This pull request aims to modify the objective function in our cost optimization model. Previously, the model used a non-discounted total cost for a specified number of years. This approach, while simple, does not take into account the time value of money, which is a critical aspect of long-term financial planning.
In this update, we have included a discounted annualized total cost in the objective function. The total cost for each year is now discounted at a certain rate, reflecting its present value.
For investment and installation costs, a discount factor (see figure bellow) is computed based on a discount rate (as an annual percentage) and the technical life (in years) of each asset. Both parameters (discount rate and technical life) are read from the esdl file.
This pull request will resolve #53
TODO:
[x] Read discount rate and technical life parameters from other assets
[x] Include additional assert
[x] Assign nominal for __annualized_capex variable from parameters
[x] Merge master branch into this branch
Impact:
This change aligns our model with standard financial practices and will make the cost optimization model more accurate and realistic for long-term planning.
Tests:
Tests have been added to verify the correct implementation of the discounting mechanism.
Description:
This pull request aims to modify the objective function in our cost optimization model. Previously, the model used a non-discounted total cost for a specified number of years. This approach, while simple, does not take into account the time value of money, which is a critical aspect of long-term financial planning.
In this update, we have included a discounted annualized total cost in the objective function. The total cost for each year is now discounted at a certain rate, reflecting its present value.
For investment and installation costs, a discount factor (see figure bellow) is computed based on a discount rate (as an annual percentage) and the technical life (in years) of each asset. Both parameters (discount rate and technical life) are read from the esdl file.
This pull request will resolve #53
TODO:
Impact:
This change aligns our model with standard financial practices and will make the cost optimization model more accurate and realistic for long-term planning.
Tests:
Tests have been added to verify the correct implementation of the discounting mechanism.