Topic: The consideration of "end effect" in LEAPSubscribe | Previous | Next
Tae Hyun Yoo 6/2/2016
158 Views Dear administrators,
I'm using LEAP as a power system capacity expansion planning tool. I have a question about cost calculation.
1)Is the capital cost of generator which is decided to build in endyear recovered fully?
2) We are concerning about the "end effect(terminal effect)" of the expansion planning in LEAP. Please explain us about the algorithm of managing the end effect in the LEAP.
Thank you.
Taylor Binnington 6/2/2016
155 Views Hi Tae Hyun,
1. Capital Costs for transformation processes are annualized according to the cost annualization method set in Basic Params: Costs. By default, LEAP uses the Capital Recovery Factor, which calculates the annual payment to service debt and completely pay for the asset over a number of years set by the process' Lifetime variable (you may set this variable for each process only in Current Accounts).
The annualization method is no different for plants constructed in the end year of your scenario analysis. However, the capital cost contribution from these plants would only be captured by LEAP's social cost accounting for a single year. The same can be said for plants constructed within "Lifetime" years of the scenario end year - the annual capital and debt payments for these plants are only captured for as many years as your scenario lasts.
For more information, see this help page:
http://www.energycommunity.org/WebHelpPro/Transformation/Capital_Costs.htm
2. I'm not really familiar with this vocabulary, but I assume you are asking if LEAP has any special algorithm which accounts for costs (and/or emissions, energy consumption, etc.) which would be incurred beyond the final scenario year. To this the answer is no: LEAP proceeds by conducting calculations on an annual basis until the final year of the scenario, which is treated no differently than other years in the scenario period.
Hope this helps,
Taylor
Tae Hyun Yoo 6/2/2016
136 Views Hi Taylor
Thank you for kind answer about our question about capital cost. Following paragraphs about "end effect" are in CAPACITY EXPANSION MODELLING, AEMO, 2014.
"When a model includes amortised costs for new generation and transmission infrastructure, only a small
portion of the total capital cost is apportioned to each load block. When the modelled time horizon is shorter
than the expected lifetime of the new infrastructure assets, simply summing costs over the modelled horizon
underestimates the true capital cost. This would bias investment towards the end of the modelled horizon,
because later investments would effectively be much cheaper than earlier investments. Conversely, if all of
the capital costs of an investment are apportioned to the single time period in which it occurs, there may not
be sufficient time in the modelled horizon to recover the capital expenditure, biasing outcomes towards the
beginning of the modelled horizon. This property of models is termed an "end effect"�� or "terminal effect".
To manage end effects, models need some way of extending costs beyond the end of the modelled horizon
to ensure that capital costs are recovered over the expected lifetime of the asset.AEMO uses an "in perpetuity"
method for this purpose. In perpetuity assumes that the costs calculated in the final year of the
modelled horizon continue for all years beyond the horizon. A discount rate is applied to costs, which
progressively reduces the impact of future costs on the present day value of investments until they become
negligible.
AEMO uses a 10% discount rate for in-perpetuity calculations."
We understand that LEAP do not consider about this effect. Could you reply us about above effect in LEAP?
Taylor Binnington 6/7/2016
130 Views Hi Tae Hyun,
You are correct - LEAP does not consider this effect. Cost accounting terminates in the same year as the scenario end-year, and no further discounting of assets is conducted.
I understand the rationale for handling these terminal effects, but I can't say that this in the immediate development plans for LEAP. Note that LEAP's emissions and energy accounting also ends in the final scenario year, and it's not clear how the cost-effectiveness of different policies would be affected by holding its financial costs in perpetuity without any of the emissions abatement benefits.
Taylor
Tae Hyun Yoo 6/10/2016
88 Views Hi Taylor,
Thank you for kind answer about our question. We are trying to find the way to exclude this effect in the LEAP without technical modification of program.
1) Expand the scenario end year(original end year +lifetime)
2) To elimate the Endogenous capacity(which is committed automatically by LEAP)after endyear, we use following function : Step(original end year+1,0)
If any comments for our trial, we will be very happy about that:)
Taylor Binnington 6/10/2016
85 Views Hi Tae Hyun,
Sorry for the long wait - I've been away on some travel.
Certainly one option would be to extend your capital costs offline (perhaps in a spreadsheet) using the 'in-perpetuity' method and the model's discount rate.
But the method which you've described (setting Endogenous Capacity additions equal to zero) is a good idea too, and will allow you to see the Capital Cost contribution to social costs out to the "new" end year. For this method, you would need to extend your scenario using the longest lifetime observed for any of your power plants, to be sure you recapture its full cost. This will also help you capture any remaining capital cost which is attributed to Exogenous Capacity, but which may be built later in your scenario years.
Good luck,
Taylor