New Plant Opening Logic

Overview

The new plant opening system transforms candidate locations into actual steel and iron plants through a multi-year business opportunity lifecycle. Companies identify promising locations, track their economic viability over time, announce viable projects, and eventually construct new facilities -all while accounting for uncertainty, capacity constraints, and changing market conditions.

Business opportunities progress through the following stages:

• CONSIDERED: Top location-technology pairs are identified based on NPV calculations and selected using weighted random sampling. Its NPV is recalculated annually with updated costs for several years; opportunities with consistently positive NPV advance to announcement (subject to probability filter), while consistently negative NPV leads to discard.

• ANNOUNCED: Project waits for construction start; dynamic costs continue to be updated annually; advancement to construction depends on technology remaining allowed, capacity limits, and probability filter.

• CONSTRUCTION: Plant is being built over several years (handled by the plant agent model).

• OPERATING: Plant is operational and removed from business opportunity tracking (fully handled by the plant agent model).

• DISCARDED: Opportunity is abandoned due to negative economics or banned technology.

The system updates the costs and status of business opportunities each simulation year:

1. Update Dynamic Costs

   • Refresh CAPEX, cost of debt, electricity, and hydrogen prices

   • Apply subsidies based on earliest construction start year

   • Update bill of materials with new energy prices

2. Update Status

   • For CONSIDERED: Recalculate NPV and check for status change

   • For ANNOUNCED: Try to convert to CONSTRUCTION

Key Timing Parameters:

• consideration_time: Minimum years to track NPV before decision (default: 3 years)

• announcement_time: Minimum 1 year (fixed)

• construction_time: Years to build plant after announcement (default: 4 years) Both the consideration and announcement times can be considerably longer than their set minimums depending on the capacity and probability filters.

Process Diagram

The flow from business opportunity to new plant is as follows:

    NEW (year t)
        |
        | identify_new_business_opportunities_4indi()
        | - Calculate NPVs for good location-technology pairs (business opportunities)
        | - Select top N business opportunities (weighted by NPV)
        | - Create new Plant + FurnaceGroup
        |
        v
    CONSIDERED (years t to t+T for T the consideration time, default: 3 years)
        |
        | [Each year]:
        | update_dynamic_costs_for_business_opportunities()
        | - Update CAPEX, cost of debt, electricity & hydrogen prices (with subsidies)
        |
        | track_business_opportunities()
        | - Recalculate NPV with updated costs/prices
        | - Track NPV history over T years
        |
        +------------------------+----------------------------------------------+
        |                        |                                              |
        | NPV > 0                | No clear trend                               | NPV < 0
        | for T consecutive      | (mixed or too few                            | for T consecutive
        | years                  | NPVs recorded)                               | years
        |                        |                                              |
        | Apply probability      |                                              |
        | filter (default: 70%)  |                                              |
        |                        |                                              |
        +-----+---+              |                                              |
        |         |              |                                              |
     passed  not passed          |                                              |
        |         |              v                                              |
        v         +----> (stay CONSIDERED)                                      |
        |                                                                       |
    ANNOUNCED                                                                   |
        |                                                                       |
        | [Each year]:                                                          |
        | update_dynamic_costs_for_business_opportunities()                     |
        | - Update CAPEX, cost of debt, electricity & hydrogen prices (with subsidies) |
        |                                                                       |
        | convert_business_opportunity_                                         |
        | into_actual_project()                                                 |
        | - Check technology still allowed                                      |
        | - Check new capacity limit                                            |
        |                                                                       |
        +--------------+------------------+                                     |
        |              |                  |                                     |
    tech banned   new capacity       tech allowed                               |
        |          limit full             |                                     |
        |            |                    | Apply probability                   |
        |            |                    | filter (default: 90%)               |
        |            |                    |                                     |
        |            |                    +-----+---+                           |
        |            |                    |         |                           |
        |            |              not passed    passed                        |
        |            |                    |         |                           |
        |            +--------------------+         |                           |
        |                                 |         |                           |
        |                                 v         |                           |
        |                          (stay ANNOUNCED) |                           |
        |                                           |                           |
        |                                           v                           |
        |                                      CONSTRUCTION                     |
        |                                           |                           |
        |                                           | After construction_time   |
        |                                           |   (default: 4 years)      | 
        |                                           |                           |
        |                                           v                           |
        |                                       OPERATING                       |
        |                                (removed from tracking                 |
        |                                 and handled by PAM)                   |
        |                                                                       |
        v                                                                       |
    DISCARDED <-----------------------------------------------------------------+

Business Opportunity Identification

The identification process evaluates potential new plant locations and technologies through five sequential steps, selecting the most promising opportunities for detailed multi-year tracking.

