Summary of Technical Analysis. 2016/17 Desalinated Water Order Advice

Transcription

1 Summary of Technical Analysis 2016/17 Desalinated Water Order Advice March 2016

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3 Table of contents Purpose 1 Background 1 Principles 2 Technical Analysis Background 4 Technical Analysis Results Summary 6 Conclusion 13 Summary of Technical Analysis Melbourne Water i

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5 Summary of Technical Analysis PURPOSE 1. This report summarises the technical analysis supporting the 2016/17 desalinated water order advice provided by Melbourne Water to the Department of Environment, Land, Water and Planning. The intent is to provide a summary of the key aspects of the context, process and findings of the technical analysis undertaken to support the 2016 desalinated water order advice. BACKGROUND 2. Under the Water Interface Agreement between the Minister for Water, Melbourne Water and the Secretary of the Department of Environment, Land, Water and Planning (DELWP), Melbourne Water is required to provide to the State by 1 March each year: a) Its opinion of the volume of desalinated water required for the next financial year (i.e. 2016/17) b) Its opinion of the constrained months (if any) 1 that it considers should be subject to a constrained month cap and the proposed volume of such caps c) A non-binding forecast of the quantity of desalinated water required for the subsequent two financial years (i.e. 2017/18 and 2018/19). 3. Following the publication of the Water Outlook for Melbourne on 1 December 2015, Melbourne Water has worked with the Melbourne Retail Water Businesses (City West Water, South East Water, Yarra Valley Water) and DELWP to coordinate the process of consultation and technical analysis required to support the development of the 2016/17 desalinated water order advice. 4. The Retail Water Businesses Drought Response Plans incorporate a three zone adaptive framework based on the volume of water in Melbourne s storages, as shown in Figure 1 below. Notable features of the framework are: Proactive management when storage levels are in the high zone including ensuring water is used efficiently and drought response measures are identified. When storages are in the medium zone actions are taken to ensure at least 5 years of supply is available even under severe drought conditions. Stages 1 and 2 of the Retailers water restrictions by-laws may also be used in this zone. 1 Subject to conditions specified in the Project Deed, the State may specify the maximum total volume of desalinated water which can be delivered (i.e. a constrained month cap) during the months of August, September, October and November Summary of Technical Analysis Melbourne Water 1

6 Ensuring water storages do not enter the Low Zone except in extreme circumstances. Stages 3 and 4 of the Retailers water restriction by-laws are available to be used in such a severe event. Ordering water from the Victorian Desalination Plant (VDP) is an option in all three zones however the amount taken is determined through detailed analysis balancing 5 principles (discussed below). Figure 1: Melbourne s adaptive water security framework PRINCIPLES 5. Consistent with the approach established by the water companies and used to prepare the desalinated water order advice in previous years, the 2016/17 desalinated water order advice is based on five principles. These are designed to balance the benefits of using the VDP in maintaining the security of supply to customers against the costs of placing an order and the potential for spill/foregone water harvest from the system. The advice is based on a balance across these principles as it is not possible to completely satisfy all of them simultaneously throughout the three year advice period. Principles 1, 2 and 3 can be considered to be security principles to be maximised, while principles 4 and 5 are costs to be minimised. 2 Melbourne Water Summary of Technical Analysis

