Dear LEAP-team,

after updating to LEAP 2020.1.0.32 and NEMO v1.6, the results for the area that I am working on have changed.

I am using LEAP for capacity expansion analysis in the power sector.

After analysing the differences, I found out that renewable processes (with the main cost parameter being capital costs) do get built less than before. Do you think that this could be caused by changes made in NEMO regarding interest rates of technologies and the annualization of capital costs? And if yes, is this a desired outcome?

(For clarification: Interest rates are not differentiated, all are set to discount rate)

To verify that the changes in results are caused by the update, I also reverted my area to earlier versions for which I have results documented. Those results are also different using the latest LEAP and NEMO versions.
But if you could share an installer for the previous versions with me, I could also compare the results directly.

I hope that you can understand my concern and request. Of course, I would be happy to provide you with more information if needed.

Thanks a lot in advance and kind regards,

Marek Fritz

Edit: I found installers for LEAP 2020.1.0.30 and NEMO v1.4 on my PC. Changes in results are definitely caused by the update. Would be really nice if you could give an explanation for this behaviour!

Charlie

Hi, Marek -

This change is most likely due to the integration of financing costs in NEMO 1.6 - see https://sei-international.github.io/NemoMod.jl/stable/release_notes/#Version-1.6. Prior to 1.6, NEMO didn't take financing costs into account in its objective function. This design followed OSeMOSYS, which also does not take financing costs into account.

We introduced the financing cost functionality in NEMO because a number of users asked for it. If you want to recapture your prior results, however, you should be able to do so by setting the interest rate for all processes in LEAP to 0. This tells NEMO not to consider financing costs - i.e., to calculate as it did prior to version 1.6.

Seeing your question, I realize we should probably have done a better job of advertising this change to users. My apologies for that! I do think, though, that having the option to include financing costs is a useful feature. With it you can explore the effects of different interest rates for different technologies, as well as the implications of changing interest rates over time (e.g., to reflect mainstreaming of renewables investments).

Thanks,

Jason

Hi Jason, hi Charlie,

thanks for the quick response!

I agree with you, that it is very useful to take into account financing costs. Still, it would be great if you could provide some more information on how financing costs are accounted by NEMO.
In the LEAP documentation it is mentioned that Capital Costs are annualized for calculation purposes (e.g. using the Capital Recovery Factor). Is this not the case for NEMO?

If they are annualized, are the interest rates (specified for each process) or the discount rate (selected in settings) used for annualization?

I would highly appreciate some more information on this topic.

Thank you very much

Marek

Hi, Marek -

To calculate financing costs, NEMO assumes that capital costs for new capacity (technology, storage, or transmission) are financed at the applicable (i.e., technology, storage, or transmission line-specific) interest rate and repaid in equal installments over the capacity's lifetime. This amounts to annualizing the costs using a capital recovery factor based on the interest rate. The financing costs are then the difference between the annualized costs and what they would be at an interest rate of 0.

If you're interested, you can see an example of the calculation (in this case, for technologies) in NEMO's code for the constraint CC1a_FinancingTechnology.