Step 1: Technology Filtering

Function: get_list_of_allowed_techs_for_target_year()

Filters technologies based on what will be allowed at the earliest possible construction start year (target year = current year + consideration time + 1), not what’s currently allowed.

Purpose: Prevents companies from considering plants using technologies that would be illegal to build by the time construction begins. For example, if BF-BOF will be banned in 2034, it won’t be considered as an opportunity in 2030 even though it’s currently legal.

Process:

• Calculate target year when the earliest possible construction would start

• Check which technologies are allowed in that future year

• Filter opportunities to only include permitted technologies

Step 2: Location Sampling

Function: select_location_subset()

Randomly samples a subset of top priority locations to reduce computational burden, since NPV calculations are resource-intensive.

Configuration:

• calculate_npv_pct: Percentage of locations to evaluate (default: 10%) out of the top X% extracted by the location priority selection (default: 5% of the world; see related documentation in Priority Location Selection).

Purpose: Balance computational efficiency with coverage of good opportunities. Sampling 10% of 1000 candidate locations means evaluating 100 instead of all 1000.

Step 3: Cost Data Preparation

Function: prepare_cost_data_for_business_opportunity()

Gathers all cost inputs needed for NPV calculation for each location-technology pair. Location-technology combinations with missing or invalid critical data are skipped and a warning is logged.

Required Inputs:

Input Category	Components	Source
Energy costs	Electricity, hydrogen, gas, coal prices	Country-level data + site-specific renewable calculations for energy costs
Financial parameters	Cost of debt, cost of equity	Country-level financial data
CAPEX	Capital expenditure per tonne capacity	Regional technology-specific estimates
OPEX	Fixed operating costs per tonne	Country and technology-specific
Infrastructure	Railway buildout cost	From priority location selection
Production	Bill of materials, utilization rate, reductant type	Technology-specific averages
Subsidies	CAPEX, debt, and OPEX subsidies	Country and technology-specific policies
Carbon pricing	Carbon cost time series	Country-level projections

Step 4: NPV Calculation

Function: calculate_business_opportunity_npvs()

Calculates Net Present Value for each business opportunity using an adjusted NPV metric that accounts for future subsidies. This metric uses subsidies from the target construction year rather than current year subsidies.

Why Adjusted NPV?

Subsidies are often announced years before plants are built. Standard NPV using current-year subsidies would make subsidized technologies appear less attractive until subsidies activate. The adjusted NPV assumes subsidies announced for the target year will be available, preventing artificial delays in subsidized technology adoption. This adjusted NPV is only used for the decision to create a business opportunity. Once a plant is constructed, it uses actual year-by-year costs, not the adjusted values.

NPV Components:

Component	Composition	Subsidy Timing	Period
CAPEX	Capital expenditure per tonne × capacity + infrastructure (railway buildout)	CAPEX subsidies: Target year	One-time (construction)
Cost of Debt	Interest rate on borrowed capital	Debt subsidies: Target year	Financing period
Cost of Equity	Return required by investors	No subsidies	Financing period
OPEX - Variable	Materials + energy from bill of materials × unit costs	OPEX subsidies: Operation years	Annual (plant lifetime)
OPEX - Fixed	Fixed operating costs per tonne	OPEX subsidies: Operation years	Annual (plant lifetime)
Energy Costs	Electricity and hydrogen prices	No subsidies	Annual (plant lifetime)
Carbon Costs	Emissions × carbon price trajectory	No subsidies	Annual (plant lifetime)
Revenue	Production capacity × utilization rate × market price projections	N/A	Annual (plant lifetime)
Discount Rate	Weighted average cost of capital (WACC = debt share × cost of debt + equity share × cost of equity)	Applied to debt portion only	NPV calculation

Notes:

• If NPV calculation fails (returns NaN due to missing data or invalid inputs), it is set to negative infinity to exclude that location-technology pair from selection.

• For more information on the NPV calculation, see related documentation in Calculate Cost.

Step 5: Top Opportunity Selection

Function: select_top_opportunities_by_npv()

Selects top N location-technology combinations using weighted random sampling (instead of pure NPV ranking) to represent some randomness in human decision-making. Pure ranking would always select the absolute highest NPV locations. In reality, companies have geographic preferences, imperfect information, varying risk tolerance, and strategic considerations. Weighted random sampling ensures diversity while still strongly favoring high-NPV options.

Process:

• Filter out invalid NPVs (NaN or negative infinity from calculation failures)

• Create weights from NPV values (shift negative NPVs to make all weights non-negative)

• Normalize weights to probabilities

• Randomly select top N opportunities with probability proportional to NPV

• If fewer valid pairs exist than requested, select all valid pairs

Purpose: Creates geographic diversity in opportunities while maintaining economic rationality. Higher NPV opportunities have much higher selection probability, but mid-tier opportunities can also be selected.

