Add picture on dark green area (see slide 7 for Märkte für Wasser

Add picture on
dark green area
((see slide 7 for
an example)
Märkte für Wasser –
Theorie und Anwendungen
Prof. Dr. Christian von Hirschhausen
KOMDAY, 14. Mai 2009
Background: TUD – DIW – TUB Research Program
“Water Economics and Management”
g
(H
( 20))
-
-
-
-
-
Industrial Organization / Microeconomics:
-
Regulation theory (yardstick competition, increasing or decreasing block tariffs, regulation and pricing in
developing countries)
-
Environment (optimal use of water, external effects)
Water Management:
-
Water treatment and sewerage
-
Water demand, scenario methods
-
"Virtual water", assessment of virtual water flows between nations in relation to international trade
-
Accounting rules
Numeric Modelling:
-
Economic modelling taking into account network effects
-
Scarcity pricing
Econometrics:
-
Benchmarking / Efficiency analysis
-
Demand estimations
Institutional / Policy Issues:
-
Privatization and public-private-partnerships (PPP) in water distribution
-
Organizational reforms in the German and European water sector
-2-
Research Program
“Water Economics and Management” (H20)
WP-H20-08
Matthias Walter, Hirschhausen, Christian von, Astrid Cullmann, Robert Wand, and Michael Zschille:
Quo Vadis
Efficiency Analysis of Water Distribution? - A Comparative Literature Review.
WP-H20-07
Hirschhausen, Christian von, Astrid Cullmann, Matthias Walther, and Michael Zschille: Fallende
Preise in der Wasserwirtschaft – Hessen auf dem Vormarsch.
Christian von Hirschhausen, Matthias Walter, and Michael Zschille: Effizienzanalyse in der
Wasserversorgung – Internationale Erfahrungen und Schlussfolgerungen für Deutschland.
Deutschland
Gunnar Gaitzsch: Analyse der Auswirkungen des demografischen Wandels auf die
Siedlungsentwässerung mit Hilfe des Realoptionsansatzes
Martin Nowack and Edeltraud Günther>Scenario Planning: Managing the Effects of Demographic
Change on East Geman Wastewater Companies
Meran, Georg and Christian von Hirschhausen: A Modified Yardstick Competition Mechanism.
Jekel, Martin, Georg Meran, and Christian Remy: Sauberes Wasser: Milleniumsziel kaum zu
schaffen: Privatisierungsdebatte entspannt sich.
Water Economics and Management – A Research Agenda
Agenda.
WP-H20-06
WP-H20-05
WP-H20-04
WP-H20-03
WP-H20-02
WP-H
WP
H20-01
0 01
Contact:
Astrid Cullmann [email protected]
Georg Meran [email protected]
Martin Nowack [email protected]
Matthias Walter [email protected]
www.water.sc
-3-
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
-4-
1. Introduction: „Water is Specific … and
Subject to Economic and Management Science“
• Water is a time-invariant „mega-topic“, but can be more subject to
economic scrutiny
• Water is specific
-
Vital nutrient
Important ecological implications
Network industry, often natural monopoly
Source of conflict, violence, migration
• Interdisciplinary
I t di i li
approach
h required:
i d
Economics (~ theory about prices, role of institutions, business strategy)
Management (demand, scenario methods, “virtual water“, accounting)
Engineering (technology of water system, economic-engineering interface)
Political sciences, development (interest groups, collective decisionmaking,
conflict)
- Law
L
and
d institutions
i tit ti
(legal
(l
l rules
l off the
th game, regulation)
l ti )
- …
-
Î Because water is so important, a „more economic approach“ is justified
-5-
Welfare and Rents: Price setting in competitive markets for private
goods (e.g. bottled water, groundwater)
• The basic model of a competitive market
private goods
g
in a perfect
p
market ...
• Price formation for p
Price
Price
A
pp y
Supply
pE
Supply
A
E
Consumer Surplus
E
Producer Surplus
Demand
B
pS
Deadweight loss
Demand
xE
Quantity
B
xS
Quantity
Surplus demand!!!