7 Principle 1: Risk of storage volume falling below the Low Zone Action Point - Storages should remain above the Low Zone described in the Retailers Drought Response Plans on 30 November 2016, 30 November 2017 and 30 November 2018 under a severe drought sequence. Principle 2: Risk of storage volume falling below the Medium Zone Action Point - Storages should remain above the Medium Zone described in the Retailers Drought Response Plan on 30 November 2016, 30 November 2017 and 30 November 2018 under 90 per cent of modelled streamflow sequences from the Return to Dry Conditions streamflow scenario (based on the 1997 to 2009 period as described below in the Technical Analysis Background section). Principle 3: Storage Recovery - Storages should display a recovery trend such that total system storage volumes are increasing for the median (50 percentile) of the possible streamflow sequences tested. Principle 4: Risk of desalinated water causing avoidable foregone harvest (Some of Melbourne s smaller storages spill harvested water under normal climate conditions.) The Desalinated Water Order Advice should not induce an unacceptable risk of significant additional foregone harvest. Foregone harvest is the modelled additional spills from the Melbourne water supply system and/or reduced harvest into Sugarloaf Reservoir for each scenario due to the desalinated water order volumes supplied. The following benchmarks are used in applying this principle. There should be a less than 50% chance of foregoing an additional 12.5 GL/year and a less than 10% chance of foregoing 25 GL/year. Principle 5: Customer impacts - The impacts on the Retailers customers bills should be minimised while providing an acceptable security of supply. 6. The technical analysis used to apply the 5 principles made use of detailed water supply system modelling, and considered factors including: Current and possible future system storage levels under a range of streamflow scenarios including drought and high streamflow periods. Forecast demand provided by the retail water businesses Bureau of Meteorology (BoM) outlooks Water supply system operational considerations The ability to annually review desalinated water orders to manage inherent uncertainty in longer term forecasts Application of the five principles in light of the current water storage levels Potential extreme events, and other relevant information. Summary of Technical Analysis Melbourne Water 3

8 TECHNICAL ANALYSIS BACKGROUND 7. The technical analysis was supported by models and data that have been independently reviewed, and used storage inflows based on the Return to Dry Conditions scenario described in the Guidelines for the Development of a Water Supply Demand Strategy prepared by the former Department of Sustainability and Environment. The use of the Return to Dry streamflow is conservative compared to the full historical record but more representative of streamflows observed in the past 20 years. 8. The Return to Dry Conditions streamflow scenario uses the observed streamflows for the 1997 to 2009 period with the observed streamflows from 1913 to 1996 and 2010 to 2015 adjusted to the average of 1997 to 2009 period (as specified by the Department s Guidelines for the Development of a Water Supply Demand Strategy). The difference between the observed streamflow (grey bars) and the Return to Dry (orange bars) is illustrated in Figure 2 below. Figure 2: Return to Dry Conditions streamflows 9. The technical analysis supporting the 2016/17 desalinated water order advice also took account of a number of key factors including water demand, climatic conditions, and the current 2016 water resources context. These included: Total system storage on 1 January 2016 was 1,245 GL (68.7%), compared to 1,396 GL (77.1%) at the same time last year a reduction of 152 GL. This followed a decline of 64 GL (3.5%) in As of 17 February 2016 total system storage was 1,184 GL (65.3%), with details of each storage in Table 1. 4 Melbourne Water Summary of Technical Analysis

9 Table 1: Water supply storages as at 17 February 2016 Reservoir Capacity at Full Volume (ML) % Full Supply (ML) Thomson 1,068, , % Upper Yarra 200, , % O Shannassy 3,123 2, % Maroondah 22,179 12, % Sugarloaf 96,253 72, % Yan Yean 30,266 24, % Greenvale 26,839 23, % Silvan 40,445 34, % Cardinia 286, , % Tarago 37,580 34, % Total 1,812,175 1,184, % On 1 January 2016 Thomson Reservoir, the largest storage in the Melbourne system and the main drought reserve for Melbourne and surrounding areas was 729 GL (68.3%), compared to 833 GL (78.1%) at the same time last year. As of 17 February 2016 Thomson had fallen further to 64.6%. The last time Thomson reservoir was near capacity was on 10 November The model was updated to include 2015 streamflows amounting to 306 GL. This year was below the Millennium Drought average inflow of 376 GL per annum and the lowest inflow since 2008 (287 GL during the Millennium Drought). Demands provided by the Retailers and Regional Urban Water Corporations connected to the Melbourne water supply system and amounting to: 2016: 403 GL 2017: 412 GL 2018: 413 GL Permanent water use rules are in place. The Thomson environmental entitlement of 18 GL from July 2016 is included in the modelling. Summary of Technical Analysis Melbourne Water 5

