Comparison of projected and recent actual cost of large desalination systems

Transcription

1 Comparison of projected and recent actual cost of large desalination systems Pinhas Glueckstern 1 and Debora Anahory 2 1 Mekorot Development & Enterprise, Tel Aviv, Israel 2 Veolia Water, Herzlia, Israel Abstract In the past, before large desalination plants were actually implemented (especially large SWRO plants), estimation of investment and total desalination cost was done using theoretical calculation based on a series of macro- economic assumptions and on technical design and specific site conditions. More recently, since the 1990's and especially in the last decade, actual total water costs have been reported for numerous seawater desalination systems delivered as BOT projects around the world. Average total water cost of more than 30 SWRO projects contracted between 2002 and 2011 amount to about 0.92 US$/m 3 with substantial variance within the cost range. Even when the same technology (SWRO) and similar plant capacities (300, ,000 m 3 /day) are being considered very large cost differences are encountered. Total water costs of large SWRO plants recently built in Israel range between 0.5 and 0.6 US$/m 3 while figures up to 5.2 US$/m 3 were reported in Australia and on the other hand a first-year tariff of 0.35 US$/m 3 has been reported for the last DBOO project in Singapore. These significant differences call for further examination and analysis. A variety of site conditions, macroeconomic parameters, product water quality requirements, environmental regulations, market penetration considerations as well as factors regarding cost allocation to electricity and water production in case of a project which includes a power station, might eventually explain the large differences in cost. The present paper will parametrically analyze the various techno- economic factors applied to cost estimates of SWRO systems and try to explain the variance of reported cost of BOT projects. 1. Introduction Desalination cost estimates started since the early 1950's when early desalination technologies were considered in order to supply water in locations lacking natural water sources. The only available technologies were based on thermal desalination mainly multistage flash evaporation (MSF) and low pressure multiple effect distillation (MED). These processes were considered for seawater desalination while electrodialysis (ED) and later reverse osmosis (RO) were considered for the desalination of brackish water. Since thermal processes were economically viable only in conjunction with power plants, cost estimation was very complex due to the problem of cost allocation to the two products: power and water. In the last twenty years seawater desalination has continuously shifted from thermal technologies to reverse osmosis. The present paper will analyze total unit water cost of large SWRO systems based both on rough and detailed cost estimation and on published bid results. 38

2 2. Cost estimation methods Numerous works have addressed desalination cost estimates over the past four decades. Major reports have been initiated and developed by governmental and international organizations, research institutes as well as global leading consulting, engineering, construction and operation firms. A partial list of such entities includes the U.S. Office of Saline Water (OSW) and its successor the U.S. Office of Water Research and Technology (OWRT), the U.S. Bureau of Reclamation, the Oak Ridge National Laboratory (ORNL), the International Atomic Energy Agency (IAEA), CH2M Hill, Black & Veatch and others. Critical reviews of cost estimates as well as the evolution of cost evaluation approaches are given in [1, 2, 3]. The two most considered methods are: 1. Normalized cost 2. Detailed cost estimation Normalized cost is used for rough initial cost estimation of investment cost and operational costs. It is well known that both investment and operating costs are highly site- and projectspecific pending on numerous physical, chemical, environmental, regulatory and macroeconomic parameters. Specific site conditions such as considered onshore and marine location, seawater analysis and temperature variation throughout the year have a strong effect on both Capex and Opex. The specific capital cost is dependent upon the investment cost and a capital return factor (CRF) which includes interest rates and depreciation. Cost factors applied on investment include design, procurement, project management, legal, interest during construction, supervision and contingency and are sometimes collectively termed indirect costs. The specific operational cost includes all fixed and variable operating costs. Fixed O&M costs are costs almost independent of production rate. These are labour cost, maintenance cost and to some degree also membrane replacement cost. Variable O&M costs are composed of energy and chemical costs obviously dependent on production rate. Specific energy cost is calculated by the specific energy consumption (kwh/m 3 ) multiplied by the prevailing energy price (US $/kwh). Specific chemical cost is calculated by the specific consumption (gr/ m 3 ) of all process required chemicals and their prevailing costs respectively. Operational overhead such as administration and other costs is another factor included in Opex. Two additional cost factors are insurance and taxes which are included either in Capex or in fixed O&M costs. Normalized cost has been mainly used for comparative cost analysis of alternative technologies [1, 3, 4] and/or for long term development programs of water supply. Costs are normalized based on a common set of ground assumptions including at least: Feed water analysis Product water quality requirements Plant capacity Plant availability also termed plant load factor Capital return factor or fixed charge rate used for Capex amortization, i.e. plant lifetime and interest rate 39

