Spatial costs of providing water and sewage services to 2050 for the Greater Melbourne region

Bottom up systems analysis of urban water resources and market mechanisms for pricing water and sewage services

Presentation Peter J Coombes, Michael Barry and Michael Smit at the HWRS 2018 conference in Melbourne at 11:00 am on Tuesday 4 December 2018.

Consumers in the Melbourne region pay uniform fixed and variable tariffs for utility water and sewage services. The authors previous research highlighted strong spatial variation in costs to provide utility services and that fixed tariffs were a disincentive for water efficient behaviours and economic efficiency. The fixed price regimes also creates disadvantage for low income and low water using households. 

This project combines additional spatial and temporal detail from utilities, government agencies and latest research in the Systems Framework to quantify utility water and sewage services, and associated impacts throughout Greater Melbourne. The Systems Framework for Greater Melbourne was enhanced by the addition of higher resolution spatial detail of demographic, socioeconomic, land use, local observations and economic information.

This investigation used bottom up systems analysis to estimate the spatial costs of water and sewage services ranged from $2/kL to $11/kL across Melbourne. The highest costs of water and sewage services are experienced at locations subject to higher urban growth, expansion and increasing density. These results reveal a high opportunity value of local water efficiency and water sources that are many times the assumed average cost of water services. For example, the economic multiplier of the value of water efficiency and local water sources in the Melbourne inner city and the western growth corridors is greater than ten. This value will be far greater as this study has only counted traditionally accepted market values. 

Timelines of observed total costs of water and sewage services, and predicted values to 2050 for BAU and no fixed tariffs

The economics and water resources impacts of implementing a full user pays tariff for utility services was also examined using the Systems Framework approach that commenced with a full usage tariff of $8/kL and tariffs were permitted to vary in response to annual changes in demands and costs. This investigation revealed that the current average long run marginal cost of water and sewage services for Melbourne is $7.20/kL. 

Substantial reductions in water demands and improvement in water security to 2050 was estimated at a net present value of $8.6 billion. A full usage tariff regime was seen to increase water efficient behaviours and uptake of water efficient appliances and rainwater harvesting. These preliminary results reveal improvements in household welfare. Ongoing research is refining the systems analysis to understand the full spectrum of impacts on households and utilities.