Tuesday, June 27, 2006

Pricing for recycling

Many water recycling schemes propose to provide customers with two distinct water supplies: A potable supply and a lower-quality recycled supply.

Isolated financial analyses of many such proposals often appear highly unfavourable. This is the result of the high infrastructure and operational costs associated with most advanced water treatment and distribution systems. Furthermore, revenue potential may appear low since recycled water is typically priced at a lower rate than the average cost-based rates for traditional potable supplies. Revenue projections in some areas may also suffer from a limited market of potential applications and customers for non-potable water supplies. Accordingly, it is often difficult for water supply agencies to make a ‘business case’ for water recycling projects based solely on an assessment of the agencies internal financial outcomes.

To address these difficulties, it is necessary to conduct some form of a ‘full social cost accounting’-based assessment of the benefits and costs of water recycling projects.

‘Full social cost accounting’ incorporates efforts to identify all the benefits and costs of a specified action or policy, regardless of who bears the impact, or whether the impact can be valued in terms of market prices. One application of this approach that has been widely adopted by Australian utilities and agencies is the ‘triple bottom line’ framework. This consists of a financial bottom line that reflects cash flow as well as second bottom line reflecting social impacts and a third ‘environmental’ bottom line.

A positive triple bottom line analysis of a proposed scheme may indicate an overall worth of a project. However, in most cases it is the single bottom line –the financial one- that will determine an agencies capability to implement such a scheme. A positive financial result for a water recycling scheme will almost always rely on recovering costs from a broader base than simply the sale of new alternative supply. Recovering the costs associated with additional treatment and distribution must be implemented in a manner that is perceived to be fair, sends appropriate price signals and effectively generates the necessary cash flow back to the agency.

Recycled water costs may be distributed between water and wastewater users, both through capital facility charges and usage rates. Carefully applied cost allocations can allow for economic incentives to attract current or future potable water users to replace some of this use with recycled water. The greatest challenge is to identify the most effective balance between pricing recycled water such that it is attractive while maintaining a nexus with the cost of service.

Tertiary treatment costs have historically been recovered from wastewater users (or ‘generators’), spreading the costs over the treatment authorities entire customer base. This approach has been logical since much of this tertiary treatment has been to facilitate a means of effluent disposal and thus a cost for managing wastewater. However, in many future situations, tertiary treatment may be implemented primarily to provide recycled water to offset demand on the drinking water supply. In such cases, the cost of tertiary treatment might logically be partially recovered from drinking water customers which may, or may not, be the same as the wastewater customers and may or may not be serviced by the same organisation.

A major obstacle to water recycling in Australia has been the widely acknowledged historic undervaluing and under-pricing of fresh water supplies. The relatively small financial costs incurred in the use and disposal of fresh water supplies have provided little market-force incentive for less competitive water recycling applications.

The low cost is partly the result of there being no requirement in pricing regimes to include catchment management and protection of effluent-receiving environments. In many cases, the consumer also pays sewerage charges that include the cost of treatment to a standard that is acceptable for discharge to the environment. These are separately accounted for and not integrated with the costs associated with producing and delivering potable water. The cost of producing and delivering recycled water is generally greater than the costs for fresh water. However, users are typically charged less for recycled water than for fresh water due it its more limited use.

My own recent water bill was for $133. Of this, $94 was a standard charge for access to the sewerage system. Nearly $20 was a further standard charge for access to the potable water service. That’s around $114 out of $133 that I have absolutely no control over regardless of how much potable water I use at home. My actual water usage cost was a mere $12. That leaves me with absolutely no (financial) incentive to save potable water. To save on this $12, I am going to need an extremely cost-effective solution. No on-site recycling system or dual reticulation scheme has any chance of recovering this $12 in a reasonable period of time.

But what about the largest component of my bill; -the $94? We could move some of that cost away from ‘access to the sewerage system’ and instead add it to the ‘water usage charge’. This would empower water consumers to make significant savings by minimising potable water use. Using recycled water as a replacement for potable water would instantly become more economically viable. Prolific water users may end up paying more, but efforts towards water frugality would be justly rewarded.

Such an alternative water-pricing framework would acknowledge the importance of applying consistent consideration of externalities associated with potable water, recycling water and sewage. It would include the provision of price signals that reflect the scarcity of resources as well as the costs associated with water treatment and delivery.

I’m no economist, but it makes a lot of sense to me.

Whadda you reckon?

25 comments:

Snow Manners said...

OK Stuart you caught my eye.

Back up one step. For valid environmental reasons (and human health) EPA's are gradually requiring cleaner outfalls from STP's. This places a greater financial burden on LGA's and other sewage dumpers.

I don't have detailed costing but I imagine the cost of treating effleunt for discharge into the environment to a standard satisfactory to EPA's is probably as much, if not more per ML, than treating water coming in from the environment for potable use.

