The Economic Feasibility and Sustainability Implications
of Water Reuse (and Desal)
Bob Raucher, PhDStratus Consulting Inc.
Boulder, Colorado, USA
Presented atTexas Innovative Water 2010
Texas Water Development Board12 October 2010
Background
“Economic Feasibility” => Net Economic Value Going beyond financial viability (cash flow) Focus on full range of benefits, compared to
costs “Sustainability” Implications
Triple Bottom Line perspective Includes financial implications, but also social
and environmental impacts Case study illustration (Chino Basin, Southern CA)
Motivation
Reuse (& desal) are considered relatively expensive water supply options, raising the question: Revenues rarely cover full cost of service (financial) Is reuse worth the investment for a community?
A full perspective of the benefits and costs of reuse and desal is needed to answer that question … Cost effectiveness relative to other water supply
alternatives (good) Factoring in the benefits of reuse or desal (better) In the broader context of regional water resource
management needs and objectives (best!)
Reuse or Desal from a Relative Cost of Water Supply Perspective
1,000
800
600
400
200
$/AF(2007$)
Chinodesal
(full cost)
Chinodesal
(subsidized cost)
$900
$477
MWD Tier 2(untreated
2007)
MWDreplenish
water recharge
$437
$360
Stormwaterrecharge
Local GWpump
$144$130
Reuse (and desal) from Benefit-Cost Perspective, as a Water Supply Option
The relative cost of reuse or desal is not the only relevant consideration
There are benefits that reuse and desal provide that most other alternatives may not
Need to identify and consider the full range of benefits (and costs), relative to other water supply alternatives
Counting All the Benefits(not necessarily to scale)
Enhanced wetlands quality and habitatImproved in-stream flows and water qualityStorage and distribution
costs Increased local control
Increased water supply reliability
On-site retrofit costs Avoided and deferred water supply costs
Treatment costs Avoided and deferred wastewater costs
Costs Benefits
$
Counting All the Benefits (cont.)
Costs Benefits
$ Enhanced wetlands quality and habitatImproved in-stream flows and water quality
Storage and distribution costs Increased local control
Increased water supply reliability
On-site retrofit costs Avoided and deferred water supply costs
Treatment costs Avoided and deferred wastewater costs
Counting All the Benefits (cont.)
Costs Benefits
$ Enhanced wetlands quality and habitatImproved in-stream flows and water qualityStorage and distribution
costs Increased local control
Increased water supply reliability
On-site retrofit costs Avoided and deferred water supply costs
Treatment costs Avoided and deferred wastewater costs
Two Basic Approaches to Assess the Economics of Reliability
1. Portfolio Theory (drawn from financial sector) Diversifying a portfolio Used to scale the size of water supply options needed to
meet a given reliability target
2. Stated Preference (scientifically designed surveys) Aimed directly at the valuevalue people hold for reliability Based on “Willingness To Pay” (WTP) Already a body of US empirical research (but outdated) We currently are are conducting new empirical work in US
Smarter Use of Water
Desalination
Groundwater
Surface WaterWater Trading
CatchmentManagement
Water ReuseSecurity through Diversity
(copied from Ross Young, WSAA)
Value of Reliability Study: Example Water Supply Restriction Scenarios
Trend over the past 20 years Expected water use restrictions over next 20 years if nothing
more is done
16 summers
4 summers
Stage 1 restrictions in 16 out of 20 summersStage 2 restrictions in 4 out of 20 summersStage 3 restrictions in 0 out of 20 summers
8 summers
8 summers
4 summers
Stage 1 restrictions in 8 out of 20 summersStage 2 restrictions in 8 out of 20 summers
Stage 3 restrictions in 4 out of 20 summers
Example Choice Experiment for Reliability Values Study
Empirical Results to Date
Over 800 households surveyed so far:Denver and Austin (400+ in each) 400 households to add in each: Southern CA
(Long Beach), San Francisco, AZ (Phoenix?) Willingness to Pay per household
$0 to $7 per year to avoid 1 year of low-level use restrictions
$20 to $34 per year to avoid 1 year of more severe water use restrictions
$130 - $136 per year to avoid all future water use restrictions over next 20 years
Opinions on Top Three Options for Supply Augmentation Options (Austin)
Top Five Options for Dealing with Future Water Shortages
