Quantitative and qualitative risk-informed energy investment for industrial companies

Abstract

In the ongoing energy transition, small and medium-sized industrial companies are making energy equipment investments due to the obsolescence of their current equipment as well as social, political and market pressures. These firms typically choose investments with low risk exposure based on a combination of criteria that are not always quantifiable. However, published studies on energy investment to date have not been suitable for industrial SMEs because they do not assess the value of the investment over time, ignore the qualitative aspects of decision-making, and do not consider uncertainties. To fill this gap in the literature, this paper proposes a methodology that considers both quantitative and qualitative parameters and risks over time through an extended two-stage risk-informed approach. The proposed methodology includes fuzzy and statistical techniques for evaluating both qualitative and quantitative parameters, as well as their uncertainties, at the time of decision-making and over the investment lifetime. Fuzzy logic is used in the first stage of the optimisation process to measure qualitative parameters and their uncertainty, while quantitative parameters are expressed using probability density functions to account for their uncertainty and measure the quantitative risk assumed by the investor. This methodology is applied to a case study involving a real industrial SME, and the results show that considering both quantitative and qualitative parameters and uncertainties in the optimisation process leads to a more balanced consideration of economic, environmental and social criteria and reduces the variability of the outcome compared to economic-only approaches that do not account for risks. Specifically, the case study shows that considering these parameters and uncertainties resulted in a 15.7% reduction in the size of the cogeneration system due to its environmental and social impacts, and 4.2% reduction in the variability of the economic result.