Water issues wordwideWater issues wordwide

Sustainable Development Goals (SDGs): water related issues arise in connection with all the related issues arise in connection with all the other SDGs!

Huge differences from many aspects also within Europe!

– Resources– Regulation

Practices– Practices– etc…

Source: UNEP City Level Decoupling 2013http://www.unep.org/resourcepanel/portals/24102/pdfs/Cities‐Full_Report.pdf

Special characteristics of water infrastructureSpecial characteristics of water infrastructurepp• Essential infrastructure, essential services• Since thousands of years• Public service  quasi public goods• Public service, quasi public goods• Transports massive volumes• Needed on the long run• Water scarcity, infrastructure scarcityWater scarcity, infrastructure scarcity• Uneven distribution  in time and space

• Natural monopolyp y• Long life assets• System behaviour• Ownership (public, private, misc.)• Cost‐based (authority) priceing• Affordability vs. Sustainability? • Perception is distorted from many aspects• Far reaching effects of investment decisions

LCC in water infrastructure managementLCC in water infrastructure managementgg

Life-cycle cost (LCC) in public procurement

Water Water infrastructure infrastructure managementmanagement

Life-cycle cost in option analysis(Dynamic Cost Comparison (DCC)

for cost-efficiency analysis)

Project preparation and procurementProject preparation and procurement

Certain procurement systems allocate responsibilities and business interest inappropriately!business interest inappropriately!•Plan, Design, Build, Operate•FIDIC red book (build)( )•FIDIC yellow book (design and build)

Differences in EU!Differences in EU!•West, north: design‐build‐operate•CEE: FIDIC yellow book (design and build)CEE: FIDIC yellow book (design and build)

In CEE practice contractors are not responsible nor In CEE practice contractors are not responsible nor interested in operation!interested in operation!

LCC as award criteria in public procurements!LCC as award criteria in public procurements!

Applying LifeApplying Life‐‐Cycle Costing approach during Cycle Costing approach during the planning processthe planning process

100%

sts

In case of FIDIC red bookIn case of FIDIC red booklu

ence

cos

LCC in option analysis!LCC in option analysis!

bilit

yto

infl

ab

??

time

??

Option analysis, conceptual plans,, feasibility study

Permission Tendering, implementation,

max. ±10%

Tender design

time

Applying LifeApplying Life‐‐Cycle Costing approach during Cycle Costing approach during 

In the case of FIDIC yellow bookIn the case of FIDIC yellow book

the planning processthe planning process

100%

sts

In the case of FIDIC yellow bookIn the case of FIDIC yellow booklu

ence

cos

LCC in option analysis!LCC in option analysis!

bilit

yto

infl

Life Cycle Cost as award Life Cycle Cost as award 

ab criteria in procurement!criteria in procurement!

timeOption analysis,

conceptual plans,, feasibility studyPermission Tendering,

implementation, max. ±10%

Tender design

time

The elements of Life Cycle CostThe elements of Life Cycle Cost

)

osts

osts

ntnt -life

cost

(?)

CT

CT

CO

STC

OST

tial

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oco

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men

lace

men

End

-of-

DIR

ECD

IREC

YCLE

CYC

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Ini

Ini

Operation maintenanceOperation maintenance

Rep

Rep

LIFE

LIFE

--CY

CY

Operation, maintenanceOperation, maintenance

CT

CT

CT

CT

TOTA

L TO

TAL

External costsExternal costs

time

IND

IRE

IND

IRE

IND

IRE

IND

IRE TTExternal costsExternal costs

(indirect, negative enviromental, social, economical effects)

Interpretations of Life Cycle CostInterpretations of Life Cycle Cost

•• Investment Cost Investment Cost •• Operational Cost Operational Cost 

R l  C  R l  C  Direct Life Cycle Cost(LCC)

•• Replacement Cost Replacement Cost • End of life‐costs

ect e Cyc e Cost( CC)

Environmental Life Cycle Cost • External cost

• Revenue („negative cost”)

y(ELCC)

h l f l ” ( )

• In procurement should consider relevant cost items!

