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Research on the Financial Effectiveness of Alternative Water Supply Systems in European Countries

  • Agnieszka StecEmail author
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Part of the Water Science and Technology Library book series (WSTL, volume 90)

Abstract

Currently, the financial criterion is a decisive criterion in the process of making investment decisions. Taking this into account, a financial analysis was carried out for various variants of sanitary installations in single-family buildings located in selected cities in Europe. The research was carried out using the Life Cycle Cost methodology.

6.1 Life Cycle Cost Methodology

There are many different definitions of the Life Cycle Cost (LCC) methodology in the literature. However, regardless of whether they concern the costs of a single product, equipment, entire production technology, or buildings and structures, LCC analysis includes the same main components.

LCC is the sum of costs incurred during the life cycle of a given product and includes capital expenditure, costs of use, and costs of liquidation or economic use (White and Ostwald 1976; Woodward and Demirag 1989; SAE 1999; Kowalski et al. 2007). The value of LCC costs in a general way can be recorded by Eq. (6.1).
$$ {\text{LCC = INV + OMC + DMC}} $$
(6.1)
where
INV

investments, €;

OMC

operating costs; €;

DMC

costs of liquidation or economic use, €

The idea of the Life Cycle Cost methodology was created in the United States of America in the 1960s. The Department of Defense of the United States introduced it to practice in the implementation of public procurement (Epstein 1996). The department also published recommendations for the use of LCC analysis in various areas related to the functioning of the American army (Military Handbook… 1983a; Military Handbook Military Handbook… 1984a, b).

At the same time, there was a sharp increase in the cost of ownership and maintenance of buildings in the United States, which led to the demand to take into account the choice of the possibility of using different construction technologies already at the stage of making investment decisions. In relation with the above in 1978, the American Institute of Architecture published a book where it described the possibilities of using LCC analysis by architects in the design process of construction works (Haviland 1978). In subsequent years, attempts were made to adapt the LCC methodology to related investments with urban infrastructure (Dell Isola and Kirk 1981; Flanagan and Norman 1987; Flanagan et al. 1987).

In the 1980s, the US Department of Energy introduced a statutory requirement to use LCC analysis when purchasing federal facilities, primarily to compare alternative water and energy supply concepts, including renewable energy (Fuller and Petersen 1996).

Currently, LCC cost analysis is used in various fields of the economy, including power engineering, industry, transport, construction, infrastructure, or pumping technology. It is mainly used as a tool in decision-making and management (Bakis et al. 2003; Gluch and Baumann 2004). By carrying out the economic efficiency of a given investment, or the cost-effectiveness of purchasing a product throughout the life cycle, there is an option of choosing the cheapest solution, i.e., the one in which the total costs are minimized (Landers 1996). Often, it happens that the only selection criterion is the initial investment expenditure. This is an easy-to-use criterion but it can lead to a wrong decision in financial and environmental terms, as in some cases, the cost of use may exceed the cost of acquisition several times.

The LCC analysis results can provide valuable information and help make decisions when assessing and comparing alternatives. In many countries, the Life Cycle Cost methodology is legally required for the implementation of new investments, especially those characterized by high initial costs and long service life.

The use of LCC analysis can be important to assess the cost of existence of buildings and structures that have been in use for decades. Taking it into account already at the stage of building design and selection of various materials and technologies may affect not only the initial capital expenditure but above all, the value of operating costs, which are incurred throughout the life of the building.

The use of the LCC technique in the assessment of investment projects related to building development is recommended by the European standard ISO 15686–5 (Buildings… 2008). In 2006, the General Directorate for Entrepreneurship and Industry at the European Commission began the work to formulate a common Life Cycle Cost methodology used in sustainable construction. The effect of these works was, among others, several publications whose aim is to disseminate this methodology in the European Union countries (Life Cycle… 2007a, b, c).

LCC analysis is considered as one of the elements of sustainable development, which is a priority of the “Europe 2020 Strategy” adopted in 2010. According to it, this development is characterized by the support of a resource-efficient economy, a more competitive economy, and an environment-friendly economy.