6%5%
10%
12%
17%18%
15%
5%
12%0%
Increasing available supplies of water by importing more water from outside the Lower Colorado River basinIncreasing available supplies of water by transferring more water from agricultural usesIncreasing the use of non-local groundwater sourcesIncreasing the price of water to residential, commercial, and industrial users so that they will use lessRequiring low-water landscaping in new homesIncreasing available supplies of water by expanding storage reservoirsIncreasing the use of local groundwater sourcesExpanding water recycling for outdoor irrigation and industrial usesPromoting voluntary water conservation through education and incentives (e.g., rebates)Expanding water recycling to replenish groundwater reservoir supplies
Expand reservoirs
Use local groundwater
Mandate xeriscape for new homes
Top Five Options for Dealing with Future Water Shortages
Increasing available supplies of water by importing more water from outside the Lower Colorado River basinIncreasing available supplies of water by transferring more water from agricultural usesIncreasing the use of non-local groundwater sourcesIncreasing the price of water to residential, commercial, and industrial users so that they will use lessRequiring low-water landscaping in new homesIncreasing available supplies of water by expanding storage reservoirsIncreasing the use of local groundwater sourcesExpanding water recycling for outdoor irrigation and industrial usesPromoting voluntary water conservation through education and incentives (e.g., rebates)Expanding water recycling to replenish groundwater reservoir supplies
29%
14%
5%
31%
7%
10%
2%
2%
0%
Opinions on Least Preferred Supply Augmentation Option (Austin)
Raise price
Add imported water
Transfer water from agriculture
The Triple Bottom Line (TBL): Economics of Sustainability
TBL began as an enterprise-level reporting Also useful for portraying the broad array of all benefits
(and costs) of a project or program Three bottom lines, to reflect:
Financial results (cash flow, revenues & costs) Social outcomes (e.g., reliability, equity/fairness) Environmental (e.g., instream flows, energy use)
In essence, TBL = a comprehensive benefit-cost analysis Identifying and portraying all benefits & costs Internal and external, market and nonmarket goods
TBL Graphic: Choosing the Least Cost Option May Not Deliver Social and
Environmental Values to the Community
Social
Environmental Financial1
Options that Meet Broader Goals May Increase Financial Costs to a Utility, but
Yield Larger Net Benefits to the Community
Social
Environmental Financial1
2
ENVIRONMENTAL (> $400M)
SOCIAL (>$2.3B)
FINANCIAL
TBL Demonstrated the Benefit of Philadelphia’s Green Stormwater Control
• Recreation ($525M)• Property values/aesthetics ($575 M)• Green Jobs ($125 M)• Public health: Heat stress ($1.1 B)• Energy cost savings ($36M)
• Cost of Green = cost of Grey CSO control
• Air Quality ($222 M)• Water quality ($147 M)• Carbon footprint ($27 M)• Ecosystems (+)
==
ENVIRONMENTAL (++)
SOCIAL (++)
FINANCIAL
TBL off a Non-Revenue Swap of Reclaimed Water to Retire Surface Rights
• Increase ag production• Preserve lands in ag uses • Support minority/ethnic farmers
(currently lacking access to water)• Improve aesthetics (flows) in
Sammamish River
• Cost to provide Reclaim Water not recovered through revenues
• Enhance summer instream flows for critical spawning and nursery habitat for endangered salmon population
=
Chino Basin, and IEUA Service Area
Evaluating Reuse in Context of Integrated Water Resource Management
Adjudication of the Chino Basin Local groundwater extractions not sustainable Contamination (nitrates, salts, VOCs, etc.)
Impacted local groundwater users Precluded reuse for irrigation or recharge
(regulatory permits not approvable) Impacted Santa Ana River, Orange County
Optimum Basin Management Program (OBMP) implemented as a broad water resource management strategy for the Chino Basin
The Comprehensive Nature of the OBMP
OBMP Includes a range of water supply elements Desal, direct nonpotable reuse, indirect potable
reuse (IPR), stormwater harvest, conservation Aquifer storage and dry year yields (DYY)
Regional scope: large groundwater basin Multiple jurisdictions included Benefits (and some costs) extend beyond the
Basin’s boundaries Addresses a broad range of water quality and
quantity concerns in (and beyond) the Chino Basin
ENVIRONMENTAL (> $100M)
SOCIAL ($??M)
