Assessing the feasibility of the NuWater project

The Issue

The concept of utilising the Western Corridor Recycled Water Scheme to supply recycled wastewater to agricultural producers in the Lockyer Valley and on the Darling Downs was developed as a solution to two problems:

• Alleviating the constraints on agricultural production in the region due to a shortfall in reliable irrigation water; and
• Reducing the quantities of harmful nutrients that are discharged into waterways and ultimately deposited in Moreton Bay.

QFF secured funding under the National Water Infrastructure Development Fund (NWIDF) to undertake a detailed feasibility study of the proposed project, which involves the construction of water pipeline infrastructure and associated facilities (i.e. pumping stations and water treatment infrastructure) to supply recycled wastewater to agricultural producers in the Lockyer Valley and on the Darling Downs. Synergies was engaged to conduct a water demand assessment, in addition to assessing the economic and financial and commercial feasibility of the project.

Assessing water demand

Identifying the strength of demand is a critical component of assessing the feasibility of new bulk water infrastructure solutions. Synergies’ approach to assessing demand for water projects is based on the following principles:

Consulting extensively with potential water users to identify the most likely applications of water to be supplied by the project;

• Understanding the requirements of potential water users and ensuring that these requirements are reflected in the technical solutions (e.g. reliability, quality, location); and
• Developing farm-level models that enable estimates to be generated for the on-farm return to be derived from each identified water use (on a per ML basis). The models are developed based on an extensive review of available data and information combined with financial information sourced from producers.

The assessment identified significant demand from producers on the Darling Downs for the production of cotton, maize, chickpeas and wheat. Demand was identified both for increasing yields on existing crops and also expanding the area of crop production. Demand was also identified for the expansion of vegetable production in the Lockyer Valley, however the uncertainty over the future management arrangements for water resources in the region meant that a large number of producers were unwilling to commit to taking material volumes from the project.

The outcomes from the demand assessment and the farm-level modelling of the on-farm return derived from irrigation water use were used to inform both the quantification of the economic benefits derived from increased agricultural production and also the financial and commercial analysis.

Quantifying the economic benefits of avoided nutrient loads in Moreton Bay

Reducing the nutrients discharged into waterways and ultimately Moreton Bay is a key driver of the NuWater project. Increases in the nitrogen and phosphorus loads are having a significant impact on water quality and hence the environmental value of Moreton Bay. Excessive nitrogen and phosphorus loads in Moreton Bay result in several adverse consequences, including the development of harmful algal blooms and increased turbidity, which reduce plant growth, trigger fish deaths and present a public health risk.

By diverting recycled wastewater effluent for beneficial reuse, the NuWater project will reduce the quantity of nutrients in Moreton Bay, hence avoiding the adverse water quality and environmental impacts associated with the build-up of nitrogen and phosphorus loads. 

Valuing the adverse impact of polluting activities can be challenging, as the impacts are non-monetary and marginal impacts can be difficult to identify. There are three options for identifying an appropriate estimate for the economic cost of nutrient discharges into Moreton Bay:

• Damage costs – the cost that nutrient discharge imposes on waterways and water bodies;
• Abatement costs – the marginal cost of activities aimed at reducing nutrient flows into waterways and water bodies; and
• Fees levied on entities responsible for releasing nutrients into waterways and water bodies.

Based on an assessment of the available data and information, the marginal abatement cost was considered the most appropriate approach to valuing the economic cost of nutrient discharges. A comprehensive review of available marginal abatement cost estimates was undertaken to establish average estimates of the marginal abatement cost per tonne of nitrogen and phosphorus. These estimates were then applied to quantify the economic benefit derived from the reduction in nutrient discharges in Moreton Bay under each project option.

Assessing the regional economic impacts

In addition to assessing the economic feasibility of the project, the regional economic impacts to be generated by the increased agricultural production were also assessed using a non-linear input-output model. This produced estimates of the additional regional output, Gross State Product, factor income and employment to be generated as a result of the NuWater project.

The Benefits

The economic analysis and financial and commercial analysis of the reference project options were conducted in a manner consistent with Building Queensland and Infrastructure Australia requirements. The regional economic impact assessment conducted by Synergies also provided QFF with valuable information to assist in the development of a community prospectus document for the project.