The Life Cycle Cost costing process consists of several main steps (Fig. 6.1). The detailed tasks (stages) of the LCC analysis may vary and depend on which product or investment it is being carried out. The first stage of the analysis is to determine the problem that LCC analysis is to address and define the main goals of this analysis and its scope. The second stage is the preparation of the cost structure. This stage is divided into cost categories, i.e., capital expenditure and operating costs, which are identified by collecting the correct input data of the model. The next stage involves the development of a comprehensive LCC model, which consists of detailed investment and operating cost models. This model describes reality by mathematically recording the sum of costs associated with the problem under study. As a part of the fourth stage, calculations of individual costs are made, which constitute the input data for the next stage, which is the interpretation and evaluation of the obtained results. The final stage is the sensitivity analysis. It is carried out in order to examine the impact of changes in model data on LCC, e.g., changes in energy prices over the assumed lifetime of the facility. In the event that the formulated objectives of the analysis are not achieved in the first stage or if errors in the model are found, then it is necessary to introduce some changes in the third stage.
Fig. 6.1

Stages of conducting Life Cycle Cost analysis

Sensitivity analysis is performed to examine the impact of future changes in the key parameters of the model on the level of LCC costs and, therefore, on the profitability of the investment. Its results allow determining at the decision-making stage, the sensitivity of the model to changes in various variables such as the discount rate, energy prices, and water prices (Pastusiak 2003; Brigham and Ehrhardt 2008; Lang 2007).

In the LCC sensitivity analysis of facilities that will be used for decades, it is important to consider changes in data that affect the value of operating costs (Life Cycle… 2011). The results of such research may help a person who makes an assessment of the profitability of a given investment make a rational decision or by changing the assumptions of the LCC model will allow recalculating the investment project.

The investment sensitivity assessment can be made using various techniques. In the simplest form, the sensitivity analysis involves examining the impact of percent deviations of individual model variables on the value of the decision criterion, for example, LCC costs or operating costs alone. This method assumes a deviation of the variable from its base value, e.g., from −10 to +10% and again for this data, the total value of the investment is calculated (Rogowski 2004). It is important to accept only one data change at a time to determine how much the LCC cost will change if the value of this variable changes by x%.

The costs of the analyzed investment, which appear in various periods of its use, should not be compared or balanced directly without taking into account the variable value of money over time. Therefore, in the LCC analysis, this is usually taken into account by applying a classical method using the updated value of cash flows net present value (NPV) or present value (PV) (Góralczyk and Kulczycka 2003; Clift 2003; Rogowski 2004; Kowalski et al. 2007; Life Cycle… 2007a). To maintain the requirement of temporary comparability of individual elements included in the cost analysis, a discount account should be used throughout the lifetime of the investment. It allows calculating the value of future expenses or profits and bringing them back to the first base year of the investment, the one in which the decision is made. In line with the guidelines included in the report of the TG4 group, which, on the recommendation of the European Commission, developed guidelines for the use of LCC analysis in construction, LCC costs should be calculated as the current value (PV) of total future expenditures incurred for the operation and use of a building (Task Group… 2003). The present value of the investment can be determined on the basis of the formula (6.2).
$$ {\text{PV = }}\sum\limits_{\text{t = 1}}^{\text{T}} {\frac{{{\text{OMC}}_{\text{t}} }}{{ ( 1 {\text{ + r)}}^{\text{t}} }}} $$
(6.2)
where
PV

the present value of the accumulated annual costs incurred in the future for the use of the building;

OMCt

operating costs in a year t, €;

T

duration of the LCC analysis, years;

r

constant discount rate;

t

the number of years after installation;

Taking the above into account, the final value of LCC costs for each installation variant was determined from the formula (6.3).
$$ {\text{LCC = INV + }}\sum\limits_{\text{t = 1}}^{\text{T}} { ( 1 {\text{ + r)}}^{{ - {\text{t}}}} } \cdot {\text{OMC}}_{\text{t}} $$
(6.3)

Guidelines contained in (DOE 2014) studies provide that wherever the life span of an analyzed system goes beyond the foreseeable future, its residual value at the completion of exploitation need not be defined in quantifiable terms. Consequently, such costs were not taken care of in the quantitative analysis, similar to studies conducted by other authors (Rahman et al. 2012).

