# Economic Feasibility of Retrofitting an Ageing Ship to Improve the Environmental Footprint
## 4 Economic Analysis
### Feasibility Assessment
The LNG fuel price overtook the cost of VLSFO, which recorded a lower price per tonne yesterday. LNG has a lower calorific value than the VLSFO and the prices are not based on the mass but on the gas needed to deliver the same amount of energy, then converted to the oil prices. Additionally, VLSFO and LNG need to pay different CO\({}_{2}\) taxes because the analysis here is performed. At this stage, accurate fuel price predictions are challenging since a global gas market does not exist and LNG price levels are highly uncertain. The achieved NPV and IRR are estimated by defining the expenses difference for using VLFSO and LNG, including the CO\({}_{2}\) taxes. Table 11 shows that the Denying scenario generates lost monetary value, which the economic performance of the ship must compensate for. The Disinterested scenario presents neither gain nor loss value and the retrofitting adds no monetary value. The Good scenario adds value and the retrofitting added monetary value equal to the initial investment, CAPEX. In the Acceptable scenario, the retrofitting adds monetary value in a reasonable quantity. The cost of interest, depreciation, cash-inflow and cash-outflow are also analysed in the present study, reflecting the loss of performance due to age, as seen in Figure 4. The cash-inflow is the sum of the depreciation and the interest rate and the profit will be the difference between the cash-out-flow and the cash-inflow. \begin{table}
\begin{tabular}{c c} \hline \hline
**Description** & **Value** \\ \hline Total Cost of Retrofitting USD\$ & 3,500,000 \\ Required net profitability rate, \% & 2.00\% \\ Number of resting years of ship operation, & 15 \\ years & 3.00\% \\ Average annual inflation rate, \% & 3.00\% \\ Income tax rate, \% & 15.00\% \\ Capital return factor, \% & 7.78\% \\ Tax correction C\({}_{\text{RF}}\), \% & 8.51\% \\ Depreciation time, years & 8 \\ Contract assignment & 1 January 2022 \\ Ship delivery & 5 January 2022 \\ Time of retrofitting, months & 4 \\ Days of operation per year, day & 340 \\ Own investment, USD\$ & 500,000 \\ \hline \hline \end{tabular}
\end{table} 
Table 10: Feasibility input data. The cash outflow, \(Cash_{outflow}\) is defined as a function of the installed propulsion power, type of fuel and CO\({}_{2}\) generated, price of the fuel and taxes related to CO\({}_{2}\). For calculating the cash-outflow, factors defining propulsion power, the time of ship operational activity in the voyage duration. The ship analysed here originally used VLSFO and, after retrofitting, used LNG. The cash-outflow is estimated by multiplying the time spent with the total installed propulsion, engine loading and the operational and consumption for propulsion and summing taxes related to CO\({}_{2}\) discounted for the same expenses related to LNG-fuelled engines:  
\[Cash_{outflow}=LF_{\text{CO2}}C_{\text{CO2}}(W_{VLSFO}EF_{VLSFO}-W_{\text{LNG}} EF_{\text{LNG}})+(C_{VLSFO}W_{VLSFO}-C_{\text{LNG}}W_{\text{LNG}}) \tag{7}\]  
where \(LF_{\text{CO2}}\) is load CO\({}_{2}\) factor, \(C_{\text{CO2}}\) is the taxes for \(C_{\text{CO2}}\) emissions, \(W_{VLSFO}\) weight consumption of VLSFO, \(EF_{VLSFO}\) is the emission factor for VLSFO, \(W_{\text{LNG}}\) is the weight consumption of LNG, \(EF_{\text{LNG}}\) is the emission factor of LNG, \(C_{VLSFO}\) is the price of the VLSFO fuel and \(C_{\text{LNG}}\) is the price of the LNG fuel. The cash-outflow analysis relates the magnitude of a given cash-outflow event with the probability of that event's exceedance. Several assumptions are imposed in analysing the cash-outflow peaks, including data independence, data sufficiency, fuel price description and CO\({}_{2}\) taxes for air pollution. The uncertainty propagation in the cash outflow is generated by the stochastic input variables related to the fuel price and CO\({}_{2}\) taxes. The cash outflow is estimated for three years, shown in Figure 5, left.