Optimized Expansion Strategy for a Hydrogen Pipe Network in the Port of Rotterdam with Compound Real Options Analysis

Martine van den Boomen, Sjoerd Van der Meulen, Jonathan Van Ekris, Roel Spanjers, Olle Ten Voorde, Janwin Mulder, Peter Blommaart

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Abstract


The port of Rotterdam is the largest seaport in Europe. To maintain its position, the harbor will have to anticipate global transitions such as transferring to sustainable energy. Hydrogen is seen as a promising energy carrier; however, future demand is uncertain. The current research investigates decision making under uncertainty and values flexibility. Compound real options analysis is applied to optimize the time-variant expansion strategies for a hydrogen pipe network. The trade-off between early investments and missed revenues when not investing in time determines the optimized expansion strategy. Moreover, the real options approach also provides the levelized unit price for hydrogen distribution, to cover the life cycle costs of the optimal expansion strategy. Finally, this real options approach offers flexibility to a decision maker as it allows for enhancing future decisions. The academic contribution of this research is a distinct perspective on a compound real options approach where the optimal strategic path is the key result of interest. This in contrast to other real options applications in the literature which focus on option value, exchange with limiting the options or do not visualize a strategic path. Moreover, this research demonstrates how stepwise expansion and decision making under uncertainty facilitate transitions such as the transition toward clean energy.
Original languageEnglish
Article number9153
Pages (from-to)1-23
Number of pages23
JournalSustainability
Volume13
Issue number16
DOIs
Publication statusPublished - 2021

Keywords

  • real options analysis
  • expansion
  • compound options
  • adaptive decision making
  • uncertainty

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