10 Mar News: Value of Cadiz water project pegged at $6.1bn
After more than a decade of legal challenges and project revisions, Cadiz seems to be within striking distance of getting its water supply project off the ground.
GLOBAL WATER INTELLIGENCE, Vol. 15, Issue 2
February 18, 2014 – In a white paper released on 28 January, consulting firm Stratecon estimated that the proposed Cadiz water project could result in $6.1 billion in savings and avoided costs for southern California over a 50-year period.
Cadiz hopes to clear the last of its legal hurdles by this summer, allowing it to move forward with phase I of the project, which proposes taking 50,000 acre-feet (61.6 million m3) of groundwater from under the Mojave Desert and delivering it to the Colorado River Aqueduct under a take-or-pay structure via a 43-mile pipeline. The underground basin is estimated to contain 17-34 million acre-feet of water, with a recharge capacity of 32,000 acre-feet per year. Phase II of the project – which has yet to be permitted –proposes using the basin as a water bank, in which project partners could store surplus supplies in wet years.
All six of the project’s current partners, which include four municipal agencies and two private utilities, purchase water from the Metropolitan Water District of Southern California (MWD). Stratecon predicts that Cadiz’s cheaper water will lead to $719 million in direct savings for its partners over 50 years. Cadiz CEO Scott Slater confirmed that water from the project will cost roughly $500 per acre-foot ($0.41/m3) at the wellhead, as opposed to the $630 per acre-foot ($0.51/m3) charged by MWD.
Those customers will also be less likely to face water shortages with the Cadiz pipeline running, leading to an estimated $628 million in avoided drought mitigation and emergency water sourcing costs, the Stratecon report found. The Cadiz supply should also relieve pressure on other existing sources, meaning that water users not taking part in the project will also be less likely to face shortages, resulting in avoided costs of $1.4 billion over 50 years. The storage component of the project is expected to save a further $631 million, based on the assumption that project partners would use Cadiz’s underground basin as a storage tank in times of surplus and draw from that store in times of drought.
The report also found that the project’s economic benefits will still be high in the unlikely case of mandatory withdrawal cutbacks. San Bernardino County, which has invoked its privilege to review the environmental impact of the project, has required that Cadiz cut withdrawals by 40% if groundwater levels drop by 80 feet within the first 15 years of the project. Nevertheless, the odds of the water being drawn down so quickly are almost zero, according to Slater. And if the county does intervene and withdrawals are cut, the report estimates that the project will still generate $5.2 billion in savings over 50 years, despite the reduced production.
The question of demand persists, however. Most large cities near the Cadiz project site claim to have enough water despite California’s drought (see story p8), and the project’s economic projections could be undercut in future by water from the proposed Bay Delta Conservation Plan (BDCP). Slater is unconcerned, arguing that the BDCP – which is not guaranteed to succeed – is unlikely to meet the state’s long-term demand. The severity of the current drought is greater than any projections used to model the BDCP, meaning that long-term shortages are still likely, even assuming the BDCP moves forward. The new report estimates that even if the BDCP is fully realised, the Cadiz project is still expected to save the region $5.0 billion, Stratecon president Rodney Smith told GWI. If the BDCP arrives in tandem with the mandatory 40% cutback described above (a worst-case scenario for Cadiz), the project’s economic benefit will still be $4.4 billion over 50 years.
Slater said that final legal appeals could last into the summer of 2015, which is when construction of the water pipeline is likely to begin. The Santa Margarita Water District (SMWD), one of Cadiz’s municipal partners, will operate the project and handle the tendering for design and construction. Slater said that the project could utilise various financing options. Cadiz’s partnership with SMWD means that public and private money could be on the table, and he hinted that Cadiz might consider private equity financing as well. Construction of the well field and pipeline is expected to cost between $200 million and $250 million, and the project’s first water deliveries could take place in 2017.
Slater is also optimistic that the deal’s various milestones will positively affect Cadiz’s share price, which was hovering just above $7.00 as GWI went to press. “As those risks and uncertainties are removed, the stock price and the valuation will increase commensurately,” he assured us.