The storage will not be as flexible as "Setup A" because this is using local disk space on the Hyper-V server itself.
Hyper-V Replica is designed for replicating VMs over slow links. Thus, it sometimes replicates in "bursts", which results in the replicated VMs "lagging behind" in the original VMs. But if there are not many changes in the original VMs, and the connection remains stable, the replicated VMs will "catch up" with the original VMs eventually.
The proposed setup...
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| Hyper-V Replica all the way... |
To automate the failover, we need to code something that can detect/decide that the main server/site is down and then power up the replicated VMs. It is very easy to fall into split-brain scenarios if this is not done properly. Thus, I propose using Microsoft's Failover Cluster technology to maintain the quorum properly. Here is the proposed idea of maintain the quorums: 1 for single site, another for multi-site.
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| One way of maintaining quorum if using Hyper-V Replica |
Another challenge is that Hyper-V Replica exists outside of SCVMM. If a new VM is deployed via SCVMM, we cannot tell SCVMM to replicate it. We need to write our own code to detect a newly created VM and replicate it.

