Specific net present value: An improved method for assessing modularisation costs in water services with growing demand

Abstract

A specific net present value (SNPV) approach is introduced as a criterion in economic engineering decisions. The SNPV expresses average costs, including the growth rate and plant utilisation over the planning horizon, factors that are excluded from a standard net present value approach. The use of SNPV favours alternatives that are cheaper per service unit and are therefore closer to the costs that a user has to cover. It also shows that demand growth has a similar influence on average costs as an economy of scale. In a high growth scenario, solutions providing less idle capacity can have higher present value costs and still be economically favourable. The SNPV approach is applied in two examples to calculate acceptable additional costs for modularisation and comparable costs for on-site treatment (OST) as an extreme form of modularisation. The calculations show that: (i) the SNPV approach is suitable for quantifying the comparable costs of an OST system in a different scenario; (ii) small systems with projected high demand growth rates and high real interest rates are the most probable entry market for OST water treatment systems; (iii) operating expenses are currently the main economic weakness of membrane-based wastewater OST systems; and (iv) when high growth in demand is expected, up to 100% can be additionally invested in modularisation and staging the expansion of a treatment plant.