AWWA SOURCES55771

Water utilities are examining desalination with a fresh eye. While much of the analysis within utilities focuses on current costs, some of the risk-related benefits and costs that a desalination alternative contributes to a water resource portfolio have received considerably less attention. This paper examines several issues that, though difficult to quantify, do constitute a very real part of the benefits and costs of a desalination project. These risk and uncertainty related issues include: uncertainty in future capital and operation costs; pure portfolio diversification value; hedge against unknown disruption; site option value; and, interaction with future cost of other water resource alternatives. No valuation of desalination as a water resource alternative should be considered complete without rigorous analysis of these issues. Any valuation analysis will need to transform these issues first into a question that admits an empirical answer. This paper begins to question the definition process and should interest water resource decision-makers responsible for choosing among water resource alternatives or water resource professionals responsible for informing the choice among water resource alternatives.