(„ g )• External benefits Whole Life Cycle „cost” (WLCC)

• LCC ~ TCO• WLCC ~ CBA• LCC ~ TCO• WLCC ~ CBAp

Interpretable? Zero? Considered as zero? Estimable? Verifiable?• Items being the same in all alternatives, does not affect the decision!• In case of water infrastructure investments:

WLCC ~ CBAWLCC ~ CBA

o In general end‐of‐life cost could be considered zeroo External cost are the same in many cases (except energy, CO2 emission)o External benefit are the same in most of the caseso Income: negative costs e.g. energy savings; by‐products, sludge to compost…

Sources of cost dataSources of cost dataThe Hungarian way: Specific Costs Guide for water investments

• Specific investment cost of typable objects, units• Life time expectanciesLife time expectancies• Based on broad social consensus:

• Hungarian Chamber of Engineers (MMK),• Hungarian Water Association (HWA),Hungarian Water Association (HWA), • Hungarian Water Utility Association (MaVíz), • Hungarian Academy of Science• Budapest University of Technology and Ecomomics (BME)p y gy ( )• …and top experts and market actors

CalculatingCalculating Life Cycle Cost (LCC)Life Cycle Cost (LCC)

E C

OST

E C

OST

Can be assessed with DCC Can be assessed with DCC •Objective

REC

TR

ECT

--CYC

LEC

YCLE

•Objective

•Transparent•Verifiable

DIR

DIR

alal) L

IFE

) LIF

E-- •Data base, methodology, practical experience!

•Easy to learn!

AL

(A

L (to

tato

ta

Easy to learn!

eeee

ECT

ECT

ECT

ECT

NM

ENTA

NM

ENTA The monetary value of external 

effects should be estimated  •It is impossible  in significant number of cases

Mon

etiz

able

Mon

etiz

able

Mon

etiz

able

Mon

etiz

able

IND

IRE

IND

IRE

IND

IRE

IND

IRE

NVI

RO

NN

VIR

ON of cases

•Uncertain, theoretical and inevitably subjective

•Difficult to verify, special expertise needed

Not

Not

netiz

able

netiz

able

Not

Not

netiz

able

netiz

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ENEN

needed

Mo

Mo

Mo

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The DCC projectThe DCC project

• International methodological project• Knowledge transferg• With the participation of 5+1 CEE countries (HU, BG, RO, SK, CR+DE)

The original objective of the project:f h l i i hImprovement of the planning process with a new 

methodological approach of option analysis

What is DCC about?What is DCC about?

• Adequate tool for applying life cycle approach at the right stages of the planning processstages of the planning process

• Proper understanding of cost‐efficiency

• Economical knowledge to engineers, non economists

• Facilitate interdisciplinary approachp y pp

• Improve communication among stakeholders

I  t   f d i i ki g• Improve transparency of decision‐making

• Bridge between science and practice

Dynamic Cost Comparison (DCC)Dynamic Cost Comparison (DCC)Dynamic Cost Comparison (DCC)Dynamic Cost Comparison (DCC)

For calculation of Life‐cycle Cost (LCC) and selection of the most cost‐efficient, optimum solution!

Main principle of (DCC)

For the correct evaluation of cost‐efficiency, all costs of the whole life cycle should be taken into account, and cost should be compared on their 

present value.present value.

Similar decisionSimilar decision‐‐making situationsmaking situations…choose the „best” from given alternatives!

Parameter Option analysis Procurement

Determination of cost elements: approximate accurate

Determination of lifetimes:  overview accurate

Forecasting operation costs: estimation data disclosure

Forecasting the changing of cost elements: sensitivity analysis data disclosure, 

garanties

Main difference: reliability, and breakdown of input data…

ExampleExampleTechnological options for a pump station

Option „A” Direct LCC = 580 thEUR

Option „B” Direct LCC = 793 thEUR

LCC Sympozium @IFAT 2016 LCC Sympozium @IFAT 2016 

„APPLYING LIFE CYCLE COSTING (LCC) ON PUBLIC PROCUREMENT PROCEDURES IN THE WATER INFRASTRUCTURE” 

ORGANISED BY THE EUROPEAN WATER ASSOCIATION (EWA)AT IFAT MUNICH, ON 1ST JUNE 2016

Recommendations•APPLY LIFE CYCLE COSTING (LCC) IN THE WATER SECTOR•APPLY LIFE CYCLE COSTING (LCC) IN THE WATER SECTOR•KNOWLEDGE SHARING AND DEVELOPEMENT OF LIFE CYCLE COSTING (LCC) METHOD AND TOOLS•CAPACITY BUILDING TO SUPPORT STAKEHOLDERS IN APPLYING LIFE CYCLE COSTING (LCC) IN PRACTICEF  f th  i f    htt // li / l i 1792 ht l•For further info see: http://www.ewa‐online.eu/ewa‐lcc‐symposium‐1792.html

