Sunday, May 19, 2024

Delta Conveyance Facility (DCF) Water Is More Expensive Than Desalination, Not Less As DWR Claims

The Department of Water Resources (DWR) puts out a lot of misleading information around the Delta Conveyance Facility (DCF).  When DWR released its updated construction cost estimate and benefit-cost analysis for the DCF, the featured graphic states that DCF water supplies have costs comparable to conservation programs and less than half the cost of desalination.  Specifically, DWR takes a $1325/af 100-year levelized cost from their DCF benefit-cost analysis out of context, and lays it next to estimates from other studies that make very different assumptions about interest rates, project life and other key inputs.  

DWR's cost comparison is garbage.  You don't have to be an economist or engineer to see why.  Simply compare the basic cost drivers of a desalination plant (the most expensive alternative) and the DCF: capital costs, energy use, and water yield.

Capital Cost:  Recent large scale desalination projects/proposals in southern California (Huntington Beach, Carlsbad) have capital cost estimates of about $1.5 billion in 2023 dollars for about 50,000 acre feet (af) of reliable water supply ($30,000 per annual af).  The DCF is $20 billion for highly variable water yield that is projected to average about 400,000 af ($50,000 per annual af ). (Advantage: Desal)

Time to Build:  Large-scale Desalination, about 5 years.  DCF, about 15 years.  (Advantage: Desal)

Energy Use:  Desalination uses about 5 megawatt hours of electricity per af.  Energy use of the State Water Project are 3-5 megawatt hours per acre foot, depending on final delivery site.  Additional water supplies from the DCF have to be pumped hundreds of miles through the SWP to users whereas Desal plants are located near users.  DCF operations (pushing water through the Delta tunnel) would add energy costs to the SWP total.  The bottom line is that getting water through the DCF and to its end users will have electricity requirements similar to desalination.  They are the most energy intensive water sources in California, desalination forcing water through membranes, whereas DCF water must be pumped hundreds of miles and over mountain ranges.  (Advantage: DCF somewhat lower energy use for some locations, and even for other locations)

As the above make clear, DCF water supply is likely to be more expensive than desalination, not less.  And if DCF is at or above desalination costs, DCF water is way more expensive than conservation, recycling, brackish water desalination, and stormwater capture.  How does DWR get the opposite result?

Taking cost inputs and calculating a levelized cost per acre foot requires a few additional assumptions which need to be consistently applied.  The DCF assumptions from its benefit-cost analysis are wildly different than those used in the reports they are using for comparison.

1. Interest rates:  The DCF estimate is based on a social discount rate that starts at 2% and declines over time.  The cost comparison estimates are based on studies by Pacific Institute, PPIC, and CPUC that base their interest rate on the cost of capital.  I don't have the CPUC report, but the Pacific institute report uses 6% and PPIC 3.5%.  So the comparison studies are using interest rates two to three times higher than the DWR's DCF analysis.

2.  Assumed project lifespan:  The DCF report spreads its cost over 100years.  These other studies spread the project costs over 25 to 50 year time periods.   

If you use an interest rate that is one-half or one-third the level in the comparison study, and spread the project costs over 2-4 times more years than the comparisons, you can make the most expensive water supply look like the least expensive.  

Reasonable people can disagree on the exact values for these interest rate and lifespan assumptions, but consistency is required.  DWR is not doing this.  They are comparing their cost estimates to studies with wildly different assumptions about interest rates and operating lifespan so they can make a graph that claims up is down.

The bottom line is that water agencies evaluating the cost-effectiveness of the DCF should do their own math.  DWR's comparative cost analysis is not credible.
May 20 Addendum:  After posting this, I decided to calculate an estimated a levelized cost with 50 years of operations, the costs, timing and water supply listed in the benefit-cost report, at a 2%, 3.5%, 6% rate.  The 50 year operations and 3.5% and 6% rates make these estimates more comparable to the PPIC and Pacific Institute estimates shown.  If you are going to use this graph for comparison, these are the values you would use (with a big caveat that this is untreated water at the Delta).
2% = $1,971
3.5% = $2,889
6% = $5,089
For a more accurate comparison, you could put $2,889 to $5,089 as the DCP values on the DWR figure below that is the subject of this blog.  However, that is too low because that is the cost of untreated water at the opposite end of the California aquaduct.  I am not sure of exactly what to add on for that, I have heard estimates of up to $600 af to move water from the Delta to SoCal.  At minimum, one would add the cost of 3-5 megawatt hours of electricity per acre foot to the operating costs.  Whatever the additional costs of conveyance, the results are consistent with my initial argument that the DCP is more expensive than desalination, and substantially more expensive than other alternatives.   

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