Model Structure
The data research will be focused upon developing a spreadsheet model that draws relationships between the economic values of alternative uses of water, and their location within the catchment under different extraction scenarios. It is expected that the following options will be included in the analysis:
- Base Case: Existing (September 2003) hydro-electric power generation, and other diversions, with analysis of their tourism, recreation, environment and social outcomes.
- Additional Power Generation: Addition of more hydro-electric power generation to the Base Case (Sub-options would include singular inclusions of six major installations). The results would be based on Concept Consulting Report outcomes.
- Additional Irrigation: Addition of more irrigation diversion to the Base Case (Sub Options would include 5 major locations for diversion). It is assumed that the economic output per unit area for agriculture would be similar for all regions, however the costs of installation, water demand, environmental and social impact would be expected to vary with the location of the diversion.
- Three combinations of additional irrigation and power generation infrastructure will also be considered, which indicate highest overall production value from water.
Due to the broad nature of the modelling and limits to available input data, some important assumptions will be made. These are listed below:
- Assumptions for extractions will be limited to average annual demands. The impact of seasonal variability of demands will be assessed quantitatively where possible, however in the cases where data is unavailable/insufficient, a qualitative assessment will be made.
- A broad set of assumptions will be applied consistently throughout the catchments that will enable analysis of the most critical variables (e.g. water demand) and their influence on overall economic values to be assessed.
- Where appropriate linkages can be developed, the project team will assess economic benefits/costs of environmental and social impacts via benefit transfer from a range of applicable case studies. Methods used to value environmental and social impacts within these existing case studies may include contingent valuation, travel cost, hedonic pricing, and choice modelling. In instances where no suitable case studies can be found, environmental and social impacts will be quantified, or where this is inappropriate, they will be described qualitatively.
A description of the model schematic is presented in Figure 1 (below). The major reservoirs are marked, along with the location of existing and proposed power stations (and transfer canals). The locations marked with arrows represent the potential additional extraction demands upon the system. Early investigations will seek to identify those demands that represent the range of economic "trade-off" within the system, and five locations will be used to present the results of the investigations.
The critical environmental indicators will be identified from the investigation in this process. It is possible that these could occur anywhere within the system and the constructed model will include these as required.
Figure 1: Basic System Schematic with Possible Demand Locations
→ Figure 1: Basic System Schematic with Possible Demand Locations Full Size (796x634 pixels) [15KB GIF]
The modelling work will draw upon the mean annual flow calculations provided within the hydrology report of the Meridian submission, and underlying hydrology work completed for the Concept Consulting report.
SKM will aim to construct the model in a way that allows scenarios to be constructed relatively easily, although the short timeframes will not represent time to incorporate flexibility for every demand location and aggregation may be used where the reduced accuracy of the results is not significant.
The modelling for any future development will emphasise accurate capture of the direct economic impact associated with various diversion proposals:
- capital costs
- recurrent costs
- asset replacement costs
- costs of continuing mitigation activities (environmental management activities etc.)
- costs of removing existing land use (acquisition)
- costs of removing existing water use (environment)
- benefits of offsets (e.g. recreational lakes)
- benefits of increased value of production (irrigation)
- benefits of avoided cost (electricity generation) by comparison of price paths if power generation capacity were to remain at existing levels.
The indirect benefits will be incorporated where reasonable approximations can be made of the value added by affected industries downstream. Some of this information is available from Meridian Energy data. It is expected that Statistics New Zealand and the Treasury will also be consulted during the review to support development of assumptions. The project team will also hold internal discussions to determine the applicability of data that supports wider economic implications of changes in key production inputs and outputs across the economy.
A qualitative assessment of the location of various benefits and costs will also be undertaken, if the modelling data is considered robust to the point where conclusions can be drawn.
SKM would welcome suggestions on the modelling structure, or flexibility that might be required of the modelling outputs in the future.
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