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Mount Shasta – Source of the Sacramento River

California’s major Aquaducts (yellow lines)

California’s water programs don’t work well because they are predicated on politics, not market factors…

Just when El Nino rains were sending rivers over their banks, the Resources Agency of California released a draft of the California Water Plan predicting statewide shortages early in the next century. Doomsday predictions are typical of such reports as are the calls for bureaucratic planning to correct the problem. Neither the predictions nor more bureaucracy would be necessary if the plan put more emphasis on water markets.

So what is the solution? More concrete and steel and more bureaucratic controls. David Kennedy, director of the California Department of Water Resources, calls for “water management options” including new storage and conveyance facilities, water recycling and conservation, water transfers, local agency surface water and groundwater supply projects and desalination, to mention a few.

These “management options” suffer from two major problems. First, they lack any meaningful sense of economic and environmental costs and benefits. Second, they ignore the obvious solution–water markets–that is catching on around the West and around the world.

Supply-side solutions including more storage and conveyance facilities, recycling and desalination are common in state water plans, despite the fact that they seldom pass economic benefit-cost muster. A classic example of government water economics comes from Utah. It will cost $300 per acre-foot just to deliver water to farmers from the recently funded Central Utah Project, never mind the sunk costs of dams already built. The same acre-foot of water will produce crops worth $30, but cost farmers only $8. Is anyone surprised that the Utah congressional delegation was able to move this project forward and is there any question whether California projects will be any different? Water may not run uphill on its own, but it surely gushes uphill under political pressure.

California agriculture Can farmers sell water?

At costs as high as $2,000 per acre-foot, desalination does not make good economic sense, and recycling does not look much better with costs as high as $500 per acre-foot.

The second major problem with the plan is that is does not even pay lip service to water marketing, even though this is the surest way to solve water shortages. A search of the plans’ summary bulletin revealed not a single reference to water markets or water prices. Yet markets provide the surest way to encourage water use efficiency and eliminate shortages.

If there are water shortages, you can be sure that it is because water prices are too low. Data from every corner of the world show that a 10 percent price increase reduces urban water-use by as much as 12 percent and farm water use by 20 percent.

Consider two of the success stories of water marketing.

The California Aquaduct main north-south section

When the state of California experimented with its Drought Emergency Water Bank in 1991, an offer price of $125 per acre foot yielded offers to supply water in excess of the 500,000 acre-feet that the state was trying to obtain.

In the drought year of 1987-88, water trading between the Australian states of new South Wales and South Australia involved over 1 million acre-feet and increased farm incomes by an estimated $17 million by improving water use efficiency.

Trading between California and Arizona for Colorado River water could provide similar benefits. The Central Arizona Project (CAP) pumps water 3,000 vertical feet from the Colorado River and delivers it to agricultural users who pay between $17 and $41 per acre-feet. Even at these subsidized prices Arizona users demand only 55 percent of the 1.5 million acre-feet they are guaranteed by the Colorado River Compact. Moreover, the project operates at a loss of $24 million per year. Much of the remainder is being captured by California and Nevada, but the supply is certainly not secure.

Why not encourage some interstate trading between Arizona and California?

A price of $140 per acre-foot would enable the Central Arizona Water Project to be operate in the black. This price is below the $150 being paid in California and Nevada for water from irrigation districts and far below the $1,600 for desalinated water. Arizona has expressed interest in changing the decree that governs water use among the Colorado river states to allow leasing of unused water. California’s Water Plan ought to jump on this bandwagon.

Los Angeles – A very thirsty city

In 1982 when the Peripheral Canal initiative was defeated by California voters, Thomas Graff, general counsel for the Environmental Defense Fund raised a prophetic question when he asked, “Has all future water-project development been choked off by the new conservationist-conservative alliance?” The California Water Plan suggests not, but this plan is open for comment. Now is the time for such a “conservationist-conservative alliance” to make itself heard and put some market sense into California’s water problems.

About the Author:

Terry Anderson is the Executive Director of the Political Economy Research Center in Bozeman, Montana, “The Center for Free Market Environmentalism.” Mr. Anderson is also a senior fellow at the Hoover Institution at Stanford University, and an economics professor (emeritus) at Montana State University and co-author of Water Markets: Priming the Invisible Pump (Cato Institute, 1997). An earlier version of this article originally appeared in Southern California’s Orange County Register on February 16, 1998, entitled “Market Plan Can Ease State Water Shortage.”

San Francisco California

San Francisco. – The Silicon Valley is considered the birthplace of the information age, a place where billion-dollar companies have grown and flourished independent of raw material inputs such as steel or petroleum.