10 10. The analysis took into account operational factors when determining the appropriate volume of desalinated water. The main factors were: Cardinia dam management guidelines: Maximum limits are in place at Cardinia (287 GL theoretical maximum capacity) consistent with dam management guidelines until embankment enhancement works are carried out in 2021/22. The technical analysis took into account a 2.0m maximum height restriction (263 GL effective capacity). Given the current storage level at Cardinia is well below this, it does not influence the 2016 Water Order Advice. Cardinia transfer operations: Cardinia Reservoir currently supplies an annual demand of approximately 100 GL. This water is currently sourced from the Thomson and Upper Yarra systems via Silvan reservoir. Cardinia currently holds approximately 170 GL. Hence a 2016/17 desalinated water order of 50 GL would not be expected to require the application of constrained monthly caps. Upper Yarra dam management: Upper Yarra Reservoir is currently operating without restriction, however embankment improvement works are scheduled to take place in 2018/19, during which the reservoir will have to be significantly drawn down. The drawdown is expected to commence in mid-2018, with the works to be completed over the summer of 2018/19 and may result in additional water being transferred to Cardinia Reservoir. This has the potential to influence future years operations and has been considered in developing the water order advice. 11. The assumptions used to model the system were consistent with those in previous years and included: No net drawdown of Southern Rural Water or environmental water allocations currently stored in the Melbourne system in the base case demand scenario. A demand sensitivity analysis scenario assumed increased use of these annual entitlements. Winneke and Tarago treatment plant usage consistent with current strategies (up to 130 GL/year and 12 GL/year respectively) Additional treatment facilities are expected to be commissioned at Yan Yean storage in November 2017, allowing average annual output of around 10 GL per annum from that time. North-South pipeline operation as per Melbourne Water s Statement of Obligations. TECHNICAL ANALYSIS RESULTS SUMMARY 12. The water supply system was modelled using simulation models for a range of potential streamflow conditions and desalinated water order scenarios (or pathways) over the period covered by the 2016 advice. The modelling results were assessed in relation to the 5 principles and results are summarised in Table 2. 6 Melbourne Water Summary of Technical Analysis

11 13. The base case was a 0 GL order in each of the three years of the desalinated water order advice. Figure 3 shows the potential range of modelled future total water storage volumes for the base case, and highlights 30 November in each year, the point for the annual Water Outlook issued by the water companies, and the key point in time for Principles 1 and 2. Also included is a scenario showing a repeat of the recent drought years of 2006, 2007 and 2008 to show the implications should Melbourne experience a similar sequence of low flow years over the desalinated water advice period. 14. A 0 GL order in 2016/17 would not address Principle 3 and also limits the ability to address Principle 2 in 2017/18 and 2018/19, despite satisfying Principles 1 and 2 for 30 November 2016 (refer Table 2 and Figure 3 below). If 0 GL was ordered in 2016/17, even maximum desalinated water orders of 150 GL in 2017/18 and 2018/19 would not satisfy Principle 2 as assessed at 30 November 2017 and 30 November 2018 (see Table 2). This outcome indicates that to better satisfy the security and storage trend principles some water is likely to be needed over the three-year period covered by the order advice. Figure 3: Modelled storage levels under GL water orders (base case) Summary of Technical Analysis Melbourne Water 7

12 Table 2: Summary of model results * Foregone harvest is the modelled additional spills from the Melbourne water supply system and/or reduced harvest into Sugarloaf Reservoir for each scenario due to the desalinated water order volumes supplied. ** Two demand scenarios were considered in the technical analysis. The Standard Demand scenario used in preparing Table 2, reflects the most likely forecast water usage by entitlement holders to the Melbourne system while the Sensitivity Demand scenario represent a plausible higher level of demand. 8 Melbourne Water Summary of Technical Analysis

