nach oben

Erschienen in:

2015 | OriginalPaper | Buchkapitel

18. Managing Water Variability Issues

verfasst von : Hugh Sibly, Richard Tooth

Erschienen in: Understanding and Managing Urban Water in Transition

Verlag: Springer Netherlands

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

Despite the growing use of manufactured sources, urban centres still predominantly rely on climate-dependent water sources. In many cases, the supply is subject to significant variability and uncertainty, and there is concern that climate change will increase this. Variability and uncertainty create a number of significant issues that need to be managed. This chapter reviews the issues and considers alternative approaches to managing them.

The chapter begins with a general discussion of the features of urban water supply and the issues created by variability and uncertainty, many of which are common to other infrastructure industries. These include the issues of pricing and optimal timing of ‘lumpy’ investments when there is uncertainty.

This chapter then focuses on a key feature of many urban water systems: that of large, cheap storage. Storage has implications for both the problem of lumpy investments and how uncertainty is managed. These implications are examined, including consideration of how storage affects investment and pricing decisions.

An emerging issue is that of water security. The risk of a major urban centre running out of water is a key driver of urban water policy. Often there is a lack of clarity about how water security goals and criteria are established. This chapter considers the government’s role in providing water security and how this may change as diversity of supply increases.

This chapter also considers governance arrangements in the face of uncertainty. Commonly, urban water augmentation decisions, pricing, and operational decisions are centrally managed by government agencies and/or government-owned organisations. However, markets offer a potential alternative that is more responsive to changed conditions and needs. The potential for markets to help deal with the issue of uncertainty is explored.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Technik"

Online-Abonnement

Mit Springer Professional "Technik" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 390 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Maschinenbau + Werkstoffe

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Vorheriges Kapitel A Simulation Model for Understanding the Consequences of Alternative Water and Wastewater Tariff Structures: A Case Study of Fayoum, Egypt

Nächstes Kapitel Volumetric Water Pricing, Social Surplus and Supply Augmentation

Nur mit Berechtigung zugänglich

In a number of systems inflows to water catchments follow broad seasonal patterns.

Uncertainty in which the probability of the outcome is unknown is commonly referred to as Knightian uncertainty after Knight (1921).

Other charges are imposed, most notably additional charges applied to new developments; however, these are extraneous to the analysis in this chapter.

A further problem is that in some industries (e.g. landing slots at an airport) as capacity limits are reached congestion externalities start to kick in.

This is the case when the private investor cannot charge a fixed fee to customers, as is likely to be the case when a private investor provides water to a publicly owned water corporation.

See OFWAT (2001) for a useful discussion on the role of LRMC pricing for water utilities in England and Wales.

See Sibly (2006) for a debate on marginal cost pricing in an urban water context. Park (1989) uses simulation analysis to examine the relative merits of alternative pricing approaches under conditions of lumpy investment and growing demand.

For example, the England and Wales regulator (see OFWAT 2001) and a number of regulators in Australia have endorsed the LRMC approach. The American Water Works Association (AWWA 2000, p. 120) endorses the LRMC, stating that “Economic theory suggests that water rates be set equal to long-run marginal costs to ensure an efficient allocation of water service.”

While restrictions have appeared to be successful in curbing demand, restrictions are an inefficient and inequitable approach relative to reasonable alternatives based on price. Demand restrictions have a number of problems. First, they are difficult to implement: they can only be reasonably applied to outdoor use and they are notoriously difficult to enforce and therefore they can only partially limit demand. Second, they are inefficient, as they restrict efficient allocation between different uses, users, and time periods. Third, restrictions have additional hidden consequences on business and society. These include loss of amenity due to loss of green spaces and costs spent by business and individuals in avoiding water restrictions. Fourth, relative to simple alternatives, they are highly regressive. In effect, when water is underpriced, the large users (who tend to be wealthier) receive a subsidy.

For the purposes of analysis in this chapter, and for ease of exposition, we focus on the bulk water price. Assuming pass-through of costs, the retail price will simply be an increment to the bulk water price, which is relatively stable and predictable.

This is similar to Hotelling’s price rule. It may be described as $ {P}_{t+1}={P}_t\left(1+r\right)/\left(1-m\right) $, where P _t denotes the price in period t, r is a constant discount rate, and m is the marginal rate of storage (see Appendix for the proof).

At the time of writing, real risk-free interest rates are about 2 %. The cost of capital for utilities is higher, but still modest. For example, the real pre-tax weighted average cost of capital used in Australia is around 7 %.

The marginal rate of storage loss will is likely to differ to from the average rate. Storage loss is primarily related to evaporation, and thus the marginal storage will primarily relate to the increase in evaporation from storing more water. This will depend on a number of factors including the shape of the dam. Assuming evaporation is proportional to surface area and that the walls of the dam have a positive slope, then the marginal storage rate will be positive.