• ... maximizes social welfare, which is defined as the sum of
- Producer surplus (profits)
- Consumer surplus (sum over willingness-to-pay minus price paid)
• ... setting prices artificially shifts some rents to consumer
- but reduces overall rents, and creates distributional quarrels and shortages
-6-
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
-7-
Engpassmanagement und Investitionsanreize:
Knotenpreise (nodal prices, LMP) bieten richtige Informationen
• Effiziente Lösung für das Engpassmangament: Knotenpreise (engl. nodal
prices oder locational marginal
g
prices, LMPs))
• Knotenpreise sind unterschiedliche Preise für jeden Entnahme- bzw.
Einspeisepunkt des Netzwerkes (räumliche Preisdifferenzen) und variieren
mit dem Zeitpunkt der Entnahme bzw
bzw. Einspeisung (zeitliche
Preisdifferenzen)
• Der Knotenpreis setzt sich aus mehreren Komponenten zusammen
(El kt i ität
(Elektrizitätserzeugung,
Übertragungsverluste,
Üb t
l t knappe
k
ÜbertragungsÜb t
kapazität, knappe Erzeugungskapazität)
• Der Unterschied des Knotenpreises
p
zwischen zwei benachbarten Knoten im
Netzwerk stellt prinzipiell einen Investitionsanreiz dar (Ausnutzung der
Preisdifferenz), aber vernichtet ggf. die Engpassrente
• Um Investitionsanreize zu gewährleisten werden zweigliedrige Tarife
vorgeschlagen
-8-
Beispiel: Studie für BeNeLux
Preise
[€/MWh]
< 15
< 20
< 25
< 30
> 30
Netzausbau
Situation 2015
2004
Quelle: Freund et al. (2005)
-9-
Locational Marginal Prices in PJM (nodal prices)
• PJM (Pennsylvania, New Jersey, Maryland):
• biggest
gg
Independent
p
System
y
Operator
p
(ISO)
(
) in the world
• 134 GW peak load
• 165 GW generation capacities
• 728 TWh annuall consumption
ti
• 56000 miles transmission lines
• 164000 square
q
miles territory
y
• including 13 states
• 19% of US GDP produced in PJM
• LMP =
Marginal Costs
+ Transport Costs
+ Congestion Costs
Locational Price Distribution
- 10 -
• Source: Ott, 2005
Efficient Decisions on Investment Financing Through Nodal Pricing:
Example of the Rockies Express Pipeline Project
• I ~ 5 bn. USD, 2,700 km, 15-18 bcm
FERC-filing,
filing, open season, nodal pricing, etc. Î identification of bottlenecks
• FERC
• TPA with „regulated“ ROR, secondary trading, etc. Î efficient capacity allocation
Source map:: IEA Natural Gas Market Review 2008
- 11 -
Why Not for Water ? Example: Nodal Prices in Water Networks
(Raffensperger, et al., forthcoming)
• Map of
Marlborough (New
Zealand)
• Showing wells,
MODFLOW grid,
rivers,, roads
• A1,B3,C1,D3,E3 are
control points
A1, E3 and B3
• A1
ensure stream
flows
• C1 and D3 prevent
salt water intrusion
Source: Raffensperger, et al.: p.16
- 12 -
Example: Nodal Prices in Water Networks
(Raffensperger, et al., forthcoming)
• Results of market
software
• Positive prices are
shown by well;
Prices are zero at
all other wells
• Circles and three
large dots are
wells
ll that
th t trade
t d
• Latter three are
major buyers
S
Source:
R ff
Raffensperger,
ett al.:
l p.17
17
- 13 -
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
- 14 -
Auctioning of Groundwater Rights and General Pricing
(Kirsch and Charaklis, 2006)
• Consumers have option to choose
- Groundwater
- Reservoir water
- River basin water
• Idea: Auction groundwater rights
- First allocation is discussed
Secondary
da y ttrading
ad g important
po ta t
- Seco
- Î Trend towards „efficient“ use
• Model: optimal positioning of waterworks in a priced environment
- 15 -
Example: Community Choice Between Groundwater and Reservoir
Water with Pipeline (North Carolina, Kirsch and Characklis, 2006)
• Affected cities in the CCPCUA
Source: Kirsch and Characklis (2006): p.7
- 16 -
Example: Community Choice Between Groundwater and Reservoir
Water with Pipeline (Kirsch and Characklis, 2006)
• Results of including groundwater permit trading: • Affected cities in the CCPCUA
- a) illustrates results of Goldsboro-NRWASA-Greenville schenario
- b) illustrates results of NRWASA-Greenville scenario
- c) illustrates results of Greenville –Goldsboro scenario
Source: Kirsch and Characklis (2006): p.7
- 17 -
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
- 18 -
Tariffication for Natural Monopolies:
Trade-off Between Different Pricing
g Schemes
• Characteristics of a Natural Monopoly
- Exclusion is possible so that user charges can be raised
y cheaper than two or more companies
- One firm can produce the requested quantity
(subadditivity)
- Inversions are irreversible (sunk costs !) so that there is no potential competition
• Price Setting / Tariffication for a Natural Monopoly
Allocative
Efficiency
Cost
Recovery ?