Sad to spend all that money to create clean rivers when the clean river is not going to be costed into the organisation's single bottom line approach.

This is really the fundamental driving force behind potable reuse - recovering STP costs.

It falls foul of consumer sovereignty because recycled drinking water is not a commodity the public wants to buy and perhaps recycled water for non-potable use (dual reticulation) requires more infrastructure (retrofitting)resulting in expensive water.

It certainly is a conundrum isn't it?

Perhaps some logically associated disciplines should align with water scientists to help solve it *smile*.

(Time limit - I'll follow this one)

Stuart Khan said...

Snow,

I’m not convinced that the recovery of costs of sewage treatment is the primary driving force behind water recycling. But I agree that it makes good economic sense to get maximum value from the use of scarce natural resources, especially those in which we have invested energy and money (ie sewage treatment).

However, just because clean rivers don’t show up in single bottom lines, doesn’t mean that the costs aren’t accounted for. The burden of the cost of sewage treatment is passed back to the community via local government rates and/or water service fees (depending on where you live). Sewage treatment is a service that is charged for just like any other. So there is no desperate need to find creative ways to recoup these costs as such.

Anonymous said...

Stuart
Do you have you any information on SEQ water's plans for introducing IPR into Brisbane's water supply by mid 2008 if the drought continues? This will mean that Brisbane will be introducing IPR before both Toowoomba and Goulburn. I also heard somewhere that IPR will be necessary in Brisbane to keep up with their population growth, regardless of drought. However, I cannot confirm either piece of information. Do you have any knowledge?

Stuart Khan said...

Hello Anonymous,

No, I (quite honestly) do not have any such information. However, there is no reason why I would have that information ahead of anyone else. I have no real connection to the QLD government and learn about developments the same way everyone else does: newspapers, television and the internet.

Nonetheless, your question provides a convenient point for me to point out that it is my opinion that population growth is the real driver for necessary water reforms in major QLD and NSW cities. Climate change does not seem to be helping the availability of fresh water, but it is the rapidly increasing demand (as opposed the highly variable supply) that is placing the greatest additional stress on current practices.

Sk.

Greg said...

Climate change does not mean less rainfall - boy I am sick of seeing this used as an excuse for us to have to drink recycled effluent and it is not backed up by Historical Data. Have you ever heard that saying Australia is a land of droughts and flooding rains. It just so happens that an extended drought is occuring strangely enough just over Toowoomba and Brisbanes dam catchment areas at the moment.
Toowoomba has had just 6mm of rain this month compared to the Gold Coast - 226mm, Maroochydore - 217mm, Brisbane - 43mm, Bundaberg - 188mm and Charleville - 81mm.
Given the longevity of the drought occuring here I believe Toowoombas dams have stood up quite well. I think Brisbanes have as well and just you wait untill the flooding rains come - the whole drinking recycled effluent scenario will be washed away untill the next drought when the doomsday scaremongers will rear there ugly heads again, but hopefully we will have more dams to catch the precious resource before then!

Stuart Khan said...

Very true Greg,

(As I suggested above), rainfall is highly variable in Australia and will continue to be so. CSIRO modelling predicts that rainfall in eastern Australia is more likely to decrease rather than increase over the next 25 years, but they acknowledge that it could go either way.

Even more importantly, your comment about “a land of droughts and flooding rains” is spot-on. Significant variability (including extended dry periods) is just something Australians have to live with.

I also agree with your final point. During extended dry times, communities can become very ‘water aware’, but we tend to have short collective memories. As soon as the rain comes we tend to forget about long term planning for drought protection. Many options also become politically more difficult because it is hard for communities to see the urgency. I would argue that it is such short-sightedness that got us into many of the predicaments we face today.

Jaun said...

Recycled Effluent is an industry, it costs money and it does not need to be used for drinking. Toowoomba would lower dam usage if it was implemented for irrigation, parks n gardens, dual pipe system and public toilets. Not to mention all the private stuff like Golf courses and nurseries, car wash and hospitals, shall I go on.

We would be better off with a dual pipe system, at least then we could water our gardens, wash our cars, etc. As it stands now, we won’t be able to do any of that if we vote yes. They say 2013 is the estimated date for this project, by that time; Toowoomba could be fitted with a dual pipe system, and we could be watering our gardens, have clean cars all while saving dam water at the same time. Potable use will only see water restriction remaining in place.

It’s time people like you Stuart look at the people side of this, instead of the scientific and dollar side. The amount of water the people of Toowoomba use in their homes is minute compared to how much gets used else where.

We just simply don’t want the industry here for our drinking supply, when more suitable options exist. We would rather pay extra for the options then drink the stuff, how simple is that to understand.

Our climate is not changing, Australia sees droughts every year, where, well that’s up to Mother Nature. Why she has picked this part of the country for an extreme drought is a mystery. But droughts are always broken by flooding rain.