6.2 Variants of Sustainable Water Management in Buildings

The analysis of the profitability of the application of individual solutions of installations supplied from alternative water sources was carried out for the following system configurations:
  • Variant 0—traditional installation supplied with water from the water supply network and sewage discharged into the sewage system (Fig. 6.2),
    Fig. 6.2

    The scheme of a traditional installation supplied with water from a water supply system and sewage discharged to a sanitary and rainwater sewage system—Variant 0

  • Variant 1—rainwater installation for toilets flushing (Fig. 6.3),
    Fig. 6.3

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a rainwater harvesting system for toilets flushing and sewage discharged into the sewage system—Variant 1

  • Variant 2—rainwater installation for toilets flushing and washing (Fig. 6.4),
    Fig. 6.4

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a rainwater harvesting system for toilets flushing and washing, as well as sewage discharged into the sewage system—Variant 2

  • Variant 3—installation using rainwater for toilets flushing, washing, and watering the garden (Fig. 6.5),
    Fig. 6.5

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a rainwater harvesting system for toilets flushing, washing, and watering the garden, as well as sewage discharged into the sewage system—Variant 3

  • Variant 4—installation using gray water for toilets flushing (Figs. 6.6 and 6.7),
    Fig. 6.6

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a graywater recycling system for toilets flushing and sewage discharged into the sewage system—Variant 4 located in Stockholm, Madrid, Lisbon, and Rome

    Fig. 6.7

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a graywater recycling system for toilets flushing and sewage discharged into the sewage system—Variant 4 located in Warsaw, Prague, Bratislava, and Budapest

  • Variant 5—installation using rainwater and gray water for toilets flushing, washing, and watering the garden (Figs. 6.8 and 6.9).
    Fig. 6.8

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a graywater recycling system for toilets flushing and rainwater harvesting system for washing and watering the garden as well as sewage discharged into the sewage system—Variant 5 located in Stockholm, Madrid, Lisbon, and Rome

    Fig. 6.9

    The scheme of the installation supplied with water from a water supply system and additionally equipped with a graywater recycling system for toilets flushing and rainwater harvesting system for washing and watering the garden as well as sewage discharged into the sewage system—Variant 5 located in Warsaw, Prague, Bratislava, and Budapest

Due to the fact that in most of the considered cases, the sum of water demand for flushing toilets and watering the garden significantly exceeds the inflow of gray sewage into the system, it would be unprofitable to use it. Therefore, the financial analysis was carried out for a variant in which gray water was used only for toilets flushing (Variant 4) and a hybrid system (Variant 5), where treated gray sewage is used for flushing toilets and rainwater for washing and watering the garden.

6.3 Case Studies

The results obtained on the simulation model of rainwater harvesting systems (RWHS) and data on the graywater recycling systems (GWRS) presented in Chap.  5 were used as input data to assess the financial effectiveness of the investment consisting of the implementation of these systems in different variants in single-family houses. The research was carried out for houses located in European cities: Madrid, Lisbon, Rome, Prague, Bratislava, Budapest, Stockholm, and Warsaw.

The studies took into account the purchase and installation costs of water supply and sewage pipes in the building. In addition, in the options assuming the use of alternative water sources, the capital expenditure necessary to bear in connection with the implementation of the described systems was taken into account. In variants 1, 2, and 3, it was RWHS, while in variant 4 a, graywater recycling system. In turn, variant 5 includes the purchase cost of both systems.

In all variants, on the basis of the formulated simulation models, the operating costs resulting from water purchase and costs caused by the discharge of sanitary and rainwater sewage into sewage systems were calculated. Unit prices for these services have been established for each location from the information provided by the water supply companies. In configurations with alternative water sources, additional operating costs resulting from the use of electricity for pumping gray water and rainwater from tanks to the installation were also taken into account. In addition, according to the manufacturer’s guidelines, these options also include the cost of replacing filters and pumps.

