We have a TIMES-model that is able to run in two ”modes”,

1) The TIMES-model recieves exogenous electricity prices from an external power market model. This TIMES-model does not include any power generating technologies.

2) The TIMES-model has endogenous electricity price. In this model, power generating technologies are included.

My question is how will this affect the optimal solution on the demand side?

In the first case the model will "see” future electricity prices for all future years towards 2020 and optimize investments in demand technologies such as electric heaters, pellets boilers or district heating. (NB! Norway uses a lot of electricity for heating, therefore this is of great importance).

However in the latter case, I claim that the model will not "see” future electricity price towards 2020 in the same way, as this price is computed in an equilibrium with the supply side in each time step. Is this true?

My question is actually on how the objective function in the TIMES-model is build. In the Documentation for the TIMES Model PART I it says on page 37 that "the investments and dismantling costs are transformed into __streams of annual payments__, computed for each year of the horizon, along the lines suggested above”. Further that "annual costs, are added to the annualized capital cost payments, minus salvage value, to form the ANNCOST quantity”. And in the end "TIMES computes for each region a total net present value of the stream of annual costs, discounted to a user selected reference year.”

When looking at the equation on top of page 38, I still cannot figure out how the NPV for each year is calculated.

I assume that NPV for year one, let's say this is 2006, is calculated first. In year 1 there will be made some new investments based on the available energy prices and technology costs in the same year. But, will future energy prices affect these investment decisions? Will a high rise in electricity price in 2015 affect the investment decision in 2006 in the choice of heating system? If so, the optimal solution would be different in mode 1) than in mode 2) as the TIMES-model does not know the future electricity prices in 2020 in mode 2).

Any comment on this issue would be most helpful.