Calculation of INVCOST for technology with negative ILED earlier than the base year
#5
Thanks for the explanation, Antti.  I can now repeat the TIMES investment cost calculation.
 
This is an interesting philosophical question that I haven't considered before.
 
Perhaps it depends on the point of the discount rate.  The technology-specific rate can be considered an up-front loan cost with staged payments, so that is unlikely to change.  In the UK model, we treat the global discount rate as a “social time preference rate”, based on the HM Treasury Green Book.  This comprises:
 
  1. A ‘time preference’, which is the rate at which consumption and public spending are discounted over time, assuming no change in per capita consumption. This captures the preference for value now rather than later.

  2. A ‘wealth effect’, which reflects expected growth in per capita consumption over time, where future consumption will be higher relative to current consumption and is expected to have a lower utility.


 
Both cases reflect that the value of a particular investment changes over time.  One might argue that if the discount rate changes, that reflects the value of the investment changing, and hence the lump investment would not need to be the same.  So the cost of the car might be different to the value to the owner.  Following this argument, time-varying discount factors would be most appropriate for calculating investment costs.
 
However, I’m by no means an expert in this area and I’d be interested in the views of others.  I imagine the differences between the two methods are very small for most models.
 
I have attached an updated version of the file for the benefit of others who are looking at this question and interested in how TIMES calculates the investment cost.


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.xlsx   uk-times_investment_calc_example.xlsx (Size: 37.04 KB / Downloads: 3)
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RE: Calculation of INVCOST for technology with negative ILED earlier than the base year - by pauldodds - 02-09-2019, 05:51 PM

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