also illustrated the effect of the different profit allocation ratio
barrier is the long payback period, which can be considered as risky for
schemes on the payback period. Consequently, with the increase in the
the F5 plant.
profit allocation ratio, the payback period correspondingly increased.
To facilitate the technological revamp, the water supplier can lower
To illustrate the importance of the effect of the profit allocation ratio,
the water price to a certain degree and other plants can also negotiate
Fig. 4 shows a histogram graph of the payback periods for different
with the F5 plant to share a part of the profits they would obtain by the
water prices when the allocation ratios are 0 and 100%. Each bar in
lowered water price owing to the F5 plant. This scheme leads to mul-
Fig. 4 consists of two parts, the lower part with red color illustrates the
tiple win-win results. Therefore, an agreement can easily be finalized
payback period with profit allocation of 100%, and the higher part with
among all the three parties. However, there are challenges in de-
blue color illustrates the difference of payback period between profit
termining the changes in water price and implementing reasonable
allocation of 100% and 0, and the entire bar illustrates the payback
profit allocation ratio schemes. Moreover, the payback period for F5 is
period without profit sharing.
the target variable that determines whether the revamp could be im-
Thus, when encouraging plants to take new water saving technol-
plemented or not. In Fig. 3, the payback period for F5 is presented with
ogies, both the water price and the profit allocation ratio are important
different profit allocation proportions and prices of water.

312
R. Bi, et al.
Fig. 4. Histogram graph of the payback periods with different water prices
when the allocation ratios are 0 and 100%.
Fig. 5. Payback periods with different water prices and allocation ratios in case
1.
and should to be taken into consideration. Fig. 5 illustrates the payback
period changes with different water prices and different profit alloca-
tion ratio schemes. It can be observed from Fig. 5 that it is possible to
satisfy the requirements for implementing the water-saving technolo-
gies only when the water price and the profit allocation ratio are within
a reasonable range. The two-level optimization was constructed based
on the estimation of water price and the profit allocation ratio scheme.
The water price is the key parameter of the first level optimization
between the water supplier and F5, and the profit allocation ratio is the
key parameter of the second level optimization between F5 and the
other plants; thus, the two-level optimization determines the actions of
the plant.
3.2. Case 2: increased water consumption
The above mentioned scenario is about a plant implementing a
water-saving technology, while the opposite situation is of a plant that
wants to build a new equipment that will increase the water con-
sumption. In this scenario, the water supplier will increase the water
price to force plants in the park to reduce water consumption. This will
lead to higher water cost for the other plants even though they use the
same amount of water. In the non-cooperative case, while confronting a
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Resources, Conservation & Recycling 146 (2019) 308–315
cost increase without any return, the other plants will not agree to the
plant (F5) adding new equipment. However, considering the possibility
that they will also build new processes in the future, they may agree to
F5 adding new equipment provided it is within a limited increase in
cost. The plant F5 could consider sharing a part of the increased cost of
water of the remaining plants. Then, the plan of F5 to construct the new
equipment depends on the following conditions:
(1) How much did the water price increase owing to the increase of
water consumption? Further, how much did the total cost of water
increase?
(2) How much did the water cost of plants that introduced new
equipment increase without sharing the water cost of the other
plants?
(3) In the scenario of sharing the water cost of the other plants, how
much is the water cost of the plant F5?
(4) To generate profits from the investment, how much can F5 share
the water cost increase of other plants at present?
For the above scenario, we again assumed that there are five plants
in the EIP and the total water consumption is 1000 t/h, where the
consumption of each plant is 200 t/h. The price of water is also set to 5
CNY/t, then, the total cost of water used in the EIP is 5000 CNY/h, and
the water charge for each plant is 1000 CNY/h.
3.2.1. Optimization between water supplier and plants
The plant (F5) requires the addition of a new equipment that will
increase the water consumption by 50% (from 200 t/h to 300 t/h), and
the investment of the equipment is CNY 10 million. If the new tech-
nology is built, the net profit of F5 will be 8000 CNY/h generated by the
new equipment, including the increased water cost. To discourage in-
creasing water consumption, the EIP’s water supplier will raise the
water price. Similar to the case 1, we list the increased water costs of
each plant in the EIP and the increased cost of the EIP with different
water prices in Table 2. Further, we performed an economic evaluation
for F5, and computed the payback period of investment to be in the
range of 2.5 years to 3.5 years, corresponding to the water price in-
crease from 5.0 CNY/t to 5.5 CNY/t. Therefore, it is a profitable choice
for F5 to build the new equipment considering the short payback period
even though the water price was increased to 5.5CNY/t, provided the
plant could ignore the concerns of the other plants.
3.2.2. Two-level optimization in EIP
Adding the new equipment appears to be a good choice for F5 based
on the former analysis, but we had not taken the other plants into
consideration. From Table 2, we observe that owing to the increase in
water consumption, the other four plants acquire an additional water
cost from 10 CNY/t to 100 CNY/t because of the differing water price
range of 5.05 CNY/t to 5.50 CNY/t. The extra water cost of the other
four plants is paid without any return, so they would be reluctant to
absorb the cost and will not agree to F5’s choice of adding the new
equipment. However, in a corporative optimization scenario, the other
four plants would acknowledge the possibility of adding new equip-
ment to their own plants in the future and probably agree to accept a
part of the extra cost. There are two factors that determine whether the
plant F5 can build the new equipment: the water price and the allo-
cation ratio of the extra cost the other four plants have to accept.
Fig. 6 illustrates the payback period trend for different water prices
and allocation ratios. It can be observed that the payback period in-
creases with the increases of water price and the decrease in allocation
ratio of the extra cost the other four plants have absorbed. Thus, when
the water price increases to a certain extent, the net profit of F5 pre-
sents a negative value, so the payback period is also a negative number
implying it is impossible to recover the investment. There are other
scenarios where though the net profit is not negative, the marginal
value of profit ensures the payback period is a very long period. In these
R. Bi, et al. Resources, Conservation & Recycling 146 (2019) 308–315