Distributional
Effects
Unregulated
Monopoly
(CournotPrice)
(-) Welfare
losses
(quantity
too low)
(+)
Yes (even
rents)
(-)
explotation of
demands
MarginalCostPricing
(+) Optimal
(maximize
s social
welfare
(-) No
(fixed
costs not
covered)
(-) Lump
Sump
payment
necesarry
Average
Cost
Pricing
(?) Welfare
losses (too
low
quantity)
(+) YES
Price
E
D
PC
PAC
Deficit
Demand
C
M
Marginal
i l Revenue
R
F
B
Average Cost
Marginal
g
Cost
PMC
A
XC
XAC XMC Quantity
- 19 -
World-Wide Use of Benchmarking Studies for Regulatory Purposes
Legend:
C
Countries
t i covered
d iin
cross-border studies
Countries covered in
independent studies
Sourc: Walter, et al. (2009)
- 20 -
Development of the UK Water Sector:
From >2,500 to 28 …
Water supply
Sewerage
Resources/ environ.
regulation
1940s
> 1030 separate water
undertakings (1956)
> 1300 sewerage and
sewerage disposal
authorities
River Boards
Pre-1973
Pre
1973 consolidation
198 water
undertakings
Still > 1300
29 River Authorities
-64 local authorities
-101 joint boards
-33 SWCs
1973 Water Act
10 multi-purpose Regional Water Authorities
(RWAs)
- 75% off water
t supply
l
-100% of sewerage treatment
1989 Water Act
10 RWAs become Water and Sewerage
Companies
p
(WaSCs)
(
)
DWI and NRA take on
regulation
g
2009
28 companies
…
-10 water and sewerage companies
y companies
p
-14 water only
-4 other regulated companies
- 21 -
Office of Water
Services
Se
ces (OFWAT):
(O
) RPI
+K
„RPI + K“ Regulation
• K=Q–X
- Traditional RPI
RPI-X
X incentive regulation
- Q ~ quality factor
• X ~ firm-specific efficiency measure
- Quantitative benchmarking
a ta p
productivity
oduct ty pa
parameters
a ete s
- Partial
• Q ~ quality factor
- Qualitative and
- Capacity incentives
- 22 -
Regulated Water Tariffs in
England and Wales
Selected companies (best and worst in benchmarking; 3 people household; 2008/09)
Water and sewerage companies
Bill (for 160 m³)
(GBP)
Increase from
last year (GBP)
Price per m³
(GBP)
Anglian Water
K-factor
2,80 %
-Anglian
219,33
11
1,37
-Hartlepool
169,71
14
1,06
Dwr Cymru
229,75
15
1,43
4,10 %
South West
Water
281,08
21
1,76
9,80 %
Thames Water
196,34
14
1,05
1,20%
Wessex Water
274,10
20
1,71
5,60 %
Yorkshire Water
3 60 %
3,60
-Yorkshire
213,10
13
1,33
-York
128,35
8
0,80
Sourc:http://www.ofwat.gov.uk/consumerissues/chargesbills/household/prs_lft0809_waterseweragebills.pdf;
http://www.ofwat.gov.uk/regulating/reporting/rpt_tar2007-08.pdf
- 23 -
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
- 24 -
Rate Structure - Water Based Charges (I)
• Uniform rate (“Coase Tariff”)
• Favored by economic efficiency criterion
Expenditure
R(q)
Volumetric charge = tan β
ββ
Quantity q
- 25 -
Increasing Block Tariffs (IBT)
• Increasing block rate
R(q)
• Large users are penalized
• Problem: Influence of
household size on water
consumption
Tariff 1
Tariff 2
Tariff 3
q
Volumetric
charge
R´(q)
Tariff 1
Tariff
a
2
Tariff
a
3
Menge q
- 26 -
Water Tariffs – South Asia
Examples from South Asia
Parameters: number and size of blocks, price
level of each block
Source: Whittington (2003)
- 27 -
Case-Study Bangladesh - Facts
• 36 % are living below the poverty
line (1 USD/day)
• One of the poorest countrys in the
world
ld
• Water-rich country
• 74% have access to piped water
• Population: 153 mn. /
23 mn.
