Accounting for dynamic feedbacks between demand, the price of water and climate in the estimation of financial risk for water utilities
Abstract
Climate change has the potential to affect both long term availability and near-term variability in water resources. Water utilities face the dual challenge of curbing demand in order to ensure they can continue to provide a reliable service whilst also ensuring revenues, at a minimum, cover the costs of delivery. Despite a clear causal relationship between hydrologic and financial risk, these processes are typically evaluated in separate analyses. Those that do seek to account for hydrologic uncertainty in financial risk analyses do so by summarising hydrologic model outputs for use as input into financial models in a loosely coupled approach. However, in reality, dynamic feedbacks exist between these processes that are not captured in a loosely coupled approach. For example, one would expect to see a reduction in demand corresponding to an in increase in price resulting from a drought event, an effect that persists beyond the acute period of crisis. These dynamics are of particular interest in the context of a changing climate, where long term changes in precipitation and temperature have the potential to increase the depth and duration of drought events.
A suite of models that simulate operations of San Francisco Public Utilities Commission has been developed. This includes a stochastic weather generator, an infrastructure system model that simulates operations, an annual econometric demand model, a daily demand model that downscales annual demand to the daily timestep based on daily maximum temperature, and a finance model that sets the price of water. We tightly couple infrastructure system operations with demand in order to assess the impact of natural climate variability and climate change on the price of water for customers relative to other important drivers of demand. Analysis of this specific case study illustrates the need to integrate economic models within infrastructure systems models in order to capture important dynamic feedbacks that exist between human and hydrologic processes that can have profound financial consequences for water utilities.- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2020
- Bibcode:
- 2020AGUFMH157...05B
- Keywords:
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- 1630 Impacts of global change;
- GLOBAL CHANGE;
- 1803 Anthropogenic effects;
- HYDROLOGY;
- 1880 Water management;
- HYDROLOGY;
- 4303 Hydrological;
- NATURAL HAZARDS