Business Opportunity Tracking

Function: update_status_of_business_opportunities()

Once business opportunities are created, they are tracked annually through cost updates and status decisions until they either advance to construction through several stages or are discarded.

Step 1: Annual Cost Updates

Function: update_dynamic_costs_for_business_opportunities()

Updates dynamic costs for all CONSIDERED and ANNOUNCED business opportunities each year to ensure NPV calculations reflect current market conditions.

Updated Costs:

• CAPEX (with subsidies for target construction year)

• Cost of debt (with subsidies for target construction year)

• Electricity price (custom power mix: LCOE from baseload power optimization and/or grid price)

• Hydrogen price (calculated from electricity price, including regional cap and intraregional trade, if allowed)

• Bill of materials (updated with new energy prices)

Note: For more information on the electricity and hydrogen prices see related documentation Priority Location Selection.

Target Year Calculation:

The system uses subsidies from the earliest construction start year, reflecting that subsidies are often announced in advance.

Status	Target Year	Reasoning
CONSIDERED	current + consideration_time + 1 - years_considered	Earliest construction start based on consideration progress
ANNOUNCED	current + 1	Next year (announcement time = 1)

Process: For each business opportunity:

1. Calculate appropriate target year based on opportunity status

2. Filter subsidies active in target year and calculate new costs

3. Update bill of materials with new energy prices

4. Skip updates if costs haven’t changed and update modified costs

Step 2: NPV Tracking and Announcement

Function: track_business_opportunities()

Tracks CONSIDERED business opportunities by recalculating NPV each year and deciding whether to announce or discard based on sustained NPV trends.

Decision Rules:

Condition	Action	Probability Applied
NPV > 0 for all consideration_time years	Announce	probability_of_announcement
NPV < 0 for all consideration_time years	Discard	100% (deterministic)
Mixed positive/negative NPVs	Keep considering	N/A

Why Multi-Year Tracking?

Single-year NPV could be an outlier from temporary price spikes, one-time events, or data anomalies. Multi-year tracking ensures decisions are based on sustained economic viability.

Step 3: Converting into Actual Plants under Construction

Function: convert_business_opportunity_into_actual_project()

Converts ANNOUNCED business opportunities into CONSTRUCTION status, checking technology allowance, new capacity limits, and applying construction probability.

Decision Sequence:

1. Technology Check: If technology is now banned → Discard immediately

2. Capacity Check: If adding this plant would exceed the new annual capacity limit assigned to new plants → Stay announced, retry next year

3. Probability Filter: Apply probability_of_construction → If fails, stay announced, retry next year

4. Success: Begin construction

Capacity Limit Logic:

Total new capacity (new plants + expansions) is limited annually. Annual capacity limits default to 100 Mt/year for both iron (capacity_limit_iron) and steel (capacity_limit_steel). The new_capacity_share_from_new_plants parameter determines how much of this limit is reserved for new plants versus expansions of existing facilities (default: 40%).

Purpose of Probability Filter:

Models real-world risk factors: financing may fall through, permits may be denied, market conditions may shift, or political/regulatory environments may change. Not all announced projects actually get built.

Configuration Parameters

Simulation Parameters

Parameter	Type	Default	Description
consideration_time	int	3 years	Min years to track NPV before announcement decision
construction_time	int	4 years	Years to build plant after starting construction
plant_lifetime	int	20 years	Expected operational lifetime of plant
expanded_capacity	float	2.5 Mt/year	Standard capacity for new plants (same than for plant expansion)
top_n_loctechs_as_business_op	int	5	Number of opportunities to track per product per year
calculate_npv_pct	float	0.1	Percentage of priority locations to sample for NPV calculation (fixed)

Probability Parameters

Parameter	Type	Default	Description
probability_of_announcement	float	0.7	Chance viable opportunity is announced
probability_of_construction	float	0.9	Chance announced project starts construction

Capacity Limits

Parameter	Type	Default	Description
capacity_limit_iron	float	100 Mt/year	Total new iron capacity allowed per year
capacity_limit_steel	float	100 Mt/year	Total new steel capacity allowed per year
new_capacity_share_from_new_plants	float	0.4	Share of capacity limit for new plants vs. expansions

Related Documentation

• Priority Location Selection - How candidate locations are identified

• Calculate Cost - NPV, subsidy, and carbon costs calculation details

• Baseload Power Optimization - Renewable energy cost calculations

• Plant Agent Model - Overall plant lifecycle management