Valuing hydraulic infrastructure

The value of water to society is underpinned by hydraulic infrastructure that serves to store or move water.
Kurobe Dam, Japan
Creative Commons / Attribution-ShareAlike 3.0
Last update: March 23, 2021

The value of water to society is underpinned by hydraulic infrastructure that serves to store or move water. But its value goes beyond the cost of the infrastructure itself and it includes the various benefits it provides.

By 2030, investment in water and sanitation infrastructure will need to be around US$0.9–1.5 trillion per year, roughly 20% of the total requirement for all types of infrastructure investment.  About 70% of this total infrastructure investment will be in the global South, with a large share in rapidly growing urban areas. In developed countries, large investments will be required for renovation and upgrade.

Considering the sums of money invested in water infrastructure, it could be reasonably expected that the valuation of costs and benefits would be well developed, standardized at least to some degree, and widely applied. This is not so, and societal benefits delivered are often unquantified. The valuation of hydraulic infrastructure focuses mainly on financial costs and financial returns and they often omit indirect costs, and in particular social and environmental costs, which are treated as externalities.  

For example, water-related risk and resilience can have very high values: the ability of water infrastructure to continue to deliver its benefits in ordinary as well as extraordinary circumstances can be defined as resilience value. The value of resilience is reflected in the avoided costs of system failures or the speed of recovery from them. 

Valuing water infrastructure too often focuses on a cost–benefit type of analysis, but at an empirical level its value goes beyond the cost of the infrastructure itself to include the various benefits it provides.

Fundamentally, valuation of water infrastructure is about good governance. At least, the attempt to govern well must be in place for proper valuations to play their part.
 

The case of the Itaipu Dam in Brazil

The Itaipu Dam in Brazil is among the world's largest in terms of hydropower generation. However, due to the nature of the soils, the Itaipu Reservoir is vulnerable to excessive sediment loads that gradually fill it and reduce the storage capacity, and therefore shorten the reservoir’s life expectancy, while increasing maintenance costs. Farmers in the watershed were able to develop a quantified scoring system that could account for how much each farm might contribute to reducing water pollution. This enabled farmers to be considered as ‘water producers’ by the National Water Agency, which assigns values to the ecosystem services generated by farms based on their contribution to savings in terms of dam maintenance, operational costs and capital depreciation. 

Itaipu Dam, Paraguay/Brazil