Water. Desalination + reuse
Issue link: https://fhpublishing.uberflip.com/i/107986
reGionS be entirely or partially financed and owned by private companies, and these projects will likely use some combination of debt financing, especially tax-exempt private-activity bonds, and private equity. These public-private partnerships can allow for a mechanism to attract private investment and share some of the risks associated with a project. One of the possible drawbacks in private sector financing, however, is the high cost of private capital, which is reflected in the price of desalinated water. Proponents of this approach, however, argue that the higher costs are offset by lower risk for the water provider, higher efficiency of the contractor and technology performance guarantees. What are Some of the riSkS? There are several risks associated with seawater desalination projects that can affect the cost of the project, ability to attract financing, and overall viability of the project. Many of these risks are not unique to seawater desalination projects – rather they apply broadly to all major infrastructure projects. These include risks associated with permitting, construction, operations, and changes in law. But as recent experience in the US and Australia has shown, desalination projects entail risks specific to large water-supply projects, including demand risk. Demand risk is the risk that water demand will be insufficient to justify continued operation of the desalination plant due to the availability of less expensive water supply and demand management alternatives. In Australia, for example, four of the six desalination plants that have been developed since 2006 are being placed in stand-by mode. Likewise, the Tampa Bay Desalination Plant is operated considerably below full capacity because demand is lower than expected and less expensive water-supply options are available. Demand risk raises serious concerns about the size and timing of desalination projects, eg, how big and when desalination plants should be built. In some regions, seawater desalination can make an important contribution to the availability and reliability of water resources. However, it remains among the most expensive options available to meet water demands. Additionally, project developers may build large plants in an effort to capture economies of scale and reduce the unit cost of water. This can, however, lead to oversized projects that ultimately increase demand risk and threaten the long-term viability of a project. hoW are DeSalination ProjectS StructureD? Issues around financing and how project costs and risks are allocated are tied to how the table 1. cost estimates for Proposed Seawater Desalination Projects Project Capacity (MGD) Capital Cost (a) O&M Cost (b) ($ million) (d) (f) ($ million) Unit Cost (c) Data Source ($/AF) Santa Cruz/ Soquel 2.5 Creek Water District 114 3-4 N/A Luckenbach 2012 California American Water (e) 4.9 – 8 175 - 207 7.77 - 11.0 2,5553,250 Separation Processes, Inc. 2012 Deep Water Desal (e) 4.9 - 8 134 - 160 9.38 - 12.3 2,395 3,120 Separation Processes, Inc. 2012 The People's Moss Landing Water Desal Project (e) 4.9 - 8 161 - 190 7.06 - 10.1 2,345 2,980 Separation Processes, Inc. 2012 Carlsbad Desalination Plant 50 771 50 - 54 2,042 2,290 SDCWA 2012 Camp Pendleton 50 - 100 1,300 - 1,900 45 - 105 1,900 2,340 SDCWA 2012 Notes: N/A: not available • (a) Capital costs here are based on capital expenditures (Cap Ex) and include the cost of the desalination plant plus any other infrastructure required to integrate the desalination plant into the rest of the water system. The cost to finance the project is not included. • (b) O&M costs include the operation and maintenance costs of the desalination plant and any other infrastructure required to integrate the desalination plant into the rest of the water system. • (c) The unit cost captures capital and O&M costs as well as the cost to finance the project. project is structured. Many project developers in California are using some form of public-private partnerships. The private sector's involvement in seawater desalination projects is not new. The private sector has developed several small plants to supply high-quality water for specific industrial purposes, such as for use on oil and gas platforms. Likewise, a desalination project in Santa Barbara, completed in 1992, was operated and partially owned by a private company. In some cases, the private sector's involvement is limited to conducting feasibility studies and preparing environmental documents as requested by the public project developer. In other cases, however, a private entity owns and operates the desalination plant and sells water directly to a public agency. Public-private partnerships provide a mechanism to access private capital and allocate risks among the project partners. They can, however, be highly contentious due to concerns about openness and transparency of data and financial information and the allocation of the risk among the project partners. As described above, demand risk is one of the key risks associated with desalination projects. The quantity of water that will be purchased is set forth in a long-term water purchase agreement – also referred to as an off-take agreement. This agreement is negotiated prior to the construction of the project and is often needed to secure financing. Among the most common form of off-take agreement is a "take- | 28 | Desalination & Water Reuse | February-March 2013 • (d) Costs have not been adjusted for inflation. Unless otherwise indicated, we assume that cost estimates are provided in the year in which the project was completed. • (e) The actual capacity of these projects may differ from what is stated here. The study these estimates were drawn from (Separation Processes, Inc. 2012) adjusted the plant capacities to make a more accurate comparison among projects in the region. • (f ) All costs are in 2012 US dollars except Camp Pendleton (2009). or-pay" contract. Under a take-or-pay contract, the buyer agrees to pay for a minimum amount of water from the seller on a certain date even if the buyer does not need the water. This type of contract provides guaranteed revenue for the seller but commits the buyer to a purchase even if actual demand drops. A minimum commitment to a large volume of water, however, provides a disincentive for water agencies to pursue more cost-effective water supply and water conservation and efficiency programs. Thus take-or-pay contracts, if structured poorly, can result in significant exposure to demand risk and higher costs for the buyer. referenceS • H Luckenbach 2012. Desalination Program Coordinator, City of Santa Cruz. Personal email communication, October 9, 2012. • San Diego County Water Authority (SDCWA). 2012. Carlsbad Seawater Desalination Project Workshop. Special Board of Directors' Meeting: June 14, 2012. Accessed on 28 August 2012. • Separation Processes, Inc. 2012. Evaluation of Seawater Desalination Projects. Prepared for the Monterey Peninsula Regional Water Authority. Carlsbad, CA. • Key Issues for Seawater Desalination in California: Cost and Financing by Heather Cooley and Newsha Ajami (November 2012) can be downloaded from the Pacific Institute website at www.pacinst.org.