The case for digital water meters | South East Water

3 April 2024

What was the challenge?

Water security is a growing challenge for many governments due to climate change and population growth. Concurrently, water companies, such as South East Water, have begun prioritising digital transformation as a means of harnessing the power of data.

One avenue for transformation has been the installation of digital meters to collect real-time data on water supply and usage, which helps to identify leaks and reduce water waste, addressing the issues of water security. Additionally, informing customers of real-time usage, especially for information about unknown leaks, can greatly improve customer satisfaction.

However, digital meters typically have relatively high upfront capital cost (~2-3 times more costly than mechanical meters). It is therefore vital to have a sound economic framework that transparently identifies and quantifies the value of the benefits to utilities, customers and the broader community over time. In order to be able to justify the additional upfront costs incurred by utilities, and ultimately paid for by customers, associated with rolling out digital meters.

Frontier Economics was engaged to conduct a business case and cost-benefit analysis (CBA) for South East Water's digital metering program.

2-3x
Digital meters have higher upfront capital costs
30,000
digital meters trial data used in analysis
1.37
benefit-cost ratio of digital meters option

How did we complete the economic modelling and analysis?

To conduct our CBA, we firstly identified the problem statement and considered all viable project options before examining the suite of incremental costs and benefits associated with each project option, relative to the Base Case.

We emphasised the importance of developing realistic alternatives in the business case and focused on the costs and benefits which were supported by robust evidence and conservative benefit assumptions. We examined sensitivities of the preferred option and provided guidance on delivery.

The four project options considered were:

a) Base case: Continue supply of mechanical meters to new customers and replace end-of-life meters

b) Digital meters: Roll out of digital meters over a 6-year period

c) Data logger: Retrofitting a data logger onto all existing mechanical meters

d) Bundle of complementary measures: Increased manual meter reads, more SEW district metering and scaling up demand management measures to deliver behaviour change

In order to be assured of the the volume of water savings, we utilised South East Water's exisiting trial of ~30,000 meters in the field, and significant econometric and behavioural analysis conducted on the trials, to validate the findings of the business case.

Project option B digital meters costs, benefits and ratio.

What were the results?

Our cost-benefit-analysis (CBA) for South East Water concluded that every $1 spent on digital water meters (project option B) would result in $1.37 of benefits.

In comparison, the benefit-cost ratio of project option C - retrofitting a data logger - was found to be 0.56 and for the bundle option, project option D, it was 0.52.

The key benefits included: