Salvage value and the objective function
#3
Many thanks Antti for your comprehensive reply - this does indeed make sense now.

In particular your point:

• The reported annualized costs (Cost_*) also implicitly include the salvage value, by excluding the portions of the investment-related costs attributable to the unused portions of their technical lives, because the annualized costs include only costs paid within the model horizon.

I think my confusion came from the presentation of the REG_OBJ function:

REG\_OBJ(z,r) = \sum_{y \in -\infty, +\infty} DISC(y,z) \times \left( INVCOST(y) + \ldots \right ) - SALVAGE(z)

Of course this is a sum from -\infty to +\infty years, whereas when we sum Cost_Inv we are only summing over the model years B_0 to EOH. If salvage is effectively:

SALVAGE(z) = \sum_{y \in EOH+1, +\infty} DISC(y,z) \times \left( INVCOST(y) + \ldots \right )

then deducting this we end up with:

REG\_OBJ(z,r) = \sum_{y \in -\infty, EOH} DISC(y,z) \times \left( INVCOST(y) + \ldots \right )

Hopefully that makes sense and my interpretation is indeed correct!

Many thanks!
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RE: Salvage value and the objective function - by ggretton - 28-02-2023, 03:38 PM

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