Calculation of INVCOST for technology with negative ILED earlier than the base year
#4
pauldodds Wrote:For 2020, I can almost recreate the TIMES calculation (I'd be interested to know the cause of the 0.05% error, but am not worrying about it).
The cause of the 0.05% error is the use of time-dependent general discount rates (G_DRATE).  I think one of the main ideas behind the annualization of the investment costs is that, assuming zero risk premium (no NCAP_DRATE specified) and zero IDC (no NCAP_ILED specified), the lump-sum present value of the investment payments should be equal to the original investment cost (NCAP_COST), when the annual payments are discounted back to the beginning of the commissioning year.

However, your calculation is inconsistent with this equivalence principle.

For some extreme examples, consider buying an electric car in 2012, which has a price £30,000 and ELIFE=10. Assume first that G_DRATE is constant, with the values 1%, 10% and 100%. With all these discount rates, the lump-sum investment cost obtained by discounting the annual investment payments (£3700, £4439, £15015) back to the beginning of the commissioning year is still in all cases exactly £30,000. But now, assume that G_DRATE is 10% in 2012, but then either A) decreases to 1% or B) increases to 100% starting from 2013. Using your calculation method, in the first case A), the lump-sum investment cost would have a value of £42,459, and in case B) it would have a value of only £8,868! So, in case B) the electric car, which is bought in 2012 with the price £30,000, would effectively cost only £8,868, just because of the annualization of the investment cost.  I think such a price reduction would be inconsistent, but perhaps you disagree?

To avoid such artificial alteration in prices when G_DRATE is changing, TIMES currently does not follow your calculation, but discounts the payments back to the commissioning year by the G_DRATE of that year, and therefore in TIMES the lump-sum payment is consistent with NCAP_COST. Would you prefer that your approach is adopted instead?
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RE: Calculation of INVCOST for technology with negative ILED earlier than base year - by Antti-L - 14-08-2019, 10:38 PM

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