Why private residential water recycling has stalled in Sydney – The Fifth Estate

The NSW government has flagged it’s looking into recycling water to cope with the drought and Sydney Lord Mayor Clover Moore is likewise committed to water recycling. But according to some critics, the statutory pricing structure around recycling is shutting out innovation. Sydney Water argues it needs to maintain commercial viability to meets its requirements to supply low cost water for all. Who’s right?

Using recycled water to flush toilets and irrigate parks makes sense in the middle of a drought but councils and water experts say that pricing mechanisms that came into force last year are holding the private water recycling industry back.

Decentralised water recycling schemes as seen at Sydney’s Barangaroo precinct or Central Park are capable of stopping huge amounts of useable water from ending up in the sea, with Flow Systems’ water recycling system at Central Park able to produce enough recycled water to fill nearly three Olympic-size swimming pools each week.

But a pricing mechanism introduced in January 2018 by IPART, the independent regulator that determines the maximum prices that can be charged for water and other utilities in NSW, is making it difficult for commercial operators to provide recycled water in residential developments.

In fact, The Fifth Estate’s been told that no new water recycling projects of this variety have been approved since the ruling came into force almost two years ago.

Understanding this vexed regulatory environment

In Australia, water customers pay a variable charge for water based on how much they use, along with a fixed charge that covers the cost of the pipes and infrastructure the water supply relies on, plus the huge amounts of energy it takes to pump it around.

Underpinning the model is what’s known as “postage stamp pricing,” where all customers pay the same amount for the service provided, even though it costs more to provide water services to homes 50 kilometres from the mains water infrastructure than to houses right next to it.

With decentralised water projects, such as Central Park, greywater from showers and washing machines is recycled and reused onsite for irrigating and other non-drinking purposes. This doesn’t mean the system is completely off-gird – the waste from the recycling is still pumped back into the sewerage system and drinking water is still connected.

The problem is that under this arrangement, Sydney Water, the government-owned corporation that provides water services to Sydneysiders, misses out on some of its revenue and it’s concerned that if multiple private recyclers create similar systems the commercial impact might be enough to affect its ability to meet its statutory requirements to provide services.

This prompted IPART to review the pricing mechanisms for water recycling of this nature.

The regulator came up with what’s known as a “retail minus” pricing methodology. This ruling, introduced in January 2018, effectively means recyclers are no longer charged wholesale or “non-residential” rates from Sydney Water for access to drinking water and sewage.

This pricing framework leaves it up to Sydney Water and Hunter Water to negotiate a price for sewerage services with private water recyclers on a case-by-case basis.

Private operators say the price increase can vary between 100 per cent, 200 per cent or up to 300 per cent.

IPART is trying to stop the cost of water going up for all customers

From IPART’s perspective, the new rules are necessary to stop these projects driving up costs for other water customers.

“We need to have regard to the cost of living for all customers,” an IPART spokesperson told The Fifth Estate.

The spokesperson said that private operators of recycled water systems have previously argued for prices that would mean increased costs to Sydney Water’s other customers.

IPART’s spokesperson says that “broader policy considerations” are really to blame: non-potable recycled water needs a second set of pipes which makes this an expensive exercise.

When a negotiation can’t be reach between Sydney Water and the private operator, IPART will jump in to mediate. It hasn’t had a chance to flex this muscle yet but if it were asked to set these prices between Sydney Water and a private recycler, it has stated that its priority is to ensure prices fairly reflect the benefits the project will make to Sydney Water’s broader customer base.

For example, it would offer a discount if the project reduced the need for Sydney Water to invest in sewage treatment.

It would also ensure the pricing does not unreasonably add to the prices paid by Sydney Water’s other customers. The framework also allows for exceptions in the event customers are willing to pay for the “external benefits the scheme generates”.

A Sydney Water spokesperson told The Fifth Estate that the retail-minus pricing system is “a necessary part of a postage-stamp price framework, which ensures that Sydney Water customers do not have to subsidise private companies.”

Some say the ruling has stymied the recycling industry

Critics of the retail minus methodology say that it makes it too expensive to provide recycled water in residential developments by allowing water utilities to overcharge for the removal of waste through the sewerage system.

The other problem identified is that it creates uncertainty – the enemy of any good business case.

Because each water recycling project is assessed on a case-by-case basis, there’s no knowing what the price will end up as, and that can be too high risk for some developers.

It also adds another time-consuming layer of complexity to the approvals process.

As such, no new water recycling schemes have been approved since the new ruling was put in place almost two years ago.

