Economic and financial viability of wastewater recycling options for Perth’s north east corridor

The Issue

The north east corridor (NEC) of metropolitan Perth supports a diverse mix of agriculture, viticulture, tourism and residential development. The region includes the Swan Valley, a popular area for agrifood tourism and commercial grape production.

In recent years, groundwater levels in the area have been declining due to lower recharge, brought about by a drying climate. At the same time, the area is experiencing growing demands for water for irrigating public open space, as new residential areas are developed.

The WA government is considering reducing the volume of groundwater that can be  abstracted by agricultural users and limiting the volume that can be used for watering public open space. This has prompted investigations into alternative sources of non-potable water supply.

The policy question for government is whether these alternatives can supply water at an acceptable cost – that is, a cost that is within users’ willingness and capacity to pay. And if not, are there externality benefits that would justify a public subsidy?

A second consideration is whether the water supply alternative is commercially feasible. Economic viability does not automatically mean that a proposal is financially viable. The latter depends on whether a scheme’s owner can recover costs over time through charges to customers. This may not be practical or possible if some of the benefits are public goods, and/or in an environment of regulated water and wastewater prices.

The Solution

One option being explored is a local wastewater recycling scheme. Under this option, the growing volumes of wastewater generated by new residential developments would be recycled locally and stored in a Managed Aquifer Recharge (MAR), with licenses to the recycled water being issued to irrigators (ie. growers, developers and the local council). This option would replace the current practice of transporting wastewater to a treatment plant located around 20km from the region, and thus avoid some incremental costs of off-site treatment and upgrades to transport and treatment infrastructure.

In this project Synergies assessed the economics and financial viability of localised wastewater recycling at various scales, plus the option of recycling subsoil drainage water. In all, five options were examined. The options varied in terms of:

• the source of water for treatment;
• scale – i.e. the size of plant and volumes of recycled water produced (ranging from 2.4 to 4.3 GL per annum);
• the customers able to be served with recycled water – e.g. some options are better than others at meeting the supply shortfall for POS and agriculture;
• the level of decentralisation – e.g. one big sub-regional treatment plant as opposed to several smaller plants; and
• the unit cost of recycled water produced.

Each option was evaluated against a base case (status quo) option in which urban wastewater is transported off-site for treatment at a central facility owned and operated by Water Corporation.

Under base case, no new water is made available to agriculture and therefore growers would need to adapt to a lower water future, with consequent adjustment costs and potential off-farm costs (eg. in the form or less tourism in the Swan Valley due to reduced viticulture and a less attractive agri-food visitor experience). Water for irrigating public open space would continue to be available, but groundwater would be substituted with potable scheme water.

Marginal values for water in each type of use were obtained using a combination of primary and secondary research methods. Agricultural values (for wine grapes, tablegrapes, strawberries, and turf) were derived from gross margin budgets, in consultation with growers. Tourism values were obtained from visitor statistics and economic modelling prepared for the City of Swan. The value of water for green public open space was equated to the price of potable scheme water, which assumes that the community is willing to pay up to the price of scheme water to maintain parks in green condition over summer.

The Results

Economic viability

The cost benefit analysis found that under certain assumptions, localised wastewater recycling in the north east corridor, particularly the larger scale plants, can be economic (ie positive net present value), and a better outcome overall for the state than transporting wastewater some 20 km to an offsite treatment plant and foregoing the benefit of having a supply of recycled water for agriculture.

However, the result is sensitive to the assumed value of water for maintaining green public open space, agriculture, and (by extension) tourism in the Swan Valley.

Financial viability

Local wastewater recycling was assessed as being financially viable, particularly if scaled to just match wastewater treatment needs of customers in new residential estates (as opposed to taking wastewater from existing urban areas as a means of producing additional recycled water for irrigation). This is because most of the revenue is generated through wastewater treatment charges and developer charges. The additional revenue generated from upscaling a plant to produce non-potable water for agricultural needs is insufficient to cover the higher capital costs of a larger plant.

Consequently, it is unlikely that a local recycling scheme will be built by a private operator at sufficient scale to supply water for agricultural use, because the financial returns from sales of water to growers are too low to warrant building a large recycling plant. And a private operator would not be able to reap the benefits of avoided wastewater treatment costs (from an offsite solution) and maintenance of tourism. It is therefore expected that a public subsidy would be required to incentivise a large scale scheme.

Conclusion

The findings indicate that local wastewater recycling to supplement water supply for agriculture and green public open space is economic under standard input assumptions. But given the uncertainties around these assumptions, and the sensitivity of the economic case to different inputs, further investigation is warranted before committing public investment to subsidise a large-scale recycling scheme in the north east corridor.