mn Households
• Average residential water
consumption: 87 l/day/capita
- 28 -
Case-Study Bangladesh - Assumptions
Population
Income
• Population 153 mn
mn.
• Lowest household income: 15 USD
per month
• Access to piped water three fourth:
113.22 mn.
• Average income: 380 USD per month
• Average household size 4.9 persons per
household → 23.1 mn. households
• Average income of the 10 per cent
most wealthy people: 1,060 USD
Water Consumption
Water Supply
• Average residential water
consumption: 87 l
• Fixed costs of 20
20,000,000
000 000 USD per
month
• Subsistence level: 6 cubic metres
per household and month
• Variable costs of 1 USD per cubic
metre
- 29 -
Total Utility Decreases After a Critical Threshold of Progression
- 30 -
Comparison Between Coase-Tariff and Increasing-Block Tariff:
„Almost Poor“ May Particularly Suffer
Î Deviation from „economic
economic“ pricing does not necessarily lead to higher welfare
Î „Das Gegenteil von gut gemacht „pro-poor Regulation“ ist gut gemeint …“
- 31 -
Agenda
1.
Einleitung
2
2.
Marktpreise und räumliche Preisdifferenzierung: Nodalpreise
3.
Marktliche Allokation von Wasser
4.
Quasi-marktliche Bepreisung in der Wasserverteilung: Regulierung
bzw. Kartellaufsicht
5.
Marktanreize bei der Wasserversorgung im Entwicklungskontext
6.
Schlussfolgerungen
g
g
- 32 -
Conclusion: „Water is Specific … and
Subject to Economic and Management Science“
• Water is a time-invariant „mega-topic“, but can be more subject to
economic scrutiny
• Water is specific
-
Vital nutrient
Important ecological implications
Network industry, often natural monopoly
Source of conflict, violence, migration
• Interdisciplinary
I t di i li
approach
h required:
i d
Economics (~ theory about prices, role of institutions, business strategy)
Management (demand, scenario methods, “virtual water“, accounting)
Engineering (technology of water system, economic-engineering interface)
Political sciences, development (interest groups, collective decisionmaking,
conflict)
- Law
L
and
d institutions
i tit ti
(legal
(l
l rules
l off the
th game, regulation)
l ti )
- …
-
Î Because water is so important, a „more economic approach“ is justified
- 33 -
- 34 -
Conclusion on Tariffs
Tariff Structure
Flat Rate
IIncreasing
i
Block Tariff
Marginal
M
i l
Cost Tariff
Two-Part
T
P t
Tariff
Priority
P
i it
Pricing
-
+
+
Objectives
Revenue Sufficiency
y
-
Economic Efficiency
-
-
+
Equity and Fairness
-
+
+
Simplicity
+
Taking into account the poor
-
Tariff with regard to objectives:
negative
neutral/depending
Source: own compliation
+
positive
- 35 -
+
+
+
-
-
-
+
Efficient Access Policy: Water Kiosks in Zambia
-
-
The Problems
•
Zambia has abundant water resources, but only 47% have
access to clean drinking water
•
44% have no access to sanitation
•
Desolate water infrastructure in low income areas
•
Low service level
•
Wastewater pollutes drinking water
Service Provision
•
84% are served by the 10 Commercial Utilities owned by
