Expansion Economies

Contents

1. Introduction
2. Defining Expansion Economies
3. Worked Example
4. Reporting

1. Introduction

Defining Build Cost is sufficient where per unit build costs do not vary significantly with the magnitude of the expansion. There are however many Capacity Expansion contexts in which the expected per unit build cost varies significantly with the expansion magnitude. Examples include:

• A large-scale candidate expansion for a modular Battery station. Greater unit purchase quantitites may unlock reduced per unit costs through an 'economy of scale'. For example, building between 0 and 100 units may result in one per unit cost, while building over 100 units is expected to result in a second, lessened per unit cost.
• Deployment of a new generation technology with significant reuse of research and development and/or design costs. A proposed fleet of nuclear reactors each sharing the same design is one example. The per unit build cost for a single unit built would be high, as thing single unit incurs all research and development and detailed design costs. Building five units would realise a second, lower per unit cost, whereas building 20 units would unlock even lower per unit costs. The cost reduction occurs due to fixed cost sharing.
• A new wind farm proposed for difficult terrain may experience increasing build costs with the number of units built. The first 10 turbines may be relatively accessible and cheap to build, effecting one per unit cost. Building more turbines (say 20) would necessitate building half of the turbines on complex terrain requiring more costly foundation, so the expected cost per unit would increase.

The property pair Expansion Economy Cost and Expansion Economy Units together define alternate build costs which take effect for expansions of suffcient size. These properties are multiband, so multiple pairs of cost and required expansion quantities can be defined. Each pair is called an expansion economy.

2. Defining Expansion Economies

The first expansion economy cost is always the Build Cost: this applies at small expansions (i.e. one unit). Subsequent prospective build costs are defined through Expansion Economy Cost. This property is multiband, so multiple prospective build costs can be defined. Explicitly, with increasing numbers of units built, Build Cost is followed by the band 1 value, then the band 2 value and so on.

Each expansion economy cost takes effect from unit build quantities defined in Expansion Economy Units. Defining one band of Expansion Economy Units = 3 means that the corresponding band 1 expansion economy cost applies if 3 units or more units are built. Defining a second band (Expansion Economy Units = 6, band 2) means that the band 1 cost applies between expansions of between 3 and 6 units only. If more units are built, the band 2 cost applies.

All units built experience the same per unit cost. This is either the defined Build Cost or one band value of Expansion Economy Cost.

Builds must occur in the one capacity optimisation period to experience modified costs due to economies of scale. For example, defining Expansion Economy Units = 5 and building one unit each year for 6 years will result in each unit being built at the Build Cost rather than any Expansion Economy Cost. If all builds occur in the same capacity optimisation period (i.e. year), then the Expansion Economy Cost will apply.

3. Worked Example

A worked example of a large-scale battery deployment is now given.

Property	Value	Band	Units	Notes
Build Cost	100	1	$/kW	Per unit build cost that applies up to 10 units built
Max Units Built	50	1	-	Maximum number of units built, expansion prerequisite
Expansion Economy Units	10	1	-	Building 10 or more units changes the per unit cost
Expansion Economy Units	30	2	-	Building 30 or more units changes the per unit cost
Expansion Economy Cost	80	1	$/kW	20% per unit cost reduction applies if between 10 to 30 units are built
Expansion Economy Cost	60	2	$/kW	40% per unit cost reduction applies if between 30 to 50 units are built

The above example defines three expansion economies: the regular Build Cost up to 10 units, then a slightly reduced cost for between 10 and 30 units, then a greatly reduced cost between 30 and 50 units (the maximum units built).

4. Reporting

Cost savings due to expansion economies are handled automatically, no additional outputs need to be enabled.

Explicitly, the final build cost realised (the input Build Cost or one of the Expansion Economy Costs) is reported in the output Build Cost. Other output properties such as Annualized Build Cost and annuity properties are adjusted similarly: all are based upon the final cooptimised build cost realised.