# Economic Feasibility of Retrofitting an Ageing Ship to Improve the Environmental Footprint
## 1 Introduction
The investment decisions about the retrofitting an ageing ship to mitigate the air pollution and transforming the ship into environmentally friendly are to be made based on an informed judgment on the expected economic benefits and the associated risk. Whether the economic benefit is modelled as net present value, return on capital, internal rate of return or economic added value, the risk of a future project is usually represented by a discount rate that reflects the time value of money, i.e., opportunity cost. Traditionally, the ship is designed based on a selected economic measure of the transported effectiveness using the Required Freight Rate (RFR) established over the years, as seen in [36; 37; 38; 39] accounting for direct and indirect costs. The quality of the designed ship is measured by the minimal value of RFR [37], determining the economic efficiency of the investment project which the ship owner has to get to arrive at the assumed profitability rate of a given investment and operating costs, for the assumed ship service life, where the inflation rate, tax rate and the discounted financial balance accounting for the net present value (NPV) and the capital recovery rate are considered. The use of NPV as a part of the decision support methods is a widespread practice in engineering design which may be confirmed by the review of the state of the arts in [40] and in a specific study in [41; 42; 43; 44; 45], among many others. The feasibility of retrofitting analysis uses the same fundaments as RFR. It is made through the discounted financial balance, based on the net present value, estimated as the sum of expected future cash flows minus the initial investment. The future cash flow is the difference between the expenditure associated with the VLSFO and LNG fuels. The economic factors involved in the analysis may differ for different geographical locations and economic and political conditions, which is not essential for the method employed here but is needed for the example presented. An existing ageing multi-purpose ship is used for the present analysis. The recent economic and political instability showed the importance of LNG as an energy source, especially as a marine fuel for the rapidly expanding fleet. The price of LNG as a ship fuel is highly volatile and proper forecasting requires an adequate method. However, last year, the current LNG fuel market showed a severe LNG price increase [46]. The price of LNG as fuel depends linearly on the TTF (Title Transfer Facility: The Dutch natural gas market) [47] and the forecasts of Fitch Ratings for TTF for 2023 are an average of USD$40/Mcf [48]. The price was estimated to be USD$10/Mcf in 2025 from USD$20 in 2024 and stay at USD$5.0/Mcf in 2026 and beyond (1 mt LNG = 48,700 Mcf; Mcf = 1000 cubic feet). Along with the recent European changes regarding carbon trading in shipping, Japan's proposal at the 78 th MEPC session in mid-2022 should also be considered. It applies to a worldwide tax of CO\({}_{2}\) of USD$56 per tonne in 2025, USD$135 per tonne in 2030, USD$324 per tonne in 2035 and a shocking USD$673 per tonne in 2040 [49]. The uncertainties originating from the economic conditions are accounted for by employing the extreme value analysis, which can be seen as an approach to assess the cash outflows peaks that can be generated due to unfavourable economic conditions.