The Western Trade Coast (WTC) is a 3,900 hectare industrial region adjacent to Cockburn Sound, just south of Fremantle in Western Australia. Planning provisions have been made to accommodate the development of new heavy industry in the region. Over the next 10 years it is forecast that an additional 6.4 gigalitres of water will be required to support the growing needs of industry. This level of demand is expected to exhaust all remaining ‘in situ’ water available in the region, so new water sources will need to be found. This study, commissioned by the WA government, examined the economic and commercial viability of wastewater recycling and a Managed Aquifer Recycling (MAR) scheme for supplying future water needs.
At present, industries in the WTC use a combination of groundwater, potable scheme water, recycled wastewater from the Kwinana Water Recycling Plant (KWRP), and stormwater reuse.
At best, these existing sources can only supply an additional 6.4 GL of water, which is expected to be taken up by new and expanding industry within ten years.
Given the time it takes to bring on new supply, there is a relatively urgent need to evaluate alternative sources and put in place commercial arrangements that will ensure an efficient and cost effective supply of water to meet industry needs.
Synergies was engaged to evaluate the net economic benefit and financial viability of wastewater recycling options and provide advice on the commercial risks and issues associated with a MAR scheme.
Recycled wastewater is an attractive option for the WTC because there is a plentiful supply of wastewater (around 30 GL) in close proximity to the region. Two MAR options were considered by the study (Site 1 and Site 2). Each site is assumed to be each capable of supplying 3.55 GL per year once fully operational.
The sites differ with respect to the geographic areas capable of being supplied, their capital and operating costs, and sources of wastewater utilised.
Assessing costs and benefits
The development of a MAR scheme in the WTC would involve both costs and benefits. To be economically viable, the benefits of supplying recycled wastewater to industrial customers would need to outweigh the capital and operating cost of MAR, relative to the unit cost of a next best alternative supply source. The primary economic benefit of MAR is therefore the potential cost savings realised through substituting scheme water with a lower cost, recycled product.
There may be other, secondary benefits, including avoided wastewater treatment costs and environmental benefits.
Similarly, on the cost side, there could be some indirect costs that need considering, including the possible ‘opportunity cost’ of using wastewater as an input to MAR for industrial purposes, relative to using it instead for producing recycled water to supplement Perth’s future drinking water supply; and any additional operating costs incurred by the Water Corporation in facilitating a MAR scheme (for example, extra risk management measures that may be needed if the MAR plant was shut down for maintenance, resulting in a sudden spike in wastewater flows having to be treated and discharged).
Synergies took each of these matters into consideration as part of the study.
In evaluating the economic and financial viability of each site, we developed a series of demand and ‘supply shift’ scenarios. This was deemed necessary because of the considerable uncertainty around the industry growth rates in the region and whether alternative, competing water sources may become available (eg. inactive groundwater licence being traded into the market).
The demand and supply shifts were incorporated into the financial and economic analysis through a probabilistic model, whereby the incidence of an event is modelled as a random draw from the suite of possible events.
Instead of assuming a fixed commencement date for MAR, we examine the net financial returns (given by net present value at a 7% discount rate) from allowing the commencement date to vary according to demand and supply conditions in a given year. In this way, the model selects the start date that maximises financial net present value (NPV).
The study found that wastewater recycling is commercially feasible, provided that foundation customers can be sought to ‘de-risk’ the project. Synergies identified four potential customers who expressed an interest in substituting their current scheme water usage with an alternative source.
The optimal start date for commissioning a recycling plant was identified by modelling 1000 iterations, combining various combinations of demand and supply shift scenarios. We found that in most cases the model predicts an optimal start date somewhere between 2022 and 2023.
One of the MAR schemes was assessed as being clearly preferable over the other, on the basis of cost and capacity to service customers in a larger geographic zone.
The preferred site is also assessed as delivering a net economic benefit relative to using potable scheme water supplied by Water Corporation through the existing Integrated Water Supply Scheme (IWSS).
The study concluded that the economic and commercial fundamentals for wastewater recycling in WTC are sound. In practice, we expect that a recycling proponent would likely build its business case around identified tranches of demand for which it believed it could secure foundation contracts. The proponent may then build some supply capacity in addition to the level required to meet the foundation demand as a calculated risk that there will be reasonably strong underlying demand growth, from which the service provider could earn additional returns. Thus, the service is likely to build customers over time through negotiating individual supply contracts and prices.
What our client said
Thank you also for making this work stream enjoyable and easy for us to manage. The feedback from all stakeholders is that they’ve been very impressed by your advice and expertise as seen in meetings and the deliverables – a view we strongly share! Hopefully we will have the opportunity to work with you again in the near future