Table 2
The water cost and water cost increased of all five plants with different water price.
Water price (CNY/t) F1～F4 F5 Total water cost in EIP F5 cost increased (CNY/h) Total cost increased (t/h) F1–F4
(CNY/h)
Water cost (CNY/ water cost (CNY/ cost increased (CNY/h)
h） h)

5.00 1000 1500 5500 500 500 0

5.05 1010 1515 5555 515 555 10
5.10 1020 1530 5610 530 610 20
5.15 1030 1545 5665 545 665 30
5.20 1040 1560 5720 560 720 40
5.25 1050 1575 5775 575 775 50
5.30 1060 1590 5830 590 830 60
5.35 1070 1605 5885 605 885 70
5.40 1080 1620 5940 620 940 80
5.45 1090 1635 5995 635 995 90
5.50 1100 1650 6050 650 1050 100

graph of the payback periods with different water prices for the allo-
cation ratios of 0 and 100%. Each bar in Fig. 7 consists of two parts, the
lower part with red color illustrates the payback period with profit al-
location of 100%, the higher part with blue color illustrates the dif-
ference of payback period between profit allocation of 100% and 0, and
the entire bar illustrates the payback period without profit sharing. The
two factors, the water price and allocation ratio, will determine the
payback period of F5 and further determine the result of whether the
new equipment would be built. Fig. 8 shows the effects of the water
price and allocation ratio on the payback period based on the above
assumption as a 3D representation. From Fig. 8, it can be observed that
when the payback period was decided by the F5 plant, the water price
and the allocation ratio can only be fluctuated within a limited range.
Thus, in the two-level optimization, the water supplier has a more
flexible water price decision strategy and gives plants in the EIP more
freedom of choice.

3.3. Further analysis of the scenarios

Fig. 6. Payback period of F5 with different allocation ratios and prices of water.

scenarios, we canceled the calculation in the Fig. 6 and we can observe
these scenarios in the curves where the price of water is 5.35, 5.40,
5.45, and 5.50 CNY/t, respectively.
To clearly reveal the effect of the allocation ratio of the extra cost to
other four plants on the payback period, Fig. 7 illustrates the histogram
The two scenarios discussed in the previous sections that were de-
monstrated by the two-level optimization can be utilized in an EIP and
could encourage industrial plants to use water reasonably by a co-
operative relationship between the water supplier and plants and
among the plants. When compared to the customary method of fixing
the water price, the advantage of establishing the water price by the
two-level optimization method is the ability to encourage plants to
minimize the water consumption. The customary method by the water

Fig. 7. Histogram graph of the payback periods with different water prices for
the allocation ratios of 0 and 100% in case 2. Fig. 8. Payback periods with different water prices and allocation ratios.

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R. Bi, et al.
supplier is to adjust the water price only for the plants that change the
water consumption quantity (the plant F5 for the two scenarios men-
tioned above). This method is called a one-level optimization corre-
sponding to the two-level optimization proposed in this paper.
The one-level optimization is considerably simple and happens only
between the water supplier and industrial plants in the EIP and it ig-
nores the relationship among plants. This kind of optimization is easy to
operate but is not conducive to cooperation among plants. For example,
as discussed in case 2, if the plant F5 wants to build the new equipment
and it manages the entire increased water cost by itself, the new project
may be canceled owing to the long investment payback period.
Conversely, with the proposed two-level optimization model, based on
the cooperation among all plants, the other plants would share part of
the increased water cost with F5 and the new equipment would have a
greater probability of being constructed. Moreover, while considering
the case 1 of water saving, the same analysis can be conducted and a
similar conclusion can be deduced that the two-level optimization can
promote the cooperation of plants in the EIP and enhance the in-
troduction of new technology. The two-level optimizations proposed in
this paper have the advantage of more emphasis on the sharing of
benefits and risks among plants in the park, which is more conducive to
new technologies and new products.
We observed that in the case of residential drinking water, the water
supply companies utilized the tiered water pricing method aimed at
each single user, similar to the one-level optimization method. The
reason why they don’t use the two-level optimization strategy is that
the number of residential users is considerably large to achieve suffi-
cient communication between users; therefore, it is impossible to form a
cooperative union. However, there are relatively few industrial plants
in the EIP, so information communication and sharing do not have great
barriers, which indicates that the implementation of a cooperative two-
level optimization is a better strategy for plants in the park. Moreover,
another advantage of this strategy is that the allocation ratio of profit or
can be reached through adequate communication among plants, so it is
conducive to reasonably using the water to reach the all-win situation
within the EIP.
4. Conclusion
A two-level optimization model for water consumption in the EIP
was proposed. The first level considered the relationship between water
supplier and all the industrial plants; and the second level considered
the relationship among all plants in the EIP. The model was illustrated
by analyzing two different cases and a comparison with different water
prices and profit allocation ratios was presented. In conclusion, we
deduced that the two-level optimization can facilitate the balanced
usage of water and guide plants to introduce new technology and en-
hance production.
Acknowledgement
The authors would like to thank the financial support provided by
the National Natural Science Foundation of China (41771575).
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