FINANCIAL ($1.9B)
TBL for Chino Basin Identified $2 Billion Savings and other Benefits
• Supply reliability (+) and local control (+)• Energy savings (5.8 billion kWh)• Import water availability for other MWD
users (+)• Reduced volume but higher quality Santa
Ana River flows to Orange County (+/-)
• Cost saving to supply water in Chino Basin
• Carbon footprint ($22M)• Air quality ($84M)• Groundwater quality (+)• Surface water quality (+)
Percent of OBMP Yields and Costs by Component
40
30
20
10
Percent ofOBMP
Desal Nonpotablereuse
Indirectpotablereuse
Stormwaterrecharge
19.4%
40.0%
27.2%
39.2%
11.2%
4.0%
11.2%
3.6%
13.3%
5.2% 9.5%4.0% 8.4% 4.4%
% yield % cost
Addedgroundwater
Conservation DYY
Chino Basin Water Supply Portfolio with OBMP
Preliminary estimates (October 2008)
Thousands of AF(2001-2030)
5,000
10,000
12,500
With OBMP
Chino Basin GW(4,570)
)
Imported MWD(5,100)
Stormwater recharge
Conservation
OBMP components
• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation
(4,750)
Chino Basin GW(4,570)
Imported MWD(1,550)
Other local SW andGW (1,550)
Chino Basin Water Supply Portfolio with and without OBMP
Preliminary estimates (October 2008)
Thousands of AF(2001-2030)
5,000
10,000
12,500
With OBMP Without OBMP
Chino Basin GW(4,570)
Other local SW andGW (1,550)
Imported MWD(5,100)
Stormwater rechargeNon-potable reuse
Conservation
OBMP components
• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation
(4,750)
Chino Basin GW(4,570)
Imported MWD(1,550)
Other local SW andGW (1,550)
OBMP Reducing Basin-wide Water Supply Costs by over 40%
Preliminary estimates (October 2008)
Thousands of AF(2001-2030)
5,000
10,000
12,500
$1.0B
$3.0B
$4.0B
$5.0B
PV Full Cost(billions 2007$)
With OBMP Without OBMP
$2.0B
$2.7B
$4.6B(all borne locally)
Chino Basin GW(4,570)
Other local SW andGW (1,550)
Imported MWD(5,100)
Stormwater rechargeNon-potable reuse
Conservation
$2.1B(locally borne)
$0.6B(outside grantsand subsidies)
OBMP components
• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation
(4,750)
Chino Basin GW(4,570)
Imported MWD(1,550)
Other local SW andGW (1,550)
OBMP Reducing Basin-wide Water Supply Costs by over 40%
Preliminary estimates (October 2008)
Thousands of AF(2001-2030)
5,000
10,000
12,500
$1.0B
$3.0B
$4.0B
$5.0B
PV Full Cost(billions 2007$)
With OBMP Without OBMP
$2.0B
$2.7B
$4.6B(all borne locally)
Chino Basin GW(4,570)
Other local SW andGW (1,550)
Imported MWD(5,100)
Stormwater rechargeNon-potable reuse
Conservation
$2.1B(locally borne)
$0.6B(outside grantsand subsidies)
OBMP components
• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation
(4,750)
Chino Basin GW(4,570)
Imported MWD(1,550)
Other local SW andGW (1,550)
Benefit-Cost Results: OBMP as a Whole
OBMP Costs ~ $1.25 Billion in total (PV, 2000 - 2030)
OBMP Benefits (financial only): ~ $1.9 Billion
(PV water supply cost savings, ‘00 – ‘30) Additional benefits both within and beyond the Basin
Net Benefits of OBMP: Benefits > costs ~ $0.65 Billion (~53% rate of return) Local net benefit ~ $1.2 Billion (~160% rate of return)
400
9501,050
1,700
2,000
2,500
3,200
4,400
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
KW
H/A
F
Recycling GroundwaterPumping
Ion Exchange ChinoDesalter
ColoradoRiver
Aqueduct
West BranchState Project
Water
East BranchState Project
Water
OceanDesalter
Energy Use by Source
The Energy Intensity of IEUA’s Water Supplies
Reuse-Related Benefits and Costs (OBMP Context)
Cost of reuse PV of ~$540 Million ~43% of total OBMP costs
Benefit of reuse Allocating 43% of OBMP benefits to reuse ~$820 Million benefit (PV)
Net benefit: >$280 Million ($820 - $540) 53% rate of return ($280 / $540)
Conclusions Based solely on cost ($/AF), reuse or desal may not
appear to be cost-effective water supply choice However, benefits associated with reuse or desal may
well show the added expense is well warranted When viewed within the TBL context of broader,
integrated regional water resource management: Obtain a much more meaningful sense of benefits
In Chino Basin, reuse and desal enable the realization of significant benefits
>$1.9 B over 30 yrs (53% Rate of Return)
Acknowledgements
WateReuse Research Foundation California DWR Water Research Foundation Rich Atwater & Martha Davis (IEUA) Howard Neukrug, Philadelphia Water
Department
Thank you!
Bob Raucher
[email protected]+ 1-303-381-8000 (ext 216)------------------------Stratus Consulting Inc.
PO Box 4059(1881 Ninth Street, Suite 201)Boulder, CO 80306-4059USA