Wednesday, July 22, 2009

Desalination Overrun

The protests regarding the Sydney desalination plant have died down as the project is well and truly under way and seems unstoppable. There are only so many issue frustrated NSW residents can be worked up about at once. However, I was alerted to an article on the BBC regarding a new desalination plant opening in Barcelona. The quoted cost seemed low - 230 million Euro - almost exactly 400 million Aussie dollars at today's exchange rate. A quick check of Wikipedia reveals that the Sydney plant's estimated costs (and we now how they tend to end up) are already at 1.8 billion dollars. The proposed Sydney plant will generate 250 Mega-litres per day of desalinated water, compared to Barcelona's 200 ML/day.

Crude maths suggests a capital cost to build a plant that generates a litre of day of desalinated water to be $7.20 in Sydney versus $2 in Barcelona. I'm sure there are factors I've missed (pipe length, property costs etc) but it's hard to see how such a difference can be explained.

While researching Inner West light rail for my recent post, I came across the excellent Eco Transit website. An informative article by Gavin Gatenby (much better researched than this back of the envelope effort) exposed the project cost differentials between rail projects in WA and NSW. Interestingly enough there was a factor of greater than 3 there as well. Are we seeing some of the same effect here ? Anyone know any more ? I'm surprised more people aren't protesting the rail estimates as the NSW public are really suffering as a result.


  1. There are a few things which might tend to push up the cost of the Sydney Desal plant, though I'll leave it to others to determine whether they're enough to make it cost almost 4 times as much.

    The thing to remember is that the Sydney Desal plant was built during the peak of the biggest constuction boom Australia - and the world - has seen in the last 50 years. Any major project built in the last 3-4 years has had huge difficulties in sourcing equipment and raw materials, which has driven prices up. I've worked on projects where capital costs increased by almost 30% (on $4 billion dollars!) over the 2008 calendar year - and that was before construction had started.

    But on the other hand, I've seen photos of the steelwork for the Sydney Desal plant, which had been fabricated in China (no doubt to the displeasure of local companies), and would have gone some way to reducing costs on this commodity.

    The other factor which might have pushed costs up here is the cost of construction labour - between the CFMEU and the resources boom, the cost of construction labour in this country has gone up significantly. And unlike in Spain, there's no pool of cheap Eastern European workers we can hire by being part of the EU. These costs are not a small component of construction, so that might be one reason why the Spanish plant was cheaper.

    But all this is speculation, as I've no connection with the project here. But perhaps someone from the Blue Water JV might like to enlighten us some more?

  2. It's entirely possible that the Barcelona project is some kind of nasty PPP (Public-Private Partnership) so that the capital costs look small, but the operating costs are through-the-roof.

    And yes, you'd do well to consult with Gavin on transport issues.

  3. Here's a few potential causes of big cost differences which would certainly need to be ruled out before being able to pin it on being something particularly inefficient about NSW:

    Design life: How long is the plant expected to operate?

    Construction costs, or whole-of-life: That is, is the cost quoted for the construction phase only, or for the whole life of the plant including operation, maintenance and decommissioning? (This alone can be a 2x to 4x factor.)

    Regulatory differences: Different building codes, water quality standards, safety regimes required during construction. Not having to design to certain standards can significantly reduce costs.

    Anonymous might be onto something about labour costs, too. Spain does have something like 18% unemployment in addition to those cheaper Eastern European workers.

  4. Thanks everyone for the interesting feedback.

    Operating costs are an important part of the equation and design choices that reduce capital costs can have a significant ongoing impact on running costs. It's noteworthy that announcements on these projects nearly always mention capital costs (especially in these days of shovel ready billions) but neglect operating costs. I couldn't find any operating expense information for either the Sydney or Barcelona project in my admittedly brief search.

    I'd love to see some sort of campaign to force governments to reveal operating costs and expected project life-spans. The media and politicians need to start educating the public around the concept of whole of life, even if some of the figures are ugly.

    I'm sure labour costs are part of the picture - however although Spain is well and truly in the pooh now, it was in the middle of an unsustainable construction boom 2-3 years ago, which is when the plant was being built.

    I'd love to hear from (more) people with more knowledge than me - but I can't help thinking that while mentioned factors could explain cost differences of 30% to 50%, 300% is a whole other story that needs more investigation and explanation.

  5. There's a bit more information about the Barcelona plant here:

    Both Sydney and the Barcelona plants are using the same desalination technology - reverse osmosis - so operating costs should be comparable.

    However, I note that the Barcelona plant is using an existing ocean outfall, so they only have to pay to construct the intake tunnel - the Sydney plant has had to construct both intake tunnels, and brine outfall tunnels. Considering these are around 2km long, and 2.4m in diameter, they're not cheap to construct - I'd say at least $100m each, so there's another big cost difference.

    (And we know from the Metro estimates how expensive tunneling is in this city :-)