City of Sydney councillor Jess Miller flagged the city’s frustration at this scenario at The Fifth Estate’s recent Tomorrowland19 symposium. She said the new pricing framework is a hard sell under the current drought conditions.

“The consequence of all this is that we’re flushing drinking water down the toilet.”

The weight of this unfavourable regulatory environment has been felt by the council during the Green Square precinct redevelopment. The council has “plumbed the hell out of that place” with the intention of providing non-potable water recycling services across the entire 278 hectare Green Square area.

Unfortunately, according to the council, the new pricing framework has made recycling the water commercially unviable.

The council has looked for other opportunities to install water recycling infrastructure, given one of its targets in its Decentralised Water Master Plan is to replace 30 per cent of mains water demand across the City of Sydney local government area with recycled or alternative non-potable water generated from local water resources by 2030.

This includes laying water pipes for water recycling below the new light rail system along George Street. The plan is to link up different precincts so that greywater from Barangaroo and other parts of the CBD can be used to water the gardens at Hyde Park, as an example.

As such, the council is calling on IPART to scrap the retail minus methodology and revert to the non-residential prices that other businesses are charged.

Cr Miller says it would be a shame to miss the opportunity to put the right infrastructure in with so much construction in the pipeline at the moment.

“If you don’t get it in now through incentives and regulation it will be pretty cost prohibitive in the future.”

The potential of water recycling is huge. More than half of Sydney’s water needs could be met with recycled water according to research by the City of Sydney.

Calls for next generation water infrastructure

Lisa McLean, chief executive officer of next generation utilities body Open Cities Alliance, is also in favour of scrapping the retail minus methodology.

McLean is also keen to see a revamp of Sydney’s water infrastructure more broadly.

She says there’s a movement away from centralised to smaller precinct scale water services, along with other utilities such has energy, waste and mobility.

At the heart of McLean’s vision is “turning water around” before it ends up in the ocean. The organisation wants zero ocean output targets to drive the water industry in this direction.

“Water needs to stay in the communities where it comes from.”

Not only will this create resilience in the water supply, she says, but it will make combating the urban heat island effect a lot easier if there’s water to keep greenery alive. An ample water supply will be essentially if the NSW government wants to meet its Premier’s Priority of planting one million trees in Greater Sydney by 2022.

Bushfires also need to be put out with something, McLean points out.

To drink or not to drink, that is the question

Colin Fisher, chief executive officer of water recycling company Aquacell, says this conversation too often focuses on drinking recycled water, which is an important discussion to have but also stymies talk about the advantages of non-potable recycled water.

With non-potable decentralised water systems, water doesn’t have far to travel so doesn’t take much energy to pump around. Fisher says that he’s staked his business model on smaller-scale non-potable water recycling because it is a cost effective option.

Largescale potable water recycling, however, is done in parts of the world, including Singapore, which is home to the largest recycling plant in the world. Singaporeans have been drinking high grade reclaimed water recycled from treated sewage since 2003.

Do we really need a second set of pipes?

It’s a confronting notion to some but it is possible to treat greywater and other reclaimed water (yes, even sewerage) to the point that it’s drinkable.

This is more energy intensive than treating it to the point that it’s non-potable (safe for irrigation and flushing toilets) but the upside is that it doesn’t need a second set of pipes, known as dual piping.

Water is simply captured before it enters the sea, treated, and pumped back into the main water supply.

The technology is proven and safe but if the experience in Toowoomba is anything to go by, where residents voted against drinking their own treated waste water, it would suggest Australians are not yet psychologically ready for recycled water.

The current drought and lack of water to fight fires might be enough to change the public’s mind.

Sydney Water is no stranger to water recycling

Sydney Water has a range of water recycling projects underway. A spokesperson said that in the pursuit of creating a more resilient water system it’s a “strong advocate of having all options on the table, including recycled water.”

In 2018-19, the organisation supplied about 44 billion litres of recycled water across its schemes and the plan is to double this capacity over the next 25 years.

At the moment, it operates 23 recycled water schemes from 24 wastewater systems that is used by customers for household, commercial, industrial and agricultural purposes.

This includes Sydney Water’s Rouse Hill Water Recycling Scheme – the largest residential water recycling scheme in Australia. At Rouse Hill, the organisation treats 20 million litres of wastewater each day to a tertiary standard, then recycle most of it back to customers for non-drinking purposes. This scheme services 32,000 properties in Sydney’s North West.

Tags: IPART, reclaimed water, regulation, water recycling

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