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

The value of phytoextracting crops (plants cultivated for soil remediation) depends on the pro tability 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 in uencing 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. Informa- tion 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 in uencing the project’s pro tability. 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 identi ed as the most in uential 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.