Desalination plant operating regime September 2010 Sydney s desalination plant will operate at full production capacity when the total dam storage level is below 70%, and will continue until the level returns to 80%. Summary Most desalination plants in the world operate at full capacity all the time. Sydney s desalination plant has the flexibility to operate at different levels and to shut down. This allows the desalination plant to be switched off when dams are likely to spill. This is a required condition for the Sydney plant because of the highly variable rainfall over the main Warragamba Dam catchment. Operating rules for the plant set out how it should operate to maximise the benefits of its water to the community and for the environment. The desalination plant can produce up to 15% of greater Sydney s current drinking water needs. While the plant is one of the largest in the world, it is not large enough to operate effectively only as an emergency drought measure. For instance if it produced water only when dams levels fell to 30% in a deep drought, it would not produce enough water to stop dam levels falling further and avoid the need to introduce severe water restrictions or other extreme drought measures. Rather, the plant can be very effective if it produces water when dam storages are still relatively high. This allows the plant to generate a buffer of water in the dams that can be used for people and the environment during dry periods. The time in severe water restrictions can be significantly reduced, more water is available to maintain the health of the Hawkesbury-Nepean river, and the likelihood of costs to further augment the water supply are reduced. Operating the plant at full capacity in line with the 70/80% rule outlined above strikes the right balance between the cost of operating the plant, the benefits of producing the maximum amount of water for the community and environment, and minimising spills from Warragamba. Background Historically, greater Sydney s raw water supply was largely reliant on its 11 major dams, supplemented by significant water recycling and efficiency programs. In January 2010, the existing supply system was boosted and diversified when Sydney s desalination plant began operating. The plant can supply 250 megalitres (million litres) of water a day or up to 15% of greater Sydney s current water needs. The inlet, outlet and distribution infrastructure has been constructed to allow the capacity of the plant to be doubled to 500 megalitres a day if necessary, in the unlikely event that Sydney experiences a rare and extreme drought in future. Over the longer term, this option could be used to bolster supply in response to increasing demand from a growing population, but this would be evaluated along with the range of options available at the time.
As part of the plant commissioning process it will operate continuously for two years, until mid 2012. This proving period is needed to ensure the performance and reliability of the plant. After this, the plant is to be operated in order to maximise the benefits of its water to the community and the environment. As an input to developing the Metropolitan Water Plan, Sydney Water commissioned the Centre for International Economics (CIE) to assess the costs and benefits of different operating regimes for the desalination plant. The report does not attempt to place a value on the plant s contribution to water security and ensuring Sydney does not run out of water. Rainfall and inflows Sydney s catchments have some of the most variable inflows in the world. Sydney and the catchments are subject to infrequent but severe droughts. Over the last 120 years, the greater Sydney region has had three very severe droughts: in the 1890s, the 1930-40s, and the recent drought. It has also experienced a range of smaller but significant droughts. Because of this variability, Sydney has one of the largest water storages (in per capita terms) in the world. Figure 1: Inflows to Sydney s dams The red line shows the 7-year moving average. Source: Sydney Catchment Authority. Since the 1950s there has been an observed decreasing trend in Sydney s annual rainfall. This trend is mostly the result of reduced winter rainfall in recent years relative to the very wet years of the early 1950s. A relatively smaller contribution to the annual rainfall reduction comes from the declining trend in summer rainfall. Climate change could also affect future inflows and exacerbate current trends. Draft findings from the Sydney Water Balance Project also indicate that climate change: may result in decreases in annual rainfall and runoff in inland catchments, and minor increases in coastal catchments by 2030 will likely result in an increase in temperature by 2030 may result in an increase in evaporation throughout the catchments, with the most significant increase being recorded in the Goulburn area may result in a very minor increase in water demand in greater Sydney by 2030. Page 2 of 7
