A methodology for assessing alternative water acquisition and use strategies for energy facilities in the American West

Abstract

This report develops a method for assessing alternative strategies for acquiring and using water at western energy plants. The method has been tested in a case study of cooling water use for a hypothetical steam electric power plant on the Crazy Woman Creek, an unregulated stream in Wyoming.

The results from the case study suggest a careful analysis of reservoir design and water right purchase strategies can reduce the cost of acquiring and using water at an energy facility. The key to this advance arises because water is not a homogeneous good: different sources will deliver water with different costs and different reliabilities. This occurs because water supplies are sensitive to seasonal changes. The methodology recognizes this seasonal component in supply and searches for optimal (or 'non-inferior') tradeoffs between conserving water in the plant cooling system, building larger reservoirs, and purchasing existing water rights.

The method uses simulation models to assess the capital and operating costs and expected monthly water consumption rates for different cooling system designs. The method also uses reservoir operating algorithms to select, for a fixed cooling system design, the optimal tradeoff between building a make-up water reservoir and purchasing water rights. These tradeoffs can be used to derive the firm's true demand curve for different sources of water. The analysis also reveals the implicit cost of selecting strategies which minimize conflicts with other water users.

Three noteworthy findings are revealed for the single case study, though it appears these findings will hold for other small, unregulated rivers where some fraction of the flow remains unappropriated by existing users: 1. Cooling ponds are as good as or preferred to wet towers because their costs already include provisions for storing water for use during the normally dry summer months and during occasional drought years. 2. The energy firm's demand for overall water consumption in the cooling system is inversely proportional to both the cost of installing make-up water reservoirs, and the size of the energy facility. 3. The firm's willingness to pay for existing rights is proportional to both the cost of installing reservoirs, and the size of the energy facility.

Taken together, these last two findings suggest an energy firm's demand for water in general and its demand for existing water rights in particular can move in opposite directions. Contrary to recommendations seen elsewhere in the literature (Bishop and Naryanan, 1978), it does not necessarily follow that water should be transferred away from alternative uses to energy simply because energy firms can pay premium prices for the total water their plants consume.