In the last few months, however, the Silicon Valley has gotten a drastic sense of its dependence on natural raw materials, because more than in any other major high-tech regions of the world, the Valley is running out of water.

Dianne Feinstein U.S. Senator California

Compared to a genuine water shortage, the energy shortage which in the last year threatened Silicon Valley and the San Francisco region’s prosperity was comparatively harmless. “It is no longer the question of if, but when the water crisis hits”, said U.S. Senator Dianne Feinstein at a water conference sponsored in March of 2002 by the Silicon Valley Manufacturing Group.

Californian business and political interests have begun to address the looming water crisis, but much of their progress awaits the outcome of the November 2002 election. A major debate is over who should pay for the renovation of California’s water pipeline-system, which is the largest in the world, and whose oldest components include some that were installed in the years before the American civil war.

Currently the San Francisco Water District is responsible for the maintenance of the Hetch-Hetchy-pipeline system that supplies water from reservoirs in the Sierra mountains not only to San Francisco, but also to 100% of the northern Silicon Valley and 20% of the southern Valley.

Concerned about the reliability of the aging Hetch-Hetchy system, high-tech firms in the Silicon Valley have pressured San Francisco Water District officials to either initiate voluntary renovation measures or they will seek legal remedies to ensure work begins. San Francisco’s Public Utilities Commission has estimated the repair of the 19 reservoirs and the roughly 270 kilometers of pipeline would cost over $3.5 billion.

Inpecting a cross-section of Hetch-Hetchy

In some places corrosion has left the metal of the Hetch-Hetchy pipelines so thin that large holes can be made in the pipe and rusty bolts can be turned by hand. “Restoration costs what must seem an insane amount of money”, said Margaret Bruce, the environmental delegate of the powerful technology industry association Silicon Valley Manufacturing Group , “but a water crisis would be far more terrifying.”

What would happen if the Bay Area went without water for thirty or even sixty days?

For the industry in the region, this would be cause incalculable damage, to say nothing of the impact on private households”.

This frightening scenario of a sixty day total loss of water supply is not just a media tactic of a Silicon Valley lobbyist, but a real possibility; the Hetch-Hetchy pipeline is not only weakened via corrosion, it also crosses three earthquake faults. A California government report estimated a 70% probability of a magnitude 7.0 earthquake in the state within the next 30 years.

Hetch-Hetchy’s 270 KM Aqueduct

Moreover, earthquake strengthening and repairing the existing pipeline system will no longer allay the enormous thirst of the region: California’s population growth averages 1.7%, higher than Bangladesh. California’s birthrate amounts to 2.4 children per woman, simultaneously, more immigrants enter California than all other U.S. States. By the year 2025, the U.S. Census Bureau estimates California’s population will grow from the present 34 million to 54 million.

“We must invest seriously in sea water desalination and in water recycling technology”, said California Senator Feinstein, who also criticized the foolhardy consumption of the California’s private households for sprinklers and swimming pools, which accounts for 50% of private water consumption.

Environmental expert and founder of the eco-portal www.Ecoworld.com, Ed Ring, hopes that the Valley’s high-tech firms recognize the water and energy crisis as a chance for the Silicon Valley to have a leadership role in environmental technology. “Green technology can fulfill profit expectations, but also provide real vision and hope for another economic boom for the valley”, said Ring.

Gray Davis Governor California

A more visceral take on California’s crisis comes from California Governor Gray Davis, who has said “water is more valuable than a gold.”

In the Santa Clara County, the heart of the Silicon Valley, the Santa Clara Valley Water District already plans to use recycled water for 20% of its water consumption within ten years. While most semiconductor manufacturers have only research laboratories in the Valley, the remaining chip manufacturers cannot use recycled water, but rather require minerals-free, soft water out of the Hetch-Hetchy system in order to hold their production costs low.

About the Author:

Wolfgang Harrer is a U.S. correspondant for Germany’s leading nationwide daily newspaper, Die Welt. Since 1999 he has been reporting about media, business and technology affairs of the West Coast of the USA. His weekly column, “Der Silicon Valley Reporter,” is Germany’s most read periodical about this innovative region. This article has been translated from the German version which originally appeared in Die Welt.

Parabolic Trough Array Brighton, Colorado, USA photo: US D.O.E.