Local Authorities as shareholders
•
16 % are served directly by Local Authorities
Source: GTZ, http://www.gtz.de/de/dokumente/en-casesheet-regulation-water-sanitation-zambia.pdf
http://web.mit.edu/urbanupgrading/waterandsanitation/resources/examples-pdf/MonthlyCardPaymentSystem-ZA.pdf
- 36 -
Efficient Access Policy: Water Kiosks in Zambia
-
Regulatory Framework
•
National Water Supply and Sanitation Council (NWASCO)
regulates urban water and sanitation services
•
Solution for poor areas: Water
•
operated by private individuals
•
they have concluded an agreement with water utilities
and the municipalities
•
Charge: 0,50 EUR / m3
•
Funding and management support is provided by the
Devolution Trust Fund (DTF)
•
Incentives for service providers
•
−
Kiosks (since 1994)
Tariffs are designed to stimulate efficiency
Results
•
Improved access rate
•
Improved water / service quality and efficiency
•
Cost coverage
•
Transparency
Source: GTZ, http://www.gtz.de/de/dokumente/en-casesheet-regulation-water-sanitation-zambia.pdf
http://web.mit.edu/urbanupgrading/waterandsanitation/resources/examples-pdf/MonthlyCardPaymentSystem-ZA.pdf
- 37 -
Economic Regulation of Water in England and Wales
Water and sewerage companies
Water
Sewerage
Band A to E
Rank 1-21
Band A to E
Rank 1-10
Anglian
A (Lower)
3
B (Lower)
4
Dwr Cymru
C (Lower)
16
C (Upper)
8
Northumbrian
B (Lower)
9
C (Upper)
7
Severn Trent
B (Lower)
8
B (Lower)
5
South West
C (Lower)
18
C (Upper)
6
S th
Southern
B (U
(Upper))
7
C (L
(Lower))
9
Thames
C (Lower)
15
A (Upper)
1
United
Utilities
B (Lower)
12
C (Lower)
10
Wessex
A (Lower)
4
A (Lower)
3
Y k hi
Yorkshire
A (U
(Upper))
2
A (U
(Upper))
2
Sourc: http://www.ofwat.gov.uk/regulating/reporting/ltr_rd0209_releffassess07-08#figure1
- 38 -
Economic Regulation of Water in
England and Wales (2)
Water only companies
Band A to E
Rank 1-21
Bournemouth & W. Hampshire Water
B (Upper)
6
Bristol Water
C (Upper)
14
Cambridge Water
D (Upper)
19
Dee Valey Water
C (Upper)
13
Folkstone & Dover Water
D (Lower)
21
Portsmouth Water
A (Upper)
1
South East Water
B (Lower)
11
South Staffordshire Water
A (Lower)
5
Sutton & East Surrey Water
B (Lower)
10
Tendring Hundred Water
C (Lower)
17
Three Valeys Water
D (Upper)
20
Sourc: http://www.ofwat.gov.uk/regulating/reporting/ltr_rd0209_releffassess07-08#figure1
- 39 -
Economic Regulation of Water in
England and Wales (3)
Water e
efficiency
y banding
g
Within 5% of
benchmark
Anglian
Wessex,
Yorkshire
Between 5% and 15% of
benchmark
Northumbri
an,
Severn
Trent
Southern,
United
Utilities
Between 15% and 25%
of benchmark
Dwr
Cymru
Cymru,
Thames
South
West
Between 25% and 35%
of benchmark
Greater than 35 % of
benchmark
Greater than
35 % of
benchmark
Between
25% and 35%
of
benchmark
Between
15% and 25%
of
benchmark
Between 5%
and 15% of
benchmark
Sewerage efficiency banding
Sourc: http://www.ofwat.gov.uk/regulating/reporting/ltr_rd0209_releffassess07-08#figure1
- 40 -
Within 5% of
benchmark