The Connection between Water Prices and the State of Water Networks

September 14, 2011 at 5:45 am Leave a comment

The Annual Meeting of the New Champions 2011 (“Summer Davos”) is taking place this week, and we thought it’s a great venue to announce our first research report. This report, planned to be the first of many, shows the connection between water prices and water loss rates. Water loss is a key metric that impacts the sustainability, conservation and efficiency of water networks.

In some of the world’s cities, water is priced lower than the costs to pump and transport it, let alone sustain its delivery infrastructure: the network of pipes, pumps, reservoirs and valves that brings water to our homes. In some places water is free.

The question raised by TaKaDu’s research was whether the price of water also affects water loss rates. Theoretically, water underpricing can lead to undervaluing of water and underinvesting in the water distribution network.

Water pricing doesn’t impact residential consumption alone. Globally, only about 10% of water is used residentially, while the remaining 90% is used for agriculture and industry, so water mispricing obviously affects the way all sectors use water.

According to the World Bank, about 25%-30% of water supplied to urban water networks is lost before reaching its desired destination, the end user. Cities surveyed by TaKaDu have water loss rates of 4% to 62%. Non-Revenue Water (NRW) is typically attributed to insufficient maintenance and old infrastructure. Many Western-world water networks were built in the 20th century, but some networks have aged and now include elements aged 100 years or more, requiring constant maintenance. In general, policy makers in the Western world state that the water sector suffers from a growing infrastructure deficit. For instance, in the United States, the American Society of Civil Engineers (ASCE) estimates a 5-year shortfall of $108.6 billion in water and wastewater infrastructure.

TaKaDu’s research, based on information from 41 urban water networks all over the world, found that higher water tariffs are associated with lower water loss and a more sustainable outcome. In most cities where the price of water is very high or very low, low and high NRW rates are observed respectively. This holds true across different countries and regions.

Thus, when setting policy and water tariffs, policy makers should consider all possible implications of low pricing to avoid infrastructure deterioration. Regulatory tools such as on-going benchmarking of water utilities and incentives for improved performance can be used, as well as a tiered pricing model for domestic consumption.

On his way to Dalian, Amir commented  on how utilities in Asia Pacific are dealing with water loss: “Asia Pacific is undergoing rapid urbanization, putting its NRW rates under increased scrutiny.  Its NRW rates range from a low single digit number in Singapore and Tokyo to above 50% in Jakarta and Manila. However, having met many Asia Pacific utility CEOs, I was impressed by the vigorous attention paid to these issues and the significant reduction in NRW already achieved by utilities in Manila and elsewhere”.

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Entry filed under: research, Water Cost, Water is the New Oil, Water Scarcity, World Economic Forum. Tags: , , , , , , , .

Summer Davos and Water Management Amsterdam: Low water loss means high interest in the next level of efficiency

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