We just need to conserve what we got, and wait! If it comes too late, then that’s how it is, we can’t push recycled effluent down our throats because some politically stupid minded mayor wants to be the fore front for a project that should not be allowed.

Stuart Khan said...

G’day Jaun, Thanks for your contribution.

I agree that the ‘people side’ of water management is crucial. Ultimately, communities such as Toowoomba will decide how they manage water and all the science in the world wont change that.

Although you may refute the evidence of climate change, its more difficult to deny the current rate of population growth in South East Queensland. This is placing increasing stress on a limited water supply and I would suggest that governments are justified in paying some attention to that.

Jaun said...

Sturat: Yes, but recycled effluent is not a sustainable water supply for Toowoomba, as it relies on already low dam water. Which, if no rain comes, it will drop even further.

We need a far better solution to just pumping it back into our dam.
Parks n Gardens currently use BORE water, which they could use Recycled Effluent, leaving the bore water for dam usage.

Recycled effluent wouldn't need the years of testing if it was to be used for what I mentioned above. The council have means to get water into this city far earlier then 2013, but just won't do it.

This subject is a matter of common since, not a political argument. The TCC has no common since when it comes to finding or implementing the alternatives. This is the biggest reason why there upset in this city. It's not matter of recycled effluent anymore; it's the council's reaction and lies to the people of Toowoomba.

They are acting like little kids who's mummy wouldn't by them a candy bar.

I am willing to use recycled water, but not for domestic use.
I am also willing to pay for this technology as long as it's used correctly.

This city will divide if recycled effluent becomes a potable use. The NO voters will either leave, or cause civil problems against the YES voters.

Our lord Mayor is now using our kids as a gauntlet to drive people to vote YES, this is enough to indicate the council are desperate and need psychiatric help!

The council would have gotten 100% support if they proposed the water for non-domestic use, and could have been using the water by 2008 instead of 2013. I know which one I would have chosen.

Big Buddha said...

Is it true that if you break down in the desert that you can survive by drinking your own piss?
BB

Stuart Khan said...

Of course. Assuming the person doesn’t have a urinary infection, urine should normally be quite sterile. However, if a person is in a desert, their main aim would be to prevent dehydration. Therefore, a lower-salinity source of hydration would be preferable to untreated urine. If a portable reverse osmosis system was available, that would be ideal for producing highly potable water from urine.

Jaun said...

Urine does not contain solids, chemicals, hospital waste, potential lethal viruses & bacteria and all the other crap that is in effluent. It is very high in salts thou.

Having your own urine as a source of water will kill you quicker then not drinking it. Besides, if your in the desert with no water, drinking urine won't magically become urine again. Dehydration would take 90% of your first sip.

You must eat, sleep and talk reverse osmosis Stuart, you need to get a life.

We now all know the council here have LIED, CHEATED and BROKE THE LAW to enforce this issue, they have lost and we have made the best step towards a correct solution to the use of recycled effluent for all of Australia and that's NON-DOMESTIC use.

Greg said...

Stuart, how could a portable RO system work if your urine was the only source? I don't know of any that do not require a tap and water pressure!

Stuart Khan said...

Yes. Of course I was being slightly facetious in response to BB’s question. However, some of my colleagues have been working on the ideal solution: a portable RO system that is powered by solar cells. The necessary pressure is produced by an efficient electric pump. If you’re interested, its called ‘ROSI’ and is briefly described on page 6 of this newsletter.

Jaun said...

And this is the reason why cities like Toowoomba have to fight against you people. Watse water should never be used drinking supplies when 100's of other applications can use the water, and would save more in the long run. Keeping us safe, the environment safe and everyone happy :)

Stuart Khan said...

Hi Jaun,

I think you may have misinterpreted something that I have said somewhere along the way. I have never tried to tell Toowoomba how it should manage its water. I have merely tried to communicate that various forms of water recycling (including potable) can be viable options when specific circumstances are fully considered. I think I have been pretty consistent with that.

I share your priorities of keeping people safe, the environment safe and people (as many as possible!) happy. I agree that we should look for solutions that achieve the best balance of those priorities.

Jaun said...

But you admit recycled effluent for drinking is safe, which is the topic in Toowoomba. Anyone who states it's safe without backing it up with years of study will fall under the hammer. Guess that's how I see you!

No offence.

I just hate politicians and scientist that try to force an issue on a community to gain advantage of making money, which this endevour is.

I'll as you the same question I ask any so called expert:

WHY? When we can use the water for other more realistic purposes?

Stuart Khan said...

There is no generally applicable answer to the “why” question. All situations should be considered on a case-by-case basis.

There are many advantages of water recycling, but in some cases (such as Toowoomba) the main driving pressure is to supplement dwindling water availability in the face of increasing pressure from a growing population. This is particularly significant in extended periods of drought.

