A stochastic approach for economic valuation of alternative fuels: The case of container ship investments

Abstract

With unpredictable climate policies and fuel technology developments, the maritime industry faces significant uncertainties. This study presents a stochastic approach to assess investments in container ships powered by three types of fuel in the context of carbon pricing: Low sulfur fuel oil (LSFO), liquefied natural gas (LNG), and ammonia. To analyse uncertainty, we model carbon permit and bunker prices stochastically, and presented probabilistic functions of the net present value (NPV) and the energy density adjusted levelised cost of energy (LCOE). The results suggest that with carbon pricing the chance of LNG to be more profitable than LSFO increases, while the ammonia-fuelled ship exhibits the least expected NPV with the widest distribution in all carbon pricing scenarios. Fossil fuels are more advantageous in generating a lower cost of power, both with and without carbon pricing. Consequently, our findings suggest that carbon pricing alone will not be sufficient to facilitate a transition to ammonia. Furthermore, various measures to mitigate the uncertainties associated with ammonia fuel would be required, including the development of infrastructure to ensure a stable fuel supply.