13 15. Figure 4 shows the range of modelled storage volumes for a GL per year order pathway over the advice period. A GL order pathway is the minimum needed to fully satisfy Principles 1, 2 and 3 regarding the Medium and Low Zone and storage recovery for all three years. However a GL order pathway would not satisfy the foregone harvest principle in the 3 rd year (refer Table 2). Figure 4: Modelled storage levels under GL desalinated water orders 16. Figure 5 shows the range of modelled storage levels for a GL pathway over the advice period, and Table 2 provides further details. A GL order pathway would satisfy the Low Zone (Principle 1) and the Medium Zone (Principle 2) for 30 November 2016, but not the Medium Zone principle on 30 November 2017 (by a minimal amount) and 30 November However the opportunity to revisit the volume required in each of the second and third years, as part of the annual planning and ordering cycle, allows adaption based on the latest storage levels and outlooks. 17. Under the GL order pathway there is a relatively small modelled downward trend for the median of storage levels over the three years refer Figure 5 below. The option to increase or decrease the order volume in years 2 and 3 however, provides for an adaptive response to satisfy the storage recovery principle (Principle 3). 18. A GL order pathway satisfies Principle 4 (foregone harvest risk). The modelling also indicates that a GL pathway provides sufficient water for storages to remain above the low zone in a repeat of the recent low flow years of 2006, 2007 and Desalinated order volumes and the Water Outlook are reviewed annually. If 50 GL was ordered in 2016/17 and prolonged severe drought conditions occurred, subsequent Summary of Technical Analysis Melbourne Water 9

14 orders of 150 GL could be made in 2017/18 and 2018/19. Figure 6 shows that a GL order pathway would maintain modelled storages above the Low Zone, with approximately 10 per cent of sequences in the Medium Zone on 30 November 2017 and 30 November Figure 5: Modelled storage levels under GL desalinated water orders Figure 6: Modelled storage levels under GL desalinated water orders 10 Melbourne Water Summary of Technical Analysis

15 Other considerations 20. Other relevant information considered in the technical analysis includes: Melbourne's actual total system storage volume declined by 152 GL (8.4%) over 2015 to 68.7% at 1 Jan This followed a decline of 64 GL (3.5%) in However, in a relatively wet year such as 2012 Melbourne's storages can gain 264 GL (14.6%). In general, there is less water supply system operational risk, such as foregone harvest, in managing smaller more frequent desalinated water volumes than larger infrequent volumes. Planned works at Upper Yarra dam in 2018/19 will constrain operational volumes of the water supply system at that time these works will require water transfers from Upper Yarra to other storages including Cardinia from mid Short term climate outlook A key input to the analysis was potential future streamflows into the Melbourne water supply system over the 3-year advice period. The technical analysis uses the BoM seasonal streamflow forecast and El Niño Southern Oscillation (ENSO) Wrap- Up. BoM s seasonal streamflow forecast for Melbourne's four major harvesting storages indicated a very high likelihood (60%-98%) of low inflows for February to April This forecast took into consideration the time required for catchments to recover from lower soil moisture conditions, which can be many months. BoM s latest ENSO Wrap-Up (issued 2 February 2016) indicates the strong 2015 El Niño event is gradually declining, and that based on the 26 El Niño events since 1900, around 50% have been followed by a neutral year, and 40% have been followed by La Niña. Climate models suggest the neutral state is the most likely for the second half of 2016, followed by La Niña, with a repeat El Niño assessed as very unlikely. The BoM also note that historically, the breakdown of strong El Niño events brings above average rainfall to some but not all parts of Australia in the first half of the year. Customer impacts The VDP price schedule provides a lower cost per megalitre for smaller order volumes than larger ones refer Table 3 below for summary of additional variable costs for the range of potential desalinated water order volumes. Table 3 also indicates the approximate incremental change for an annual bill for an average residential customer using 155,000 litres per year. Table 4 shows the additional costs for four order pathways. The costs for 2017/18 and 2018/19 are estimated based on the latest 2016/17 costs provided by DELWP. Summary of Technical Analysis Melbourne Water 11