The GWRS adopted for the analysis is a professional system with advanced methods of purification and disinfection that enable the removal of 99.9% of contaminants, viruses, and bacteria. In turn, the cost of RWHS depended on the capacity of the tank. The tests included rainwater harvesting systems with a capacity of 1, 2, 3, 4, 5, 7, 9, and 11 m3 offered by European producers, which are typical for single-family houses. In cases where rainwater was used for washing, additional filters and disinfection were provided.

The discount was assumed to be 5%, as it was used in calculations by (Morales-Pinzon et al. 2012; Roebuck et al. 2011; Rahman et al. 2010; Liaw and Tsai 2004). Similar to (Morales-Pinzón et al. 2012), the research also included the annual increase in water, sewage, and energy prices. These values were determined based on archival data. Considering the lifetime of materials and equipment currently used, the length of the LCC analysis period has been set at 30 years. Data accepted for calculating LCC costs of the analyzed installation variants in a single-family building are summarized in Tables 6.1 and 6.2. Due to the ever longer periods of drought and the occurring water deficit in Madrid and Lisbon, the annual increase in water prices is significant. In some cities such as Warsaw, Bratislava, or Budapest, water supply companies have set the price for water purchases on a constant level over the next few years. However, when analyzing archival data, a slight increase in this price was determined for these locations. On the basis of Eurostat data, average prices of electricity were adopted and its annual growth. The studies also take into account the costs resulting from discharging rainwater to the sewerage network, but only in those locations where they occur.
Table 6.1

Data used in the calculation of LCC costs

Parameter

Parameter value

Analysis period T

30 years

The cost of filter change in GWRS after each 10 years

€990

The cost of purchasing and installing the GWRS 250 dm3/day INVGWHS_250

€5500

The cost of purchasing and installing the RWHS INVRWHS_1m3

€2216

The cost of purchasing and installing the RWHS INVRWHS_2m3

€2259

The cost of purchasing and installing the RWHS INVRWHS_3m3

€2313

The cost of purchasing and installing the RWHS INVRWHS_4m3

€2421

The cost of purchasing and installing the RWHS INVRWHS_5m3

€2569

The cost of purchasing and installing the RWHS INVRWHS_7m3

€2729

The cost of purchasing and installing the RWHS INVRWHS_9m3

€3106

The cost of purchasing and installing the RWHS INVRWHS_11m3

€3647

The cost of purchasing and installing the sanitary systems INV0

€2500

The discount rate r

5%

Table 6.2

Unitary prices accepted for LCC analysis

City

The cost of purchasing water from the water-pipe network and sanitary sewage discharge to the sewage network in the year 0, €/m3

The annual increase in the prices of purchase of water from the water-pipe network and sanitary sewage discharge to the sewage network, %

The cost of purchasing electricity in the year 0, €/kWh

The annual increase in electricity prices, %

The cost of the discharge of rainwater to the sewage network in the year 0

Bratislava

2.23

2

0.15

2

Budapest

2.94

2

0.11

Lisbon

2.26

20

0.23

Madrid

3.16

12

0.25

Prague

3.49

9

0.16

Rome

3.50

6

0.22

0,23 €/m3

Stockholm

2.30

4

0.20

38,76 €/year/house

Warsaw

2.31

4

0.14

6.4 Analysis Results

6.4.1 Results of Life Cycle Cost Analysis

The research conducted showed that the selection of the right investment option had a decisive impact on the total amount of life cycle costs of the plumbing installation in the residential buildings considered. The results of calculations for the LCC indicator obtained for various conditions of use of the installation indicate that both the number of inhabitants and the price of purchasing water and wastewater disposal determine the profitability of applying individual solutions in the analyzed European cities.