India’s power sector has a total installed capacity of approximately 102,000 MW of which 60% is coal-based, 25% hydro, and the balance gas and nuclear-based. Power shortages are estimated at about 11% of total energy and 15% of peak capacity requirements and are likely to increase in the coming years. In the next 10 years, another 10,000 MW of capacity is required. The bulk of capacity additions involve coal thermal stations supplemented by hydroelectric plant development. Coal-based power involve environmental concerns relating to emissions of suspended particulate matter (SPM), sulfur dioxide (SO2), nitrous oxide, carbon dioxide, methane and other gases. On the other hand, large hydroplants can lead to soil degradation and erosion, loss of forests, wildlife habitat and species diversity and most importantly, the displacement of people. To promote environmentally sound energy investments as well as help mitigate the acute shortfall in power supply, the Government of India is promoting the accelerated development of the country’s renewable energy resources and has made it a priority thrust area under India’s National Environmental Action Plan (NEAP).

The Indian government estimates that a potential of 50,000 MW of power capacity can be harnessed from new and renewable energy sources but due to relatively high development cost experienced in the past these were not tapped as aggressively as conventional sources. Nevertheless, development of alternate energy has been part of India’s strategy for expanding energy supply and meeting decentralized energy needs of the rural sector. The program, considered one of the largest among developing countries, is administered through India’s Ministry of Non-Conventional Energy Sources (MNES), energy development agencies in the various States, and the Indian Renewable Energy Development Agency Limited (IREDA).

Parabolic Dish Array Rajasthan, India photo: UNESCO

Throughout the 1990′s, India’s private sector interest in renewable energy increased due to several factors: (i) India opened the power sector to private sector participation in 1991; (ii) tax incentives are now offered to developers of renewable energy systems; (iii) there has been a heightened awareness of the environmental benefits of renewable energy relative to conventional forms and of the short-gestation period for developing alternate energy schemes. Recognizing the opportunities afforded by private sector participation, the Indian Government revised its priorities in July 1993 by giving greater emphasis on promoting renewable energy technologies for power generation. To date, over 1,500 MW of windfarm capacity has been commissioned and about 1,423 MW capacity of small hydro installed. The sector’s contribution to energy supply has grown from 0.4% of India’s power capacity in 1995 to 3.4% by 2001.

India is located in the equatorial sun belt of the earth, thereby receiving abundant radiant energy from the sun. The India Meteorological Department maintains a nationwide network of radiation stations which measure solar radiation and also the daily duration of sunshine. In most parts of India, clear sunny weather is experienced 250 to 300 days a year. The annual global radiation varies from 1600 to 2200 kWh/sq.m. which is comparable with radiation received in the tropical and sub-tropical regions. The equivalent energy potential is about 6,000 million GWh of energy per year. The highest annual global radiation is received in Rajasthan and northern Gujarat. In Rajasthan, large areas of land are barren and sparsely populated, making these areas suitable as locations for large central power stations based on solar energy.

The main objectives of the project are these: (i) To demonstrate the operational viability of parabolic trough solar thermal power generation in India; (ii) support solar power technology development to help lead to a reduction in production cost; and (iii) help reduce greenhouse gas (GHG) global emissions in the longer term. Specifically, operational viability will be demonstrated through operation of a solar thermal plant with commercial power sales and delivery arrangements with the grid. Technology development would be supported through technical assistance and training. The project would be pursued under The World Bank’s Global Environment Fund (GEF) — which has a leading program objective focused on climate change. This project is envisaged as the first step of a long term program for promoting solar thermal power in India that would lead to a phased deployment of similar systems in the country and possibly in other developing nations.

India supports development of both solar thermal and solar photovoltaics (PV) power generation. To demonstrate and commercialize solar thermal technology in India, MNES is promoting megawatt scale projects such as the proposed 35MW solar thermal plant in Rajasthan and is encouraging private sector projects by providing financial assistance from the Ministry.

One of the prime objectives of the demonstration project is to ensure capacity build-up through ‘hands on’ experience in the design, operation and management of such projects under actual field conditions. Involvement in the project of various players in the energy sector, such as local industries, the private construction and operations contractors, Rajasthan State Power Corporation Limited (RSPCL), Rajasthan State Electricity Board (RSEB), Rajasthan Energy Development Agency (REDA), Central Electricity Authority (CEA), MNES and others, will help to increase the capacity and capability of local technical expertise and further sustain the development of solar power in India in the longer term.

The project’s sustainability will depend on to what extent the impact of the initial investment cost is mitigated, operating costs fully recovered, professional management introduced, and infrastructure and equipment support for operation and maintenance made accessible. Accordingly, while the solar thermal station will be state-owned, it will be operated during the initial five years under a management contract with the private sector; subsidy support will be limited to capital costs. Fuel input, power supply and other transactions would be on a commercial basis and backed up by acceptable marketable contracts. Staff selection and management would be based on business practices; the project site would be situated where basic infrastructure is well developed and engineering industries established.

