Recycled water: commercial considerations

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1 Western Australia is a dry state in a dry continent. Water is vital to life and our quality of life and it supports the natural environment, public health, the economy, community amenity and recreation. To ensure that there is enough water for all, we need to address the challenges of our drying climate, increasing population and minimising our environmental impact. We all need to work together to reduce our water use, recycle more water and develop new sources to supplement existing supplies. This information sheet is one of a series designed to enhance community understanding of water related topics. Background Using recycled water for non-drinking purposes can be an effective way to meet customer needs, reduce waste and reduce demand on scheme water. Recycled water is wastewater treated to a standard appropriate for non-drinking uses such as irrigating parks, gardens, golf courses, dust suppression, construction and other industrial applications. Water Corporation supplies about 21 billion litres of recycled wastewater a year across the state for non-drinking water uses including irrigation of public open space, woodlots, industrial processes and in agriculture. Over 13% of our wastewater flows are recycled and by 2030 we aim to increase this amount to 30%. Climate dependent water sources (such as groundwater and surface water) are becoming more constrained while the cost of developing new drinking water sources is increasing. As a result, recycled water is an increasingly attractive fit-for-purpose option. There are a number of that impact the viability of recycled water schemes. The key issues include: Source options and availability Costs and benefits Pricing Ownership and operation Commercial agreements Regulatory approvals and compliance. Page 1

2 Source options and availability To establish the best water solution, customers are encouraged to consider recycled water options alongside all other possible water sources. Water Corporation operates over 100 wastewater treatment plants around the state. While some water is recycled from most plants, there is generally capacity to recycle more water for commercial and community benefit uses. Recycled water from our wastewater treatment plants is allotted on a first-come, firstserved basis. Once actual use begins to exceed about 70% of water available for recycling, we generally work with existing and potential future users to understand the demand outlook. Water Corporation may run a tender, expression of interest or similar process to ascertain market interest. Consideration is also given to possible supply regimes, duration of commitment, operational matters and the economics of potential uses. Preference may be given to public open space currently irrigated with recycled water. We encourage all public open space using recycled water to be water efficient. The Department of Water uses a guideline of 7,500 kl/ha/yr for irrigation of public open space 1. Costs and benefits Recycled water schemes may involve the following costs: Joint wastewater costs of the upstream wastewater system. This includes the cost of collecting, delivering and treating wastewater at wastewater treatment plants. Reticulation costs of infrastructure required to transport recycled water to the customer. Reticulation infrastructure is often installed by a land developer and handed over to a local government for example to irrigate public open space. Direct costs of a water recycling scheme, which may include additional capital infrastructure (such as treatment, storage and conveyance) and operating costs. Marginal costs of delivering a recycled water service, including costs of monitoring and compliance. 1 This figure is an average. Active uses (such as sporting grounds) may need about 10,000 kl/ha/yr, passive recreational areas may require 6,000 7,500 kl/ha/yr while no irrigation may be needed for bushland. Page 2

3 A recent study commissioned by the Australian Water Recycling Centre of Excellence, Economic viability of recycled water schemes 2 included a framework to assess the cost and benefits associated with recycled water schemes. Our assessment of costs and benefits of recycling proposals (Figure 1) aligns with this framework. Figure 1. Costs and benefits of recycled water schemes As outlined, consideration is given to whether a recycled water scheme may reduce Water Corporation costs by deferring or avoiding any: wastewater infrastructure capacity upgrades costs of the drinking water scheme water supply and costs associated with wastewater disposal or discharge. From a broader economic perspective, there may also be value placed by the customer and additional social and environmental benefits (public benefits) associated with recycled water schemes. That consideration is coloured green in Figure 1 to acknowledge that the quantification of public benefits may have a significant impact on recycled water scheme viability. All costs and benefits should be appropriately shared across beneficiaries who may include the recycled water user, the proponent (i.e. land developer), the service provider (i.e. Water Corporation) and, in some cases, the environment. 2 _report Page 3

4 Pricing Recycled water pricing principles have been developed nationally 3 Australian Governments. pricing approach is consistent with them. The Corporation services three main types of recycling schemes: community benefit commercial and residential Community benefit recycled water schemes Community benefit schemes include recycled water for public open spaces, school ovals, noncommercial woodlots and environment recharge. by the Council of Western Australia is a signatory to these principles and our While these schemes are not expected to contribute to joint wastewater costs, any reticulation, direct or marginal costs are generally met by the customer. Commercial recycled water schemes Commercial schemes use recycled water for a range of fit-for-purpose applications. Commercial customers may be asked to contribute to joint wastewater costs as well reticulation, direct and marginal costs. Residential recycled water schemes Land developers may be interested in exploring alternatives to scheme water for fit for purpose uses such as garden irrigation and toilet flushing. Water Corporation currently provides non-drinking groundwater through dual reticulation systems to residential and commercial customers in Denham in the Mid-West Region. Residential tariffs are set by the Minister for Water. This mechanism avoids the need for residential customers to enter into individual commercial agreements. Water Corporation recommends a volumetric tariff that is cost reflective and capped at 75% of the second taper of residential consumption charges. A fixed service charge may also apply. Capping charges for residential recycled water provides a financial incentive for customers to connect to the recycled water supply. 3 Page 4

5 Any shortfall between these charges and the cost of providing the recycled water supply needs to be recovered. For example, land developers are generally required to contribute the reticulation network and may also be required to contribute additional funding to ensure full cost recovery. Ownership and operation Most water recycling schemes are owned and operated by the customer of that scheme, particularly where there is only one user. For example, Water Corporation will provide recycled water at the boundary to the wastewater treatment plant, and a local government or commercial user will typically own and operate the recycling scheme from this point. Where the recycled water is used by many customers a service provider will typically own and operate the scheme. Water Corporation will consider being the service provider when the proponent expresses an interest for us to act in this role and the project is: designed to replace scheme water use demonstrated to be water efficient situated within our Operating Licence area (approved by the ERA 4 ) technically and operationally sound and commercially viable For example, Water Corporation owns and operates the Kwinana Water Recycling Plant which supplies recycled water to a number of commercial customers. Commercial agreements Arrangements for all recycled water customers are formalised through commercial agreements. Most recycled water supply agreements for public open space irrigation run for a 10 year term, with a negotiable extension. Terms for commercial customers are negotiated on case-by-case basis. Regulatory approvals and compliance Generally, the proponent will need to obtain the required health, environmental and other regulatory approvals. Water Corporation may assist the proponent where there the scheme is proposed to be owned and operated by the Corporation or it is our preferred option for wastewater disposal. 4 The Economic Regulation Authority (ERA) publishes the list of licenced water service providers and their Operating Areas on their website ( ISBN Page 5