Cost-benefit analysis of farm water storage: Surface Storage versus Managed Aquifer Storage

Abstract

Managed Aquifer Recharge (MAR) has been demonstrated to offset groundwater demand in many locations around the world. At each location where MAR has been successfully undertaken, there are unique hydro-climatic, socio-economic and institutional conditions. This has resulted in a variety of methods to recharge aquifers. Despite its physical potential, there has been limited uptake of MAR in Australia. Limited knowledge of the actual costs and benefits from MAR projects is a major barrier to the uptake of MAR. The cost of an MAR scheme is highly variable across regions because of several hydrogeological and climatic influencing factors, such as the rate of recharge, type of aquifer, water source, water quality and method of water treatment. The comparative cost of MAR with regard to surface water storages is poorly known in Australia. Published MAR cost estimates are local and situation specific, making cost comparison difficult across regions. The aim of this paper is to estimate the economic efficiency of using stored water in surface dams to that stored in an aquifer using MAR. The study estimates, for the Lower Namoi cotton irrigation district in New South Wales, Australia, the relevant costs and benefits and compares net irrigation benefits under three different water storage methods - surface storage in farm dams, aquifer storage using pond infiltration and aquifer storage using injection wells. Preliminary results indicate that aquifer storage is financially viable. But the maximum cost of aquifer storage, regardless of MAR method, should not exceed 500 $/ML to achieve the breakeven point, that is the point at which the cost of aquifer storage is equal to the resulting farm benefits. Sensitivity analysis is performed on key variables such as the infiltration rates, costs of pumping and cotton prices. Infiltration rates and pumping costs are found less sensitive, while cotton price was, not surprisingly, found highly sensitive to the NPV. A 50% reduction in infiltration rates and a 25% increase in the cost of pumping does not significantly affect the NPV. However, a 10% and 25% reduction in the price of cotton renders a 27% and 78% reduction in the NPV, respectively.