Parabolic Trough Array Tehachapi, California, USA photo: US D.O.E.

This project is consistent with the World Bank’s Global Environment Fund’s operational strategy on climate change in support of long-term mitigation measures. In particular, the project will help reduce the costs of proven parabolic trough solar technology so as to enhance its commercial viability. This initiative is part of an anticipated multi-country solar thermal promotion program, the objectives of which will be to accelerate the process of cost reduction and demonstrate the technology in a wider range of climate and market conditions.

Demonstrating the solar plant’s operational viability under Indian conditions is expected to result in follow-up investments by the private sector both in the manufacture of the solar field components and in larger solar stations within India.

Insights into local design and operating factors such as meteorological and grid conditions, and use of available back-up fuels, are expected to lead to its replicability under Indian conditions, opening up avenues for larger deployment of solar power plants in India and other countries with limited access to cheap competing fuels. Creation of demand for large scale production of solar facilities will in turn lead to reductions in costs of equipment supply and operation. It is also expected to revive and sustain the interest of the international business and scientific community in improving systems designs and operations of solar thermal plants.

The Project is expected to result in avoided annual emissions of 714,400 tons of CO2, or 17.9 million tons over the life of the project, relative to generation from a similar-sized coal-fired power station. The cost of carbon avoidance is estimated at $6.5 per ton.

The project involves: (i) Construction of a solar thermal/fossil-fuel hybrid power plant of about 140MW incorporating a parabolic trough solar thermal field of 35 MW to 40 MW; and (ii) Technical assistance package to support technology development and commercialization requirements.

Location of Rajasthan

Investment Component. The solar thermal/hybrid power station will comprise: (i) a solar field with a collection area of 219,000 square meters to support a 35MWe to 40MWe solar thermal plant; and (ii) a power block based on mature fossil fuel technology (i.e, regasified LNG). The proposed project will be sited at Mathania, near Jodhpur, Rajasthan in an arid region. In addition to high solar insulation levels (5.8 kWh/m2 daily average), the proposed site involves approximately 800,000 square meters of relatively level land with access to water resources and electric transmission facilities. The solar thermal/hybrid station will operate as a base load plant with an expected plant load factor of 80%. The final choice of the fossil-fired power block would be left to the bidders, subject to performance parameters set out in the tender specifications.

The design choice is an Integrated Solar Combined Cycle (ISCC) involving the integrated operation of the parabolic trough solar plant with a combined cycle gas turbine using naphtha. Such a plant would consist of the solar field; a combined cycle power block involving two gas turbines each connected to a heat recovery steam generator (HRSG) and a steam turbine connected to both HRSG; and ancillary facilities and plant services such as fire protection, regasified liquefied natural gas supply and storage system, grid interconnection system, water supply and treatment systems, etc. A control building will house a central microprocessor control system that monitors and controls plant operations.

The success of the solar thermal/hybrid power plant as a demonstration project will determine if this technology is replicable in other parts of India. The project will provide technical assistance to ensure that adequate institutional and logistical support for the technology is available for future expansion of solar thermal power.

Specifically, funds will be made available for promoting commercialization of solar thermal technologies among potential investors; staff training and development of a local consultancy base; upgrading of test facilities; mproved collection and measurement of solar insolation data and other solar resource mapping activities; and development of pipeline investments.

The total cost of the investment component is estimated at US$ 201.5 million, including interest during construction, physical and price contingencies as well as duties and taxes. Of these costs, the cost of supplies (excluding contingencies) for the solar component including the steam generator amounts to $41 million, and that for the conventional power plant component is $72 million. The cost of the technical assistance component for promoting replication of the solar power technology is estimated at $4 million.

City Palace of Jaipur Rajasthan, India

Investors Note: For more information on the solar thermal project in Rajasthan, India, please contact:

Mr. G. L. Somani, General Manager

Rajasthan State Power Corporation Ltd.

E-166, Yudhisthar Marg, C-Scheme, Jaipur, India

Telephone No.: (91-141) 384055

Fax No.: (91-141) 382759

About the Author:
Gordon Feller is the CEO of Urban Age Institute (www.UrbanAge.org). During the past twenty years he has authored more than 500 magazine articles, journal articles or newspaper articles on the profound changes underway in politics, economics, and ecology – with a special emphasis on sustainable development. Gordon is the editor of Urban Age Magazine, a unique quarterly which serves as a global resource and which was founded in 1990. He can be reached at GordonFeller@UrbanAge.org and he is available for speaking to your organization about the issues raised in this and his other numerous articles published in EcoWorld.