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Combining Monte Carlo simulations and experimental design for incorporating risk and uncertainty in investment decisions for cleantech: a fast pyrolysis case study

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Abstract

The value of phytoextracting crops (plants cultivated for soil remediation) depends on the profitability of the sequential investment in a conversion technology aimed at the economic valorization of the plants. However, the net present value (NPV) of an investment in such an innovative technology is risky due to technical and economic uncertainties. Therefore, decision makers want to dispose of information about the probability of a positive NPV, the largest possible loss, and the crucial economic and technical parameters influencing the NPV. This paper maps the total uncertainty in the NPV of an investment in fast pyrolysis for the production of combined heat and power from willow cultivated for phytoextraction in the Belgian Campine. The probability of a positive NPV has been calculated by performing Monte Carlo simulations. Information about possible losses has been provided by means of experimental design. Both methods are then combined in order to identify the key economic and technical parameters influencing the project’s profitability. It appears that the case study has a chance of 87% of generating a positive NPV with an expected value of 3 million euro (MEUR), while worst-case scenarios predict possible losses of 7 MEUR. The amount of arable land, the biomass yield, the purchase price of the crop, the policy support, and the product yield of fast pyrolysis are identified as the most influential parameters. It is concluded that both methods, i.e., Monte Carlo simulations and experimental design, provide decision makers with complementary information with regard to economic risk.

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Authors and Affiliations

  1. Environmental Economics Research Group, Center for Environmental Sciences (CMK), UHasselt – Hasselt University, Agoralaan, 3590, Diepenbeek, Belgium

    Tom Kuppens, Parisa Rafiaani, Theo Thewys & Steven Van Passel

  2. Economics and Rural Development, Gembloux Agro-Bio Tech, University of Liège, 5030, Gembloux, Belgium

    Parisa Rafiaani

  3. Applied and Analytical Chemistry Research Group, Center for Environmental Sciences (CMK), UHasselt – Hasselt University, Agoralaan, 3590, Diepenbeek, Belgium

    Kenny Vanreppelen, Jan Yperman, Robert Carleer & Sonja Schreurs

  4. Nuclear Technology (NuTeC) Research Group, Center for Environmental Sciences (CMK), UHasselt – Hasselt University, Agoralaan, 3590, Diepenbeek, Belgium

    Kenny Vanreppelen & Sonja Schreurs

  5. Department of Engineering Management, UAntwerpen – Antwerp University, Prinsstraat 13, 2000, Antwerp, Belgium

    Steven Van Passel

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  1. Tom Kuppens
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  2. Parisa Rafiaani
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  7. Theo Thewys
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Correspondence to Tom Kuppens.

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Kuppens, T., Rafiaani, P., Vanreppelen, K. et al. Combining Monte Carlo simulations and experimental design for incorporating risk and uncertainty in investment decisions for cleantech: a fast pyrolysis case study. Clean Techn Environ Policy 20, 1195–1206 (2018). https://doi.org/10.1007/s10098-018-1543-1

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  • DOI: https://doi.org/10.1007/s10098-018-1543-1

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