16 Table 3: Additional desalinated water order costs 2016/17 (2015/16 real $) Potential Incremental bulk Incremental Approximate annual bill Water Order desalinated desalinated increment - typical Volume water order cost water unit cost residential customer (GL) ($M) ($/ML) using 155kL per year ($) 0 GL $0 M GL $27.2 M $544/ML $12 75 GL $42.6 M $568/ML $ GL $57.3 M $573/ML $ GL $72.8 M $582/ML $ GL $90.0 M $600/ML $40 Table 4: Additional desalinated water order costs each year (2015/16 real $) Scenario 2016/ / /19 Total GL $0 m $0 m $0 m $0 m GL $0 m $90 m $90 m $180 m GL $43 m $73 m $73 m $189 m GL $27 m $27 m $27 m $81 m 21. When storages enter the Medium Zone, there is the option to implement mandatory water restrictions. However, the combination of other initiatives including voluntary water efficiency measures and additional volumes from the VDP could avoid implementing mandatory water restrictions which can have a significant impact on the community. For example, the Productivity Commission (2011) estimated that the net welfare costs of mandatory restrictions are significant and can amount to several hundred million dollars per jurisdiction per year. 22. On this basis, one of the costs associated with the Medium Zone is likely to be the cost of ordering increased volumes of up to 150 GL/year from the VDP, which is generally a more expensive approach than proactively ordering smaller volumes of water from the VDP over a number of years to avoid entering the Medium Zone, since the unit cost of desalinated water increases as the order volume increases as shown in Table 3 above. 23. Although the costs of desalinated water are higher than for traditional sources, proactively ordering smaller volumes of desalinated water reduces the risk of entering 12 Melbourne Water Summary of Technical Analysis

17 the water security Medium Zone, where restrictions may be applied and other costs to the community are incurred. CONCLUSION 24. A 0 GL order in 2016/17 would not address Principle 3 and also limits the ability to address Principle 2 in 2017/18 and 2018/19, despite satisfying Principles 1 and 2 for 30 November If 0 GL was ordered in 2016/17, even maximum desalinated water orders of 150 GL in 2017/18 and 2018/19 would not satisfy Principle 2 as assessed at 30 November 2017 and 30 November The modelling suggests that in the event of a repeat of the extreme drought streamflows experienced in 2006/2007/2008, a 0 GL order would result in Melbourne's storages being around the Medium Zone on 30 November 2016 and approaching the Low Zone by 30 November 2018 (refer Figure 3). 26. Although the GL order pathway satisfies Medium Zone, Low Zone and storage recovery principles (Principles 1-3) over the three years, it does not satisfy the foregone harvest principle in 2018/19, nor minimise customer pricing impacts (Principles 4 and 5). 27. The GL order pathway would address risks associated with drier inflows over the outlook period. However, it is not the most likely order advice arising from future annual assessments for 2017/18 and 2018/19 as this is based on the severe drought sequences, rather than the more likely outcome reflected by the median of the modelled storage volumes. 28. Based on consideration by the water businesses of the technical analysis, a desalinated water order advice of GL would best satisfy the 5 principles because: A GL order pathway would balance the water security principles and pricing impacts. An order of 50 GL in 2016/17 would compensate for one-third of storage declines in 2015, and would largely off-set the projected declining trend on modelled median storage volumes for 2016/17. If conditions remain dry, it could be augmented with further orders in subsequent years. If wet conditions eventuate in 2016/17, this volume is unlikely to result in significant additional spills/foregone harvest. An order of 50 GL in 2016/17 provides a foundation which allows adaptive responses to satisfy the principles in a balanced way in years 2 and 3 of the outlook. Non-binding forecasts of 50 GL per annum in 2017/18 and 2018/19 represent a balanced estimate of advice for those years based on the modelled average annual decline in median storage volumes over the next three years (rather than threeyear severe drought sequences under the water security principles) of about 60 GL per annum. Summary of Technical Analysis Melbourne Water 13

18 29. The 2016/17 desalinated water order advice, consistent with the requirements of the Water Interface Agreement and the general principles described above, is: 2016/17 50 GL 2016/17 and 2017/18 (non-binding forecast) 50 GL in each of the years Based on the current Cardinia storage level, no constrained month caps should be required in 2016/17. However if an order of greater than 50 GL was placed for 2016/17 then constrained month caps would need to be reconsidered. 14 Melbourne Water Summary of Technical Analysis