The plant s contribution during drought The desalination plant will make a major contribution during drought. For example, Figure 2 shows dam levels during the last drought if the plant had operated at full capacity when dam levels fell below 70%. Instead of storages falling to 34%, they would have remained above 50%. Figure 2: Storage levels if the desalination plant had operated over the last drought 100% 90% L1 1 L2 L3 80% Total storage available 70% 60% 50% 40% 30% 20% Actual level 10% 0% Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 With Desal Operating the plant can also play a major role in supporting releases of water to maintain river health. When dam storages reached 40% during the recent drought, only 50% of the specified volume of environmental flow was released into the Hawkesbury-Nepean. By 2014-15 the NSW Government will set a new flow regime for the Hawkesbury Nepean. It is expected that the regime will specify a greater quantity of water to be released to protect the health of the river. Figure 3 shows what would have happened during the last drought if there had been a hypothetical enhanced flow regime for Warragamba dam. Without the desalination plant, and with an enhanced flow regime, storages could have fallen to below 30%. An improved environmental flow regime would not have been possible. However with the plant operating below 70%, dam levels would have fallen to a more manageable level of around 43%. Page 3 of 7
Figure 3: Hypothetical storage levels in total system, with modified environmental flows regime for Warragamba Dam 100% 90% 80% Without desalination plant With desal plant % of total storage available 70% 60% 50% 40% 30% 20% 10% 0% May-02 Aug-02 Nov-02 Feb-03 May-03 Aug-03 Nov-03 Feb-04 May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 How the plant should be operated The desalination plant will be operated in accordance with its operating regime. This regime specifies at what trigger point expressed as the total dam storage level the plant will begin producing water for greater Sydney, and at what point water is no longer required. The desalination plant will run continuously for two years as part of the commissioning to ensure its performance and reliability. Most desalination plants are run all the time like a base-load power station. Sydney Water s plant is unique in that after the 2-year commissioning period it has the operational and contractual flexibility to be turned on and off. Of course, these processes are not instantaneous and can take a number of months. Nevertheless, it allows the plant to be shut down when the dams are near full or likely to spill. The purpose of the CIE study was to assess the benefits and costs of operating the plant at different storage levels. The report analysed three different operating regimes, namely: A drought emergency regime whereby the plant is switched on as dam levels approach 30% in a severe drought and runs until they increase to 40%; a 70/80 regime; and an 80/90 regime. The buffer between the point the plant commences operating and when it ceases recognises that start-ups and shutdowns are not instantaneous or costless. It would not be efficient if small variations in dam levels for example dam levels fluctuating around 70% for a period of months triggered constant stops and starts. The study used the WATHNET hydrological model to examine the impact on dam storages of each of the operating regimes listed above. It examined the costs and benefits of each regime. For example, operating the plant at higher dam levels requires more renewable energy but reduces the chance of needing to build further costly infrastructure. Page 4 of 7
Box 1 The WATHNET model The WATHNET model is a hydrology model. The model allows historical dam inflow data to be replicated by stochastic modelling to provide simulated inflow sequences (known as Replicates). By using thousands of possible inflow sequences it is possible to derive both absolute outcomes (ie the time drought restrictions are imposed and minimum storage levels) and the probability of defined outcomes occurring (ie storage levels falling below 10%). For this project WATHNET produced a range of outputs including: the amount of time in restrictions; storage levels over time and storage behaviour the volume of water pumped from the Shoalhaven scheme in each month the volume of water produced by the desalination plant in each month; the volume of water released from dams into downstream rivers. Source: The CIE The costs of operating the plant The total cost of constructing the desalination plant and pipeline is around $1.8 billion. This translates to ongoing capital costs, mainly to service the debt on the plant, of around $185 million per year. These costs represent the cost of water security and are incurred whether or not the plant operates. Operating costs are around $73 million a year in the first year of full operation. This equates to around $35 dollars on a typical yearly residential water and wastewater bill. Some operating costs are also incurred whether on not the plant produces water. Overall, variable operating costs are around $0.60 per thousand litres of water produced. Most of this cost is the cost of renewable energy for the plant. The CIE study also took into account the costs of shutting the plant down and starting it up again. The CIE study highlights that the variable costs of the plant are not the major component of total costs. Nevertheless, it is still worthwhile maximising the returns to the community from operating the plant. Benefits of operating the plant As set out in Section 1, operating the plant in line with the 70/80 rule produces more water for people and for the environment. Operating the plant: reduces the time the community spends in drought restrictions reduces the likelihood that there will need to be further investment to augment supply supports environmental flow regimes. Page 5 of 7
