Desalination A National Perspective (2008) / Chapter Skim
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6 The Costs and Benefits of Desalination
6 The Costs and Benefits of Desalination
Pages 147-181
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From page 147... ...
The explanation lies with the fact that, although the process costs have been reduced, the total costs of desalination, including the costs of planning, permitting, and concentrate management, remain relatively high, both in absolute terms and in comparison with the costs of other alternatives. In assessing the future prospects and promise of desalination technology, it is particularly important to examine the current and prospective financial and economic circumstances that are likely to surround the technology as it develops.
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From page 148... ...
be captured because they are not internalized in the utility's cost stream or, in the case of benefits, not priced and subject to market-like exchanges. Consider a situation in which there are large environmental costs of a water supply project that do not have to be addressed by law or regulation.
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From page 149... ...
Joint Costs Finally, it is important to understand the notion of joint costs and the problems they create for the accounting and allocation of costs. Frequently the financial and economic costs of desalination can be reduced by combining desalination operations with the production of some other water-related goods and services.
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From page 150... ...
The problem of allocating joint costs makes it particularly hard to analyze the costs of thermal desalination plants in a consistent and systematic way. Many thermal desalination facilities are co-located with power plants so that the waste heat from the power plant can be utilized in the desalination process, and others are designed as cogeneration facilities with large components of joint costs.
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From page 151... ...
Different project costs are also difficult to compare because virtually every desalination plant has its own unique design and site conditions and its own unique financing package. Table 6-1 provides an example of such comparative costs for three projects: the desalination facilities built and operated by the Inland Empire Water Agency in southern California for the purpose of desalting brackish water; the brackish water desalination project in Texas developed by the El Paso Water Utilities in cooperation with the U.S.
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From page 152... ...
The information and analysis that follow result from efforts to provide a detailed view of the various cost components that make up the costs of producing freshwater from seawater and brackish water sources using membrane technology. The conclusions that can be drawn from the analysis are limited by the lack of consistency and detail in the data.
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From page 153... ...
Treatment systems for such lower-salinity groundwaters can often produce water for less than half the costs of treating seawater. However, when low-cost concentrate management methods are not available, brackish groundwater desalination costs can reach or exceed seawater desalination costs.
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From page 154... ...
Most likely this is due to the favorable interest and energy costs used in the preceding analysis. Additionally, the calculated total costs for thermal technologies are likely exaggerated because offpeak electricity costs, cogeneration, or the use of low-grade or waste energy are not considered in this analysis.
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From page 155... ...
. Comparing Desalination Costs against Other Alternatives When making water policy decisions, desalination costs need to be compared with the costs of other water supply or demand options available in a given locale.
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From page 156... ...
, in the past 2 years energy price increases have begun to outpace desalination cost reductions due to improvements in technology. The problem is complicated not only by virtue of the fact that the total costs of alternatives vary with site-specific conditions but also by the fact that the total costs of desalination facilities differ from situation to situation.
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From page 157... ...
A typical approach is to use cost-effectiveness analysis to compare a unit cost of alternatives, for example in dollars per cubic meter of physical water supply or conservation reduction. A water conservation alternative is considered cost-effective when the unit cost of conservation (sometimes called "the cost of conserved water")
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From page 158... ...
It is thus important to properly identify both the marginal variable costs and marginal capital costs of water supply displaced by efficiency improvements. A comprehensive analysis of water conservation alternatives was produced in 2003 by the Pacific Institute for California residential, commercial, and industrial efficiency options.
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From page 159... ...
The costs of electricity for the 46-year period 1960-2006 are shown in Figure 6-2. While it is true that electricity costs are not always the pertinent costs for thermal technologies, the trends in these costs are generally representative of energy costs for thermal technologies and reasonably exact costs for membrane technologies.
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From page 160... ...
160 Desalination: A National Perspective 12 10 Total Cents per Kilowatt Hour 8 6 4 Industrial 2 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Year FIGURE 6-2. Inflation-adjusted electricity costs in the United States from 1960 to 2006 for all sectors and for the industrial sector alone.
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From page 161... ...
All of the cost data were then normalized to the actual baseline cost data for the conventional pretreatment seawater desalination case supplied for the analysis so that the results reported are relative costs per cubic meter. The results are expressed in
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From page 162... ...
, the scale of the plant, the process, membrane life, operating pressures, and the cost of funds. The two largest components of annual costs in RO desalination of seawater are the cost of energy to operate the plant and the annualized capital costs, which include the annual repayment of principal and the interest payment (see Table 6-2 and Figure 6-6)
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From page 163... ...
FIGURE 6-5. Effect of facility size, water source, and pretreatment process on relative annual costs per cubic meter for RO plants.
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From page 164... ...
As a general rule, it will cost 50 percent more per cubic meter to produce freshwater from seawater as opposed to brackish water with a salinity of approximately 2,000 ppm. The sensitivity of operating costs to the salinity content of the source water supports the general proposition that, when concentrate management costs are ignored and all else is equal, it will virtually always be cheaper to desalinate brackish water than seawater when using membrane technologies.
