Screening Investments to Reduce the Risk of Hydrologic Failures in the Headwork System Supplying Apulia (Italy) – Role of Economic Evaluation and Operation Hydrology

Abstract

The paper introduces and applies a methodology to screen investments aimed at reducing water supply risks due to hydrologic failures in headwork systems for municipal use, based on the principles of cost-benefit analysis. As risk includes both the probability of a failure and its effect, the methodology combines a simulation module of the system, fed by a stochastic hydrologic input to reproduce the probability distribution of the failures, with a metric for supply failure damage provided by the price – demand relationship for municipal water. Benefits are assessed as the averted damage compared to a base case without investments. This approach is then combined with the classic discounted cashflow approach of cost– benefit analysis to allow for the dynamics of both water supply and demand due to trends in population growth, individual consumption and, above all, planned reduction of losses in water distribution networks. The methodology is applied to screen a number of different supply-side projects for the headwork system supplying Apulia, in southern Italy featuring both regulated surface and groundwater resources and providing drinking water to over 4,000,000 persons. The procedure allows both ranking of single projects by their economical performances and the economic evaluation of combinations of different projects. The study also aims to assess the impact of the selected time scale, of cross-correlation among production sites, and of the specification of the demand function on projects' economic indicators. Results show that each modelling assumption has a considerable impact on the value of the economic indicators in absolute terms, but ranking of the different projects seems to be less sensitive to such modelling aspects.