LCC in water LCC in water –– The North American way…The North American way…

Percent of Bids Utilizing LCC

GE Water – Municipal Procurement

100%

60%

80%

40%

60%

20%

0%2010 2011 2012 2013 2014 2015

18

Case Study: Fargo, ND WTPCase Study: Fargo, ND WTPgg

Bid Evaluation Results:

•Project Award: GE

Market Case StudyMarket Case StudyBrodhead Creek  PA (1 MGD  July 2015)Brodhead Creek  PA (1 MGD  July 2015)Brodhead Creek, PA (1 MGD, July 2015)Brodhead Creek, PA (1 MGD, July 2015)

Keys to a Good EvaluationKeys to a Good Evaluationyy

• Things to be conscious of:g• Provide hard costs and formulas to bidder:

Discount Rate / Power Cost / Chemical Costs / Site Conditions…

• Everyone must design for the same criteria• Scope of the suppliers must be equal• Exceptions to terms needs to be consideredp

Apples to Apples comparison is critical

Implications for BuyerImplications for Buyerp yp y

C li t d T d• Complicated Tenders• Educated Procurement• Procurement Cost á• Political Awareness• Need to Decide on Value of Everything• TimeTime

LCC Purchasing Requires Effort

Building LCC into the procurement process Building LCC into the procurement process can have a global impactcan have a global impactcan have a global impactcan have a global impact

Xylem: Powering the Wastewater Renaissance•through smart investments in high efficiency technologies the wastewater sectorthrough smart investments in high efficiency technologies the wastewater sector could cut its electricity-related emissions by 50% and save nearly $40B.

Marginal Abatement Cost Curve for US, Europe and China

http://www.xylemwatersolutions.com/scs/canada/en‐ca/products/Brochures/Brochures/General/Powering%20the%20Wastewater%20Renaissance%20Brochure.pdf

CCase studies where ase studies where use of LCC was a successuse of LCC was a success

C t h llCustomer challenge: •Comodepur (Lake Como, Italy)

•Eliminate clogging issues and deliver a sustainable, cost-efficient wastewater

Customer challenge: •Calco Toffo Wastewater Treatment Plant, Italy

•Current diffuser solution had high energy pumping system that safeguards the local environment

Xylem solution: •After analyzing the situation, Xylem

consumption, high downtime, and inconsistent operations

•Topographic factors and nearby natural environment made design a challengey g y

recommended the Flygt Experior technology and the ‘Try and Buy’ offer to validate savings before purchasing

Results:

Xylem solution: •Xylem was one of two suppliers who could meet the specs given the shallow aeration basins, and our Sanitaire Gold

•A sustainable, cost efficient solution that cut energy consumption by 27 percent and eliminated clogging problems•The products paid for themselves

Series diffusers won on efficiency

Results:•Reduced energy consumption by 50%, even in winter months when treatment •The products paid for themselves

within eight months process is slower

ConclusionsConclusions1. Life Cycle Costing  approach should be applied at the right stages of 

ConclusionsConclusions

the planning process for sustainaility and  affordability.

2. Life Cycle Cost is already in use  in the water sector as basis for the evaluation of cost‐efficiency.

3. Capacitiy building: LCC‐DCC training for every stakeholder!

4. In many cases Direct Life‐Cycle Cost can be an appropriate and practical evaluation criteria to use in procurement procedures.

5. Dynamic Cost Comparison (DCC) shall be adapted to procurement enviroment in order to empower non‐economist experts involved in 

t ith th d d t di f LCC!procurement with the sound understanding of LCC!

QuestionsQuestions1. How to deal with externalities in practice? 

QuestionsQuestions

2. General and product/industry specific guidance on LCC. What can be generalized? What should be the topics, contents of product specific 

d ?guidance?

3. What about input data for LCC calculations? Sources? Accountability? C t l?Control? 

4. Take a closer look on the processes, procedures themselves! Who d k l d f LCC i d t ll k it k d l d tneeds knowledge of LCC in order to really make it work and lead to 

better investments?

5 Besides methodological issues there are several other problems about5. Besides methodological issues, there are several other problems about public procurements (moral, bureaucratic etc.). Can LCC improve transparency and efficiency of the procedures or just makes them 

bl ?even more untraceable?

„A decision is like the preparation of it!”