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From page 165... ...
An increase in energy costs from 140% 2-Stage Seawater RO with Conventional Pretreatment 2-Stage Seawater RO with UF/MF Pretreatment 120% 3 Relative Annual Cost per m 100% 80% 60% 40% 20% 0% 2% 3% 4% 5% 6% 7% 8% Interest Rate FIGURE 6-7. Effect of cost of money on relative annual costs per cubic meter for a 189,000 m3/day seawater RO plant with conventional pretreatment or membrane pretreatment.
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From page 166... ...
, smaller increases in annual costs are observed. Efforts to reduce energy costs, as well as reductions in the total capital costs of the system, offer the greatest prospect of significant reduction in the total costs of seawater desalination systems.
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From page 167... ...
Energy costs held constant at $0.07/kWh; membrane life held constant at 5 years; nominal interest rate is 5 percent; depreciation period is 25 years. reduction in operating pressure of 15 percent could result in approximately 5 percent reduction in annual costs (Figure 6-9)
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From page 168... ...
These data and analyses, together with the fact that membrane life accounts for such a small proportion of total project costs, suggest that further research focused on extending membrane life is unlikely to have significant payoffs. Key Determinants of Desalination Costs An examination of the available cost data and a sensitivity analysis of the determinants of water production costs permit some general conclusions to be drawn.
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From page 169... ...
Therefore, when concentrate management costs are ignored and other things are equal, RO desalination of brackish source water will nearly always be cheaper when compared with seawater. However, depending on the available alternatives, concentrate management costs, especially at inland locations, can increase the total costs of brackish water desalination significantly, up to 200 percent above the desalination process costs alone.
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From page 170... ...
Pricing Historically, production of desalinated water has not been a particularly attractive water supply option because the costs have been high. Ultimately, costs need to be recovered through some combination of government support and the pricing of water.
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From page 171... ...
. Nevertheless, process cost reductions attributable to improved technology combined with the rising cost of most water supply alternatives suggests that the gap between the costs of desalinated seawater and the costs of alternative sources is narrowing.
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From page 172... ...
Pricing structures that recovered only marginal or operational costs would leave the operator unable to cover fully the costs of debt service and repayment of the capital costs. Today, the average cost pricing rule continues to be followed even though marginal or operating costs are now much higher than they once were.
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From page 173... ...
The result will be overinvestment in desalination facilities and the continued application of desalinated water to uses whose value is less than the cost of making the 1 This discussion of marginal cost pricing refers to short-run marginal costs and not long-run marginal costs. The difference is that in the short run (i.e., over the life span of a desalination plant)
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From page 174... ...
Ideally, the local price of water would be established by the interaction of supply and demand such that the resulting price covers financial, environmental, and social costs. Other Cost Considerations The Role of Subsidies The development of most desalination facilities entails public subsidies of some sort.
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From page 175... ...
One circumstance in which privatization may prove attractive is the provision of water supply and wastewater treatment services for smaller communities, which tend not to have the resources to take advantage of economies of scale and which may lack the resources to acquire the necessary scientific, technical, and financial expertise. Opportunities for "regionalizing" utility services across a number of communities may not always favor private provision of those services, however.
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From page 176... ...
In some instances desalinated water can be substituted for other water supply sources that are not being exploited in a sustainable fashion (e.g., persistently overdrafted groundwater; see Box 3-3) , and benefits accrue to the provision of desalinated water in the form of reduction in unsustainable uses of alternative groundwater and surface water sources.
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From page 177... ...
This means that the capacity of coastal desalination projects to produce water is not affected by severe droughts, an attribute that is particularly valuable in circumstances where climate is highly variable. Brackish groundwater desalination can also provide reliable water supplies during short-term droughts, although longer periods of drought can affect regional groundwater availability.
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From page 178... ...
The method borrows from and adapts tools from financial portfolio theory and allows a comparison of water supply alternatives that have differing degrees of reliability. CONCLUSIONS AND RECOMMENDATIONS Historically, the relatively high financial costs of desalination constrained the use of desalination technologies in all but a few very specific circumstances, but the cost picture has changed in a number of important ways.
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From page 179... ...
Future trends in energy costs will also be important inasmuch as significant increases in energy prices could offset or more than offset cost reductions in other areas and make desalination technologies less attractive. For brackish water desalination, the costs of concentrate management can vary enormously from project to project and may rival energy and interest costs as the largest single component of cost.
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From page 180... ...
The costs of producing desalinated water have fallen in recent years but may rise in the future if the price or cost of energy rises faster than cost decreases from technological improvements. Increases in energy costs lead disproportionately to increases in desalination costs and in the costs of transporting water long distances.
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From page 181... ...
The Costs and Benefits of Desalination 181 nated water to the consumer, and the supplier should take care in publicly reporting the true and accurate economic costs.
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