Ship Design for Uncertainty

A Real Options Approach to determine the Value of Design-for-Conversion under Uncertainty

Master thesis (2023)

Authors

M.G. Minderhoud Mechanical Engineering

Contributors

J.J. Zwaginga Ship Design, Production and Operations - Mechanical, Maritime and Materials Engineering (supervisor 1)
J.F.J. Pruyn Ship Design, Production and Operations - Mechanical, Maritime and Materials Engineering (supervisor 1)
Ken van Schie Royal IHC (supervisor 1)
Faculty
Mechanical Engineering
Copyright: © 2023 Max Minderhoud
Uncertainty Methanol Ship Design Real Options Decision Tree Design-for-Changeability
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Published Date

22-02-2023

Language

English

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Faculty

Mechanical Engineering

Abstract

The maritime industry faces a lot of uncertainty, and the energy transition has only increased this uncertainty. Ships will probably have to be converted to an alternative fuel during their lifetime and methanol seems to be the fuel with the most potential for offshore ships. By preparing for this, Design-for-Conversion to methanol, the costs of changes can be significantly reduced with only minor investments during the new building phase. The added design preparations pay for themselves only if they are being used in the future. However, due to large uncertainties, it is unclear whether a ship is actually converted to methanol in the future. Therefore, an answer had to be found to the main research question: How to determine the value of Design-for-Changeability under uncertainty to find the optimal DFC level when preparing for conversion to methanol?

From the literature is concluded that Design-for-Changeability principles can help to deal with uncertainty during a ship's lifetime. Moreover, Real Options Analysis is selected from the literature, as a method to deal with decisions and uncertainty when designing for conversion to methanol. By means of a combination of these methods, a methodology is established which is used in a case study.

In the case study, it was found that waiting with the execution of conversion to methanol results in decreasing added value of Design-for-Conversion. Moreover, it was found that the Discount Rate used for Net Present Value calculation significantly impacts the choice of whether to prepare a ship for methanol. It can be concluded that an instigator is needed so that ships are converted to methanol. Two instigators have been researched, a carbon pricing measure and a ban on harmful emissions. It can be concluded that a carbon pricing measure is only effective if the right price is established, while a carbon ban is highly effective as ships are converted instantly.

The combination of methods, the Design-for-Changeability principles together with a Real Options Decision Tree, provides a suitable framework to quantify the impact of Design-for-Conversion to methanol under uncertainty.