3 Indirect capital cost assumptions (contingency, construction period, interest during construction etc) Energy prices (electricity, fuel, steam) Chemical prices Energy consumption related assumptions (main pumps and energy recovery devices efficiencies) Membrane lifetime Annualized maintenance costs, usually expressed in percent of direct capital cost Labour costs An example of such cost estimation assessed 20 years ago for 20,000 as well as for 200,000 m 3 /day SWRO plant [5] is shown in Table 1. Main assumptions used were as follows: 40,000-42,000 ppm TDS seawater feed, 90% plant availability (330 days/yr), 25 years plant lifetime, 7.5% discount rate, 0.06 and 0.05 US$/kWh for supply at high and extra-high voltage respectively, 5-6 yrs membrane lifetime, maintenance costs evaluated as 2% of direct capital costs, 45,000 US$/man-year including overhead. Lower and upper unit water cost estimates for each case were obtained using optimistic and conservative assumptions respectively (e.g. regarding membrane technology, site development including seawater intake and indirect investment costs). It is not surprising that the indicative cost for large SWRO systems is quite similar to the current prevailing cost. This is most probably because inflation rate (about 70% in CPI) is counterbalanced by cost reduction mainly attributed to innovative developments in membrane technology and improved efficiencies of large high pressure pumps and energy recovery devices. The investment cost can be estimated on the basis of actual cost of medium-sized systems using economy of scale factors typically in the range of On the other hand operational costs are estimated in a more straight- forward way by applying membrane design software and assuming pumping efficiency, estimation of chemical consumption, membrane replacement costs and labour and maintenance costs. Detailed cost estimation of large desalination systems is based on thorough fine-tuned costing models which use various computerized cost projection tools. Model output might be either construction, O&M or lifecycle cost estimates. Naturally, cost models need to be constantly validated against actual bids, projects and ongoing operating plants data. The need for and the development of such cost models have been thoroughly discussed at the Middle East Desalination Research Center International Conference on Desalination Costing held in Cyprus on December The WTCost cost modeling software presented in this conference [6] and developed by the U.S. Bureau of Reclamation and its collaborators was also examined as a verification tool for the CH2M Hill's proprietary parametric cost estimating system (CPES) [7]. At the time it was presented, WTCost output have been reported to be within 10-20% of bids for plants in the range of MGD ( ,000 m 3 /day) capacity. Detailed cost estimation strategies are proprietary by nature and therefore few details are disclosed. 40

4 Table 1. Normalized unit water cost projection example [5]. Plant type SWRO Feed water source Surface water Plant capacity, m 3 /day 20, ,000 Feed salinity, ppm TDS 42,000 40,000 Feed temperature, o C Specific energy consumption, kwh/m Annual production, 10 3 m 3 /yr 6,600 66,000 Specific investments Desalting, US$/ (m 3 /day) 1,015-1, Feed supply, US$/ (m 3 /day) Total, US$/ (m 3 /day) 1,125-1, ,030 US$/ (m 3 /yr) Unit water cost, US$/ m 3 Fixed charges Energy Operation & Maintenance Feed chemicals Membrane replacement Total unit water cost Their outline would however generally include the following main methodological steps: Process optimization - Examples of key considerations at this step would be optimal selection of pretreatment, core desalination and post treatment schemes satisfying specified product water quality, consideration of hybrid desalination processes, availability and reliability considerations taken to satisfy fluctuating seasonal water demand, RO step configuration etc'. Configuration and sizing - Examples of key decisions taken at this step would be intelligent determination of design safety factors, RO train size, definitions of all operating points and best efficiency point of main process pumps etc'. Rigorous costing using validated cost models as well as actual cost quotations of membranes, chemicals, main process pumps, energy recovery devices, electrical and other major equipment to reflect up-to-date prices of materials and workmanship. A brief summary of a detailed cost estimate developed in collaboration between GE W&PT/ Zenon and Mekorot Water Co. [8] is shown in Tables 2 and 3. This cost estimate was established within the framework of a comparative assessment of seawater RO pretreatment technologies as part of a R&D project promoted by the Canada-Israel Industrial Research and Development Foundation (CIIRDF). Main assumptions used for the cost estimation model were: Nominal plant capacity: 170,000 m 3 /day. 100% plant availability (365 days/yr). UF recovery: 95%, first pass RO recovery: 50%, second pass RO recovery: 90%, boron selective ion exchange recovery: 98%. First pass RO average flux: 13.5 and 16 lmh for conventional and UF pretreatment respectively; second pass RO average flux: 25.5 lmh. Capital return factor of 7.8%, i.e. 6% interest rate over 25 years plant lifetime. 41

