Research Recommends Diversified Water Portfolios for Urban Water Planning

Published on January 27th, 2010 | by

Cities need water. And as they grow, so does their need for water. Unlike most other goods that can be manufactured or shipped in, you can’t make more water. Cities are facing the reality that they have to learn to efficiently use the water they have and prevent waste at all points of the process, and with the growing pressures of rising population and climate change, urban water planning is only becoming more critical. A new study from Penn State says that combining traditional permanent water rights with leases and options is the most effective way forward for cities to secure their water future.

Photo Credit: Wolfgang StaudtRoman Acqueduct: urban water planning has always been a major issue.
Roman Acqueduct: urban water planning has always been a major issue.

The research is intended to help decision-makers make more efficient use of available water. Using computer simulations on drought-prone areas, they showed that a diversified approach to urban water planning will help avoid both surplus water and unnecessarily high costs and reduce water shortages.

“Just like with stock portfolios, if you buy diverse stocks, you diversify your risk. Right now, cities don’t necessarily diversify their risk through the ways in which they buy water,” said Patrick Reed, associate professor of civil engineering at Penn State.

The current study is looking at how diversifying a water portfolio influences costs in the Lower Rio Grande Valley in Texas. Their research found that cities there that purchased only permanent right saw costs around $13 million, and that they often end up needing to buy more water when drought occurs. Other cities using a mix of permanent rights, options and leases spent only $10 million a year and increased their use efficiency. Computer modeling of their suggested water portfolio diversification against the worst drought in the Lower Rio Grande Valley showed significant savings and avoided shortages.

“This work not only demonstrates how we can combine multiple objectives to solve a problem, but also visualize the problem and learn from it. It is an innovative hybrid between engineering and policy to create highly adaptive and resilient water supply systems,” said Reed.

The majority of cities that purchase water buy permanent rights, meaning they buy a percentage of a reservoir. Reed explains the issue: “…you do not know what the inflows are going to be so you are essentially buying a percent of a question mark.” Reed recommends that cities buy options early in the year so that if demand surges or there is a lower than expected supply the city can buy more water at the original prices rather than over-spending as cost goes up with demand.

“Economic instruments such as leases and options provide a lot of flexibility to urban water planners, particularly in the western United States. They provide the ability to be resilient to droughts,” says Reed.


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