Drought restrictions were in force from 2003 until 2009. During this time the community made a significant contribution to ensuring the water supply. However, restrictions impose costs on the community. They limit how and when people can use water. These costs include: time and inconvenience costs for example, hand watering of gardens at specific times investment in high cost water sources for example, some consumers may invest in rainwater tanks solely to avoid the impact of restrictions flow on effects to businesses as a result of reduced demand for services for example, garden centres costs of administering water restrictions for example, advertising and compliance costs, and restrictions on community facilities such as sporting fields and loss of visual amenity. The CIE study found that a year in level 3 restrictions cost a residential household in Sydney around $200 (Box 3). This is consistent with other studies of the cost of restrictions. The study found that operating the plant reduces the time in water restrictions by half. Box 2 The cost of water restrictions Grafton and Ward (2008), using a different method to the CIE, estimate the cost of restrictions at $209 per household (adjusted to 2011-12 prices). This is not specific to a particular level of restrictions and applies to total costs to households, rather than just costs of restrictions on residential water use it incorporates costs to businesses passed on to consumers and costs on recreational activities. The estimates used in this report are broadly in line with theirs. The CIE report compared its estimates for Sydney to estimates of restrictions in Canberra. Hensher, Shore and Train (2006) estimate per household costs of Level 3 restrictions at $309 in the ACT (adjusted to 2011-12 prices). The estimates align reasonably well with those for Sydney. It would be expected that the cost of restrictions in Sydney would be lower than in Canberra, as Sydney gardens and lawns get more rainfall even in drought. The ACT study finds no cost to lower levels of restrictions. In addition, these results are much lower than the costs for Perth where sprinkler bans were valued at between $380 and $870 a household. Source: The CIE Operating the plant reduces the rate at which storage levels fall during a drought. This means that storages are less likely to reach critical levels where further augmentation of the water supply is necessary. Efficiently using the plant along with recycled water infrastructure and water efficiency programs can lead to future savings in water infrastructure. In particular, operating the plant in line with the 70/80 rule reduces the likelihood that the second stage of the plant (which would double its capacity) will be necessary in the short to medium term. Figure 2 illustrated the contribution the plant can make to supporting environmental flow regimes. However, because a new flows regime will not be announced until 2014-15, and owing to the difficulty in quantifying the benefits of increased flows, the CIE did not formally include this benefit in the results. It noted, however, that these benefits are likely to be significant. The net benefits of the operating rules are, therefore, a lower bound estimate and likely to understate the true net benefit. Page 6 of 7
The operating rule Taking the benefits and costs of operating the plant into account, operating the plant in line with the 70/80 rule produced the highest net benefits. The benefits and costs over 25 years are summarised in Figure 4. Figure 4 Costs and benefits of operating the plant over 25 years 500 450 400 Net benefit $127m 350 $ millions 300 250 200 150 100 50-30/40 rule 70/80 rule 80/90 rule Costs Benefits Source: The CIE The desalination plant can produce up to 15% of Sydney s current drinking water needs. While the plant is one of the largest in the world, it is not large enough to operate effectively only as an emergency drought measure. The 30/40 rule resulted in few costs, because the plant rarely produces water. But the rule produced few benefits. Waiting until dam storages were at 30% to operate the plant would not reduce the time the community faced water restrictions, would be too late to defer further infrastructure augmentations if drought continued and would not provide water to support environmental flows. Rather, the best way to operate a plant that supplies 15% of greater Sydney s water needs is to produce water early to create a buffer of water in the dams. This can then be drawn on during dry periods. However, it appears there are few additional benefits in beginning to run the plant at 80% compared to 70% given the additional operating costs involved. The study found that there were small net costs under an 80/90 rule based on past inflow data. However, the study noted the uncertainty surrounding future inflows. It examined a range of scenarios where there was more variability in inflows. Under these scenarios the benefits increased relative to the costs for both the 70/80 rule and the 80/90 rule (but not the 30/40 rule). These conclusions are particularly important in light of the apparent reduction in inflows over the past 15 years and the potential impact of climate change. The CIE concluded that the 70/80 rule was the optimal rule of those tested. Page 7 of 7