Industry

Urban & Rural Water

Fluctuating environmental conditions, with droughts and floods impacting both regional and urban areas, highlight the increasing intricacies of managing water resources for a resilient future. Our economic analysis and modelling capabilities address the complexities of the water industry and deliver innovative solutions to businesses, policymakers, and regulators.

Talk to our water team

The context of water has shifted - from a utility supply, and input to production, to a valuable natural resource with economic, social, environmental and cultural importance.

But across urban and rural settings, concerns around water resources are multi-faceted. Covering climate variability and change, growing populations, a growing appreciation of the health of our rivers and wetlands, and the affordability of water services.

Our water resources must be managed in the context of a drying climate, and where alternative or manufactured – albeit more costly - sources can be drawn upon.

Shaping the future of water

At Frontier Economics, we have a track record in shaping water policies and regulatory frameworks globally, that honour the essential environmental and societal values connected to our water resource. We’re at the forefront of market design and operations; on urban and rural water reform, and the interplay between climate and water policies, both nationally and internationally, for both the public and private sectors.

One of our key priorities is to apply economics to understand the value of water, beyond the financial costs. Whether this is for price setting, business cases and cost-benefit-analysis, funding and distribution analysis, or to understand future investments and planning.

Partnering with hydrologists, engineers, environmental scientists and many others, we ensure our clients get comprehensive solutions including:

Industry reform and institutional design: Crafting strategies to reshape the industry for optimum functionality, resilience, and supporting the market response for private sector firms.
Pricing and regulation: We advise regulated businesses, but also the regulators, on a range of issues including developing balanced and effective pricing and regulatory frameworks.
Competition and third-party access: Advancing competition in the provision of water and wastewater services and facilitating effective third-party access.
Market design, operation and trading: Integrating best practices and in-depth knowledge of the water sector to establish efficient water markets. Leveraging our extensive knowledge and network to design and refine effective water trading markets.
Investment and resource planning: Applying economic frameworks to assess long-term planning issues and developing business cases for public-sector project funding.
Water supply & investment models: We offer powerful tools for optimising long-term augmentation plans and operational decisions in water systems including supply / demand models, system-based Long Run Marginal Costs (LRMCs), cost benefit analysis and real option analysis modelling.

Hydro-economic cost benefit analysis (CBA) model

Given the increasingly interrelated nature of our water cycle, it’s no longer enough to separately assess our investments to manage long-term water security, short-term drought and wastewater and stormwater volumes.

Combining hydrological and economic analysis, our latest water model assesses the costs and benefits of alternative drought sequences to identify which supply or demand measure, or portfolio of measures, delivers the greatest value to the community, given uncertainty.

Our model helps decision makers answer questions like these, and more:

Does desalination, water recycling, purified recycled water or water conservation deliver the greatest value for our community?
What value can water restrictions provide in managing drought, given uncertainty around the severity of drought?
What level of water security should we be delivering to our customers?
How should prices be set to recover these costs?

With 20+ years of experience in evaluating the economic, cultural, social and environmental costs and benefits of water security measures, under uncertainty, our Hydro-economic CBA model provides advanced risk and uncertainty analysis using real options analysis.

The model combines the flexibility to model multiple drought sequences at once – to answer what should we do given we don’t know whether we will go into extreme drought and in-depth analysis of a single drought sequence to answer – if we were in this drought sequence, what should we do?

Inputs

Existing system

Existing system yield
Demand-side measures
Drought response measures, including supply-side and water restrictions
Wastewater management measures

Potential build and non-build measures

Capital and operating costs
Triggers for action (incl. storage levels)
Hydrological and water cycle impact, incl. yield, storage depletion, wastewater and stormwater flows
Changes in biophysical outcomes

General

Demand and volume forecasts
Level of service
Climate and drought sequences
Policy setting

System constraints (yield exceeds demand)
Portfolios that meet the level of service
Economic, social and environmental costs and benefits of the portfolios
Identification of drivers of value

Outputs

Timing of investments to align yield and demand
Economic, social, cultural and environmental costs and benefits of measures and portfolios
Optimal portfolio, given uncertainty

Value of flexibility to respond to uncertainty
Optimal portfolio to respond to a given drought sequence

Economic, cultural, social and environmental costs and benefits of levels of service
Inputs into distributional analysis
Inputs into funding analysis (financial cost)

Using economic analysis and data to inform policy and regulation for more than 20 years, policymakers and industry leaders have trusted us to find data-backed solutions, with projects such as:

Public sector

Determining the social and economic impacts of the Basin Plan water recovery in Victoria.

Reviewing the economic and regulatory barriers to cost-effective water recycling.

Assessment of the benefits from collective action to reduce salinity levels in the Murray River

Private sector

Advising on water price determinations - submissions to economic regulators.

Analysing the role of water in facilitating the liveability of cities for the Water Services Association of Australia.