5 Indirect capital costs (design, procurement, project management, interest during construction, supervision, contingency): 40% of direct capital costs Insurance: 0.25% of direct capital cost per year 1 mile length intake and outfall pipelines Energy price: 0.07 US$/kWh 14 UF recovery cleans per year, 6 RO CIPs per year (both RO passes) Efficiencies: HP pump %; product delivery pump- 70%; other process pumps %; motors %, VFDs- 97%; energy recovery turbine- 90%. Replacement rates: media- 3% per year for both stages of conventional filtration; cartridges- 12 times per year; UF membranes- 12% per year; RO membranes- 20% and 14% per year for conventional and UF pretreatment respectively, both RO passes; boron selective resin lifetime- 10 years, resin attrition- 3% per year. Annualized cost of spare parts and materials (excluding membranes): 1.5% of direct capital cost per year Overhead 6%. 3. Financial and other factors affecting bid prices While cost estimates discussed so far basically refer to self-cost, some more factors need to be taken into account to properly analyze bid water prices. These factors might suggest some explanation of the wide cost range encountered in recently published bid results demonstrated in the next part of this paper. Economic and financial conditions including banking conditions, equity percent, tax and tax exemption policies as well as a specified internal rate of return (IRR) can substantially affect bid prices. A comparative cash flow analysis of a 150,000 m 3 /day SWRO plant for two sets of parameters is shown in Figure 1. For any given set of parameters, a pre-defined required IRR range would determine the desalted water selling price range accordingly. Given 15 years depreciation with 7% interest rate and a prevailing energy price of 9 UScent/kWh, a desalted water selling price of 90 UScent/m 3 would yield an IRR of about 15% on an equity of 30%. However, for a more favourable parameter set (25 years depreciation, 5% interest rate and 7 US cent/kwh) a significantly lower desalted water selling price of about 76 UScent/m 3 would yield the same IRR. Attention shall also be drawn to cost basis when comparing unit water cost of different projects. First- year cost would exclude maintenance and membrane replacement costs and would also reflect lower energy cost due to inherent time- dependant permeability and rejection characteristics of membranes and therefore would essentially be lower than life cycle cost. Special care needs to be taken when looking into integrated water and power projects. A thorough understanding of the method applied for cost allocation to water and power production must be acquired prior to establishing a meaningful comparison with water cost in other desalination projects. Finally, market penetration considerations also affect bid prices especially where aggressively low cost figures are reported. 42

6 Table 2. Detailed cost estimate example- investment breakdown [8]. Cost component, Million US$ (1) UF pretreatment Sand filtration pretreatment 1. Infrastructure 1.1. Power connection cost Building and surface alignments Land Intake station Intake and outfall pipes Prescreens Feed tank Permeate tank SWRO reject tank Product transfer station Controls Subtotal infrastructure, Million US$ Pretreatment station 2.1. UF system ex. membranes Sand filters ex. media Media Filtrate tank Cartridge filters ex. cartridges Contingency Subtotal pretreatment station, Million US$ Desalination station 3.1. SWRO PWRO Ion exchange system Post treatment Contingency Subtotal desalination station, Million US$ Membranes 4.1. SWRO membranes PWRO membranes UF membranes IX resin Cartridges Subtotal membranes, Million US$ Direct investment, Million US$ Indirect costs, Million US$ Total investment, Million US$ Specific investment, US$/ (m 3 /day) (1) 2006 dollars. Note: Second pass RO and boron selective resin ion exchange are optional in the developed model and are to be included only when necessary according to product quality requirements. In the specific case study presented in above table neither was implemented. 43

7 Table 3. Detailed cost estimate example- unit water cost breakdown [8]. Cost component, UScent/m 3 (1) UF pretreatment Sand filtration pretreatment 1. Amortization Fixed O&M costs 2.1. Labour RO membrane replacement UF membrane replacement IX resin replacement CF replacement Media replacement Spare parts and materials Overhead Subtotal fixed O&M costs Variable O&M costs 3.1. Energy Chemicals Overhead Subtotal variable O&M costs Total water cost (1) 2006 dollars. Note: Second pass RO and boron selective resin ion exchange are optional in the developed model and are to be included only when necessary according to product quality requirements. In the specific case study presented in above table neither was implemented. The most recently developed detailed cost estimate is to be presented in parallel to the present paper at the same conference [9]. Fig. 1. IRR vs. desalted water selling price for 150,000 m 3 /day SWRO plant, 30% equity. (Case 1: 25 years depreciation, 5% interest rate, 7 UScent/kWh; Case 2: 15 years depreciation, 7% interest rate, 9 UScent/kWh). 4. Recently published bid results Results of bids are obviously not entirely disclosed and in most cases only few details are publically available. Nevertheless a rather extensive list of total water costs reported for seawater desalination systems around the world was recently published by IDA [10]. It refers to new, retrofitted and expanded plants mostly in the last decade. It is stated that some costs 44

