Financing period in OSeMOSYS

[emmajjrichardson]

Hello team, I’m getting in touch to suggest adding a financing period parameter to OSeMOSYS.

The OSeMOSYS code assumes that technologies' financing periods are equal to their lifetimes. This is reflected in the CRF and PVA equations, which spread capital investment over the entire asset lifetime:

param CapitalRecoveryFactor{r in REGION, t in TECHNOLOGY} :=
	(1 - (1 + DiscountRateIdv[r,t])^(-1))/(1 - (1 + DiscountRateIdv[r,t])^(-(OperationalLife[r,t])));
param PvAnnuity{r in REGION, t in TECHNOLOGY} :=
	(1 - (1 + DiscountRate[r])^(-(OperationalLife[r,t]))) * (1 + DiscountRate[r]) / DiscountRate[r];

However, @trevorb1 mentioned to me that energy technologies’ financing periods are often shorter than their operational lifetimes. This was corroborated by ChatGPT, although I did not find specific reports on this.

I ran a sensitivity analysis testing the effect of financing period on undiscounted capital cost. The results suggested that accounting for financing periods could change undiscounted capital cost by up to +/- 20%, depending on the technology (and its financing conditions), compared to the current setup. As this is a non-trivial effect, we wondered if it might be helpful to introduce a financing period parameter. This would also allow financing period to be considered alongside discount rates as a source of uncertainty around financing conditions, with its policy implications.

The adjustment could be:
Add the parameter:

param FinPeriod{r in REGION, t in TECHNOLOGY}, default OperationalLife[r,t];

And include in the CRF and PVA equations, replacing OperationalLife:

param CapitalRecoveryFactor{r in REGION, t in TECHNOLOGY} :=
	(1 - (1 + DiscountRateIdv[r,t])^(-1))/(1 - (1 + DiscountRateIdv[r,t])^(-(FinPeriod[r,t])));
param PvAnnuity{r in REGION, t in TECHNOLOGY} :=
	(1 - (1 + DiscountRate[r])^(-(FinPeriod[r,t]))) * (1 + DiscountRate[r]) / DiscountRate[r];