This is based on unpublished levels of storage and storage loss.

That is, $ {P}_{t+1}={P}_t\left(1+r\right). $

The reasonable assumptions are that the lumpy investment to be installed is not at significantly lower cost than future investment and there is no abnormal future growth in demand.

If high price growth was expected, an inter-temporal optimisation would result in water being conserved for the period of higher prices. See Appendix for proof.

Recently Abrams et al. (2012) estimated the short-run retail price elasticity of demand to be −0.05 for Sydney Water customers. The bulk water price elasticity would be lower in magnitude. However, using this price elasticity and a price growth of 10 %, the effect of price increases would be to dampen consumption growth by <0.5 % of unconstrained growth.

For example, annual population growth in major urban centres in Australia is forecast to be around 1.5 % (see WSAA 2010). In general, per capita use of water will also tend to increase with rising incomes.

This is estimated using a simple numerical simulation. Due to staggering of investment, initial demand is set at 90 % of capacity.

Demand variability may be treated in a similar fashion. However for simplicity we restrict ourselves to supply variability.

Thus the previous pricing rule can be modified to become $ {E}_t{P}_{t+1}={P}_t\left(1+r\right)/\left(1-m\right) $, where E _t denotes the expectation at time t. We might more formally express the expected future price $ {E}_t{P}_{t+1} $ as a weighted average of prices that would occur in different states Θ_i,t with different probabilities φ _i,t. That is, $ {E}_t{P}_{t+1}={\displaystyle \sum}_i{\varphi}_{i,t}{P}_{t+1}\Big|{\varTheta}_{\mathrm{i},\mathrm{t}} $.

For example, Grafton and Ward (2011) use a stochastic dynamic programming method to estimate a dynamically efficient water prices for Sydney to maximise consumer welfare.

This can be demonstrated with a simple example. Assume that there are three possible inflow scenarios (0.5, 1, and 1.5 units) with equal probability (i.e. expected inflow is 1 unit). Assume SRMC pricing is used, and due to the convexity of the price set the future price in these circumstances is $4, $2, and $1.2 (i.e. expected value $2.4). Assume also that the combined discount factors (1 + r)/(1–m) = 1.2. Then the current price will be $2 =($2.4/1.2) and the future price given expected inflows will be $2.

This definition is adapted from a similar definition for energy security by Constantini and Gracceva (2004).

Models also differ significantly in terms of the level of vertical and horizontal (geographic) separation, and how functions are allocated across centralised bodies that include ministerial responsibility, government departments, economic regulators, and water utilities.

Abrams, B., Kumaradevan, S., Sarafidis, V., & Spaninks, F. (2012). An econometric assessment of pricing Sydney’s residential water use. Economic Record, 88(280), 89–105.CrossRef

AWWA (American Water Works Association). (2000). Principles of water rates, fees and charges. AWWA Manual M1 (5th ed.). Denver: AWWA.

Constantini, V., & Gracceva, F. (2004). Social costs of energy disruptions (INDES Working Paper No. 6).

Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton: Princeton University Press.

Grafton, R. Q., & Ward, M. B. (2011). Dynamically efficient urban water policy (Crawford School Research Paper No. 10–13). Canberra: Australian National University.

Knight, F. H. (1921). Risk, uncertainty, and profit. Boston: Hart, Schaffner & Marx/Houghton Mifflin.

Ofwat (Water Services Regulation Authority). (2001). The role of long run marginal costs in the provision and regulation of water services. Annex B: Summary of previous Ofwat guidance on LRMC, MD170. http://www.ofwat.gov.uk/regulating/reporting/ltr_md170_lrmc

Park, R. E. (1989). Incremental costs and efficient prices with lumpy capacity: The single product case. Santa Monica: RAND Corporation.

Sibly, H. (2006). Urban water pricing. Agenda, 13(1), 17–30.

Sibly, H., & Tooth, R. (2008). Bringing competition to urban water supply. Australian Journal of Agricultural and Resource Economics, 52(3), 217–233.CrossRef

Turvey, R. (1976). Analyzing the marginal cost of water supply. Land Economics, 52(2), 158–168.CrossRef

Turvey, R. (2000). Infrastructure access pricing and lumpy investments. Utilities Policy, 9, 207–218.CrossRef

WSAA (Water Services Association of Australia). (2010). Implications of population growth in Australia on urban water resources (Occasional Paper No. 25, July 2010).

Titel: Managing Water Variability Issues
verfasst von: Hugh Sibly
Richard Tooth
Verlag: Springer Netherlands
Buch: Understanding and Managing Urban Water in Transition
Print ISBN: 978-94-017-9800-6

Electronic ISBN: 978-94-017-9801-3

Copyright-Jahr: 2015
DOI: https://doi.org/10.1007/978-94-017-9801-3_18

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Technik"

Springer Professional "Wirtschaft"