8 are estimated or unofficially reported however the authors believe that this summary credibly reflects recent trends. A brief extract of this list limited to RO technology plants is shown in Table 4, full data summary is given in Appendix A. Global Water Intelligence has recently reported an average estimated water cost of 0.92 US$/m 3 for more than 30 SWRO projects contracted between 2002 and 2011 with a peak cost of 5.2 US$/m 3 negotiated for Victoria's 411,000 m 3 /day seawater desalination project [11]. As can be seen in Table 5, significantly lower average desalinated water cost is reflected in the bid results of recent Israeli large BOT projects [12]. Projects listed in this table have regulated annual production quantities in the range of million m 3 per year with peak daily plant capacities in the range of 320, ,000 m 3 /day. The lowest cost yet reported is for the 320,000 m 3 /day Tuas II SWRO desalination DBOO project in Singapore whose bid results published a year ago are presented in Table 6 [13]. It should be noted though that in this case first- year water tariff rather than life cycle cost was quoted as per tender requirements. For comparison, the first year tariff reported for the project's first stage having a capacity of 136,360 m 3 /day and commissioned in 2005 was 0.47 US$/m 3 [14]. Bid wide variance is evident. More interesting, Hyflux's lowest bid figure is difficult to understand in view of the prevailing electricity price of 0.14 US$/kWh. Since Hyflux's intention is to build a co-located 410 MW private power plant, part of the answer probably lies in its cost allocation model. Table 4. Extract of selected total water costs reported worldwide in the last decade [10]. Plant capacity range, m 3 /day Total water cost range, US$/m 3 10,000-40, , , , , , , Table 5. Recent desalinated water costs in Israel [12]. Plant Commissioning date Desalinated water cost, US$/m 3 Ashkelon (1) Hadera (1) Ashdod Under construction 0.60 (2) Soreq Under construction 0.51 (2) (1) On BOT agreement signing date. (2) Assuming 4.00 NIS/$ exchange rate. Table 6. First- year water cost bid results for the 320,000 m 3 /day Tuas II SWRO project [13]. Bidder First- year tariff, US$/m 3 Hyflux 0.35 Keppel Seghers/ Beijing Enterprises Water Group 0.52 United Engineers NeWater/ IDE Technologies 0.72 Leighton Engineering & Construction / Tadagua 1.04 Undisclosed bidder 0.48 Sembcorp Utilities 1.09 Undisclosed bidder 1.08 Sembawang Equity Capital 1.22 YTL Power International Berhad

9 5. Summary and Conclusions Substantial apparent cost variability definitely calls for close examination and analysis. When trying to explain recently reported bid results as well as their wide variance, the large amount of techno-economic factors involved can be categorized as follows: Desalination technology- this has not been covered in the present paper which focuses on RO. Plant capacity- economy of scale factor naturally plays a key role in determining the unit water cost. Project scope definition- certain desalination projects might for example include a major water conveyance and/or distribution system. Cost basis, i.e. first- year cost versus life cycle cost. Site conditions with respect to physical and chemical feedwater conditions (e.g. prevailing seawater salinity in different locations worldwide within a wide range of 20,000-46,000 ppm TDS; site feed temperature variation throughout the year; difficult to treat open intake seawater imposing expensive pretreatment schemes versus more readily pretreated feed). Other site specific conditions might be the degree of site development and available infrastructures. Product water quality regulation- up to 18% difference in unit water cost was recently demonstrated for different desalinated water specifications [15]. Environmental regulation (e.g. mandatory use of renewable energy sources to some extent, intake and outfall tunneling requirements, brine disposal quality limitations). Australia being an example of strict environmental regulations imposed on water market and reflected in high reported water costs. Prevailing macro-economic conditions (interest rate, energy price, energy time-of-use pricing system when applicable). Prevailing financial conditions (e.g. equity percent, tax and tax exemption policies, internal rate of return required by stakeholders). Cost allocation method applied when an integrated water and power project is considered. Projected technological advancement (e.g. future developments in membrane technology) needs to be carefully assessed and incorporated in cost estimates especially when long term BOT projects are being considered. An assessment of potential cost reduction is to be presented in parallel to the present paper at the same conference [16]. In view of the amount of factors involved and their complex interrelation, it seems inevitable to conclude that a systematic and generally accepted standard methodology for determining desalinated water cost is not available, as has been already noted a few years ago [17], and may even look unachievable. Evidently an inherent risk lies in comparing water costs of any two arbitrarily selected desalination projects. Nevertheless given specific site conditions, 46

