The price of purity

The global downturn may take the heat out of rising membrane prices, though other costs such as capital and operating expenditure may increase. Richard Collins reports.

Membrane costs have risen in recent years but may peak as demand slows.

As technology grows in popularity and volume, it traditionally gets cheaper. Take plasma screen televisions. Given more than 70 per cent of the desalination plants installed globally since 2000 are based on Reverse Osmosis (RO), you’d expect the membrane technology to have followed the traditional price pathway.

In the early 2000s it certainly did. There are few public figures, but a recent study sponsored by the National Water Commission plotted the water tariffs reported for RO desalination plants during the past two decades and found they went from US$1.55/m3 in 1991 at Santa Barbara, California down to US$0.8 in 2000 at Trinidad and dropped further to US$0.63 in 2003 in Ashkelon, Israel.

However, since then, membrane costs have bucked the trend, with costs ticking upward in the past few years. The sheer weight of new desal projects and rising raw material costs in general have been cited.

Dan McCarthy, CEO of Black & Veatch’s global water business, speculates one silver lining of the financial crisis could be a reduction in those costs.

“In the 1990s and the early part of this decade, the costs of desalinated water were decreasing over time as a result of technological improvements. However, the increase in commodity prices since 2005 appears to have changed that trend,” he told WME during a tour earlier at the start of the year.

“If the prices of related commodities continue to fall, one expected positive impact of the financial crisis could be that the cost of the desalination process might begin to fall again as a result. In the case of desalination, you need large amounts of specialty metals and equipment that is corrosion resistant.

“The costs of the materials rises and falls according to the cost of the ores refined to make them and the cost of energy needed to drive the refining and manufacturing process. Over the last six or so months, prices for inputs into process units have declined significantly. Those reductions will take some time to work through the system, but if the trends toward continued decline or no increase holds up, then over time equipment will become less expensive.

“This, of course, assumes that there are no other factors – such as a demand-driven scarcity driven by a big increase in the number of desalination installations under construction – that would drive product prices higher in spite of lower production costs.”

Indeed the difficulty in accessing debt funding at the moment could play into the dynamic, reducing activity in the space. One of the consortiums bidding for Melbourne’s desalination project pulled out for reasons that most suspect related to capital access issues.

But there are few signs yet of a global slow down, according to Tom Pankratz of Global Water Intelligence (GWI), who tracks desalination projects around the world and advises on several local projects.

“Increasing demand for membranes has seen manufacturers struggle to keep up with them. The last two or three years have been record years in desalination, in particular the reverse osmosis market,” Pankratz said.

“Now we are seeing some delays in financing, with six to nine months in some cases. But we have seen very few projects cancelled. Some do predict much more of a slow down, but in many cases there is simply no option.”

Water capex expands
GWI’s 2007 report Water Market Australia forecast local desalination capacity would rise from 628,000 m3 a day in 2008 to 4.2 million m3 in 2017. Similarly, it projects an increase in water reuse capacity from 752,000m3 daily to 3.6 million m3.

Six years ago, capital expenditure on water nationally was something like $2 billion. The report expects in the years ahead more than $4 billion per year will be spent, much of it on large projects for membrane-based desalination and water reuse, but also storage and long distance water transfer.

“These projects are on a scale currently unmatched anywhere in the world outside the Middle East,” it says.

Pankratz says the current rash of plants has also put Australia’s desal projects at the upper end of the global price scale, though membrane costs are only a small part of the picture.

“The plants in Australia are some of the most expensive in the world. The labour costs are high, the environmental impact reports are the most extensive and detailed and, in some cases, the intakes and outtakes are as expensive as an entire desalination plant. And many are powered by renewable energy,” he said.

This expansion is expected to cost the public sector and industrial water users $20.4 billion over the next decade – a very high price per cubic metre of additional capacity compared to the cost of new water resources achieved elsewhere in the world.

The National Water Commission’s Emerging Trends in Desalination review breaks down the capital and operating expenses for a typical membrane desalination plant. For an RO-based plant, total capex is US$700-900 per m3. Mechanical and process works, which include equipment such as membranes, screens, pumps and tanks, accounts for 35 per cent of this. Any fall in membrane costs will help cut the capital expenditure.

In terms of operating and maintenance costs for an RO plant, electrical power is the single biggest component, using 3.5-5kWh per m3 of water. This is 50-75 per cent of the total O&M cost, although it’s typically closer to 60 per cent.

With energy consumption the key parameter from an operating cost perspective, the imposition of a carbon cost through the proposed emissions trading scheme is a key variable. A typical 100ML a day, single pass RO plant emits 693 tonnes of CO2e each day, says the NWC report, so the sums are not too difficult to work out on the initial capped $10 a tonne carbon cost.

So while capital costs may ease off thanks to the global financial crisis, operational costs may rise on the back of the global warming crisis.