There are indeed lots of ways to recycle water and make use of that water. I have discussed more than one on this blog and intend to expand on more in the future. In my opinion, the most favourable approach should be determined in terms of social, economic and environmental sustainability. If potable recycling can be identified as the most favourable by these criteria, then you have a pretty good answer to “why?”. If some other solution is identified to be more favourable, then you have an equally good answer to “why not?”.

Jaun said...

Well Stuart, if you dropped your knife in a pile of shit, would you clean it off and butter your bread?

Would you wear your ring if it fell in the toilet full of crap?

Would you brush your teeth if you droped your toothbrush in the loo and cleaned it off?

Would you wear your shirt with a poo stain on it in public?

My point is, it doesn't matter how much you clean up sewerage, it will always been seen that way.

If anyone says Yes to any of the above questions, thye are down right dirty people and should have no SAY in the debate. It's not a YUK factor we have to get over, it's just common sense to say NO!

mick said...

What i would really love too know is where in the world do they use a 25% effulent mix too the water for drinking purposes?? Also what is going too happen if the csiro testing proves that the water is unhealthy for human consuption then toowoomba is left with only 2 Dams!!! seems a bit silly too do this if you ask me

Jaun said...

Spot on mick, this is not just about recycled effluent, there a far too many other factors we have to consider. Losing a dam or having to have the drained and dredged would make it even worse.

This is all too much for Toowoomba to grasp, maybe if our dams we're higher and the recycled water was used for non-domestic use, then I see no problem with it.

I for one hate the idea of losing one of the dams for 3 to 5 years.

The council are concerned with our water level now, but have no problem in taking a dam offline, seems a bit one sided if you ask me.

Stuart Khan said...

Mick,
One such example would be right here in Sydney. Anyone can plainly see that tertiary treated effluent from the Penrith sewage treatment plant is currently discharged into the Nepean River then flows about 18 km downstream to the North Richmond drinking water treatment plant, where it is extracted, treated and distributed for potable use. This is very normal and occurs throughout the world. When it really rains, the proportion of water sourced from Penrith STP can be less than 1%. However, a more typical proportion is around 20%. During dry periods, the proportion is greater than 30%. You can, of course, make the point that this is ‘considered’ to be ‘unplanned potable recycling’ compared to the ‘planned potable recycling’ that cities such as Toowoomba are proposing. However, the major differences are that planned potable recycling generally involves a much higher degree of treatment, a more closely monitored process and a less favourable public perception.

Stuart Khan said...

Jaun,
You have raised a very interesting point regarding the psychological ‘linking’ of things being contaminated based on their history. Prof Paul Rozin (Department of Psychology, University of Pennsylvania) has written some interesting reports on this topic, describing it as the “law of contagion”. You have introduced the topic so precisely that I will use this as the topic of my next post to this blog. I would be interested to receive any follow-up comments from you once I have prepared and posted it.

Anonymous said...

Hi Stuart - this question may not be entirely aligned with your web page, but I'll ask if you can help or just point me in the right direction ,because I have a question to ask, but don't know who to ask; when I saw your page while searching the web and saw your profile, I thought you'd at least be qualified to tell me where to look for info. I live on a small acreage with my family, and we have 2 6000 gall rainwater tanks. We also have a bore which pumps out clear water, which I'd like to use to top up my rainwater tanks when they get low (like now. I've had the water analysed, and it just seems to fall short of the Aus potable water stds -ie it is just over the limits for Manganese, chlorides, and calcium carbonate (which I think is from the limestone further down, which might explain why it is so clear ie the limestone filters it - bore is about 39 M deep. What sort of technology do I need to be able to safely top up my rainwater tanks using the bore? is it reverse osmosis,etc? Sorry to bother you if this is not the right sort of thing for your website - although I am trying to see how we can use our (bore) water in a smarter way, rather than just for watering the garden

Stuart Khan said...

Hello Anonymous,

Sorry…I didn’t notice this comment here until just now.

The problem you are experiencing with your groundwater is called ‘hardness’. Unless it is really extreme, its not a health problem. However, it can cause some difficulties such as scaling (eg. white scum on your shower door). It also prevents some detergents and soaps from creating a good soapy lather.

Reverse osmosis is a potential treatment solution, but this can be difficult. First, it will require a reasonable amount of energy to run (depending on the pressure that you choose to operate at). But secondly, the minerals that you are trying to remove tend to ‘scale’ on the membrane, clogging it up after a relatively short period of time.

A simpler option may be to install a 'water softener'. This is a filter with some form of 'ion-exchange' resin to remove the calcium and magnesium. The ion exchange process might make your water taste just a little bit salty…so ask about that before you buy one!

Of course, adding filters etc will lower the water pressure coming out of the tap...so hopefully you have enough pressure to spare!

I hope that is some help.

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