10 macro-economic and financial conditions and a definition of all applicable regulatory policies, reasonable desalinated water cost figures within a fairly narrow range can be readily obtained. References 1. G.F. Leitner, Costs of seawater desalination in real terms, 1979 through 1989, and projections for 1999, Desalination, 76 (1989) G.F. Leitner, Desalination cost models, the need and the development, Middle East Desalination Research Center International Conference on Desalination Costing, Limassol, Cyprus, December 6-8, P. Glueckstern, History of desalination cost estimates, Middle East Desalination Research Center International Conference on Desalination Costing, Limassol, Cyprus, December 6-8, B.M. Misra, IAEA's desalination economic evaluation programme (DEEP), Middle East Desalination Research Center International Conference on Desalination Costing, Limassol, Cyprus, December 6-8, P. Glueckstern, Costs estimates of large RO systems, Desalination, 81 (1991) I. Moch, Jr. and M. Chapman, WTCost - a computerized water treatment cost estimating program, Middle East Desalination Research Center International Conference on Desalination Costing, Limassol, Cyprus, December 6-8, M. Peery, M. Hallan, C. Bartels, I. Shelby, P. Metcalfe and P. Knappe, Industry consortium analysis of large reverse osmosis/ nanofiltration element diameters, Desalination and water purification research and development report no. 114, U.S. Department of Interior, Bureau of Reclamation (2004). 8. S. Siverns and P. Glueckstern, unpublished internal cost estimate developed within the framework of a UF assessment R&D project carried out in collaboration between GE Water & Process Technologies- Zenon Membrane Solutions and Mekorot Water Co., R. P. Huehmer, Detailed estimation of desalination system cost using computerized cost projection tools, to be presented at the 12 th IDS Annual Conference, Haifa, Israel, December 14-15, Benchmarking SWRO water costs, IDA Desalination Yearbook , Water Desalination Report, 47(9) (2011). 12. Israeli Governmental Authority for Water and Sewage- website and publications. 13. Eight bidders for Singapore's second desalination plant, Desalination & Water Reuse (2010), also posted at on October 26, Featured plants: Tuas (SingSpring) SWRO Project- Singapore, IDA Desalination Yearbook , P. Glueckstern and M. Priel, Design optimization of large SWRO plants to comply with high quality product requirements, EuroMed 2010 Desalination for Clean Water and Energy- Cooperation among Mediterranean Countries, Tel Aviv, Israel, October 3-7, M. Wilf, Potential for improvement of reliability and economics of desalination projects, to be presented at the 1 2th IDS Annual Conference, Haifa, Israel, December 14-15, K. Quteishat, Introductory keynote, Middle East Desalination Research Center International Conference on Desalination Costing, Limassol, Cyprus, December 6-8,

11 Appendix A- Selected total water costs reported in the last decade [10]. plant date of estimate plant capacity m 3 /day water cost US $/m 3 Santa Barbara, California , Bahamas , Dhekelia, Cyprus , Larnaca, Cyprus , Taweelah C, UAE (est.) , Ashkelon, Israel , Carboneras, Spain , Point Lisas, Trinidad , Tuas,Singapore , Tampa Bay, Florida , Arzew, Algeria , Beni saf, Algeria , Cap Djinet, Algeria , Douaouda, Algeria , Fukuoka, Japan , Hamma, Algeria , Los Angeles, California (est.) , Palmachim, Israel , Skikda, Algeria , West Basin, California (est.) , Blue Hills, Bahamas , Perth, Australia , Shuqaiq, Saudi Arabia , Tampa Bay, Florida (rehab) , Carlsbad, California (est.) , Chennai, India , Dhekelia, Cyprus (rehab) , Gold Coast, Australia , Hadera, Israel , Malta (various, avg) , Sur, Oman , Tianjin, China , Ad Dur, Bahrain , Ashkelon, Israel (update) , El Tarf, Algeria (bid) , Mactaa, Algeria (bid) , Oued Sebt, Algeria , Palmachim, Israel (update) , Taunton, Massachusetts , Tenes, Algeria , Tuas,Singapore (update) ,