The highest LCC value exceeding several times the value of these costs for other locations was obtained when the alternative installation systems were located in Lisbon (Fig. 6.10). The research results obtained showed that Variant 0 is not an optimal solution for any of the computational cases analyzed. This is due to the fact that the operating costs associated with the operation of a traditional installation solution (Variant 0) over a 30-year period are greater than when using individual installation systems powered from alternative water sources, despite the fact that they require higher investments. Regardless of the number of inhabitants, the most advantageous in financial terms would be to use a variant in which both gray water and rainwater (Variant 5) are used, and the optimal tank capacity in RWHS was 11 m3. For this capacity of the tank, this variant was characterized by LCC costs lower by almost 43,000 EUR compared to Variant 0, despite the fact that the investment expenditure for the implementation of Variant 5 was five times higher than in the case of a traditional installation solution. Comparing the variants with the use of gray wastewater or rainwater, the latter ones are definitely more favorable because the investments for the implementation of RWHS even with a large capacity tank are lower than those that should be allocated to the installation additionally equipped with a graywater recycling system.
Fig. 6.10

Results of the financial analysis for the location of the building in Lisbon (roof area 150 m2, watering garden area 500 m2, a two persons, b three persons, c four persons

Three times lower LCC values were obtained for the locations of the analyzed systems in Madrid (Fig. 6.11). However, in this case, the traditional installation solution (Variant 0) had the highest LCC costs when the building was inhabited by three or four people. If the installation was used by two users, the least cost-effective variant was Variant 4, in which only the gray water was the alternative source of water. It was observed that, similar to Lisbon for three and four inhabitants, the installation solution where the rainwater harvesting system and the graywater recycling system were implemented was the most financially advantageous. Such a hybrid system allowed achieving the largest water savings in the period of 30 years, which in turn resulted in the lowest operating costs. These benefits were obtained for RWHS equipped with a 9 m3 tank. The situation looks different with the lowest number of inhabitants. If the installation is used by two people, the most profitable would be to use Variant 3 with a 5 m3 tank where rainwater is used to flush toilets, wash, and water the garden (Fig. 6.11a). The implementation of RWHS with a larger tank capacity or the addition of a GWRS would only result in an increase in investment outlays that would not be offset by greater water savings.
Fig. 6.11

Results of the financial analysis for the location of the building in Madrid (roof area 150 m2, watering garden area 500 m2, a two persons, b three persons, c four persons

Also in the case of Prague, it would be beneficial to use alternative water sources in a single-family house (Fig. 6.12). However, for this location, in contrast to Lisbon and Madrid, the most advantageous in financial terms, regardless of the number of inhabitants, was option 3 consisting of the implementation of RWHS. The number of people and the related water demand had an impact on the profitability of using Variant 3 depending on the tank capacity in this system. If the system was used by two people, the Variant 3 with a 5 m3 tank is financially optimal, while for a larger number of inhabitants, it is RWHS equipped with a 7 m3 tank. The highest value of the LCC index for all calculation cases for this location was obtained for variants in which gray water (Variant 4 and Variant 5) constituted an additional source of water.
Fig. 6.12

Results of the financial analysis for the location of the building in Prague (roof area 150 m2, watering garden area 500 m2), a two persons, b three persons, c four persons

Variant 3 where rainwater was used to flush toilets, wash, and water the garden also in the case of building location in Rome was the solution with the lowest LCC costs (Fig. 6.13). It was the only city among the eight analyzed that has annual fees for each cubic meter of rainwater discharged into the sewage system. As the results of the research have shown, it is the operating costs associated with the discharge of these waters to the drainage network that have decided about the profitability of using the variant with the rainwater harvesting system. If they were not only for the roof with the largest area (200 m2) and high demand for water (four persons), Variant 3 would still be the most cost-effective option. The differences between the LCC index values for Variant 0 and Variant 3 were insignificant, especially for a roof with a small area determining less rainwater runoff (Fig. 6.13a). The optimal tank that achieves the greatest financial benefits is a tank with a capacity of 7 m3. In only one calculation case (two people, 100 m2 roof), the optimal tank capacity is 4 m3. The solution for the installation with the highest LCC costs, regardless of the number of people and the roof area, was also option 4 with gray water for this location.
Fig. 6.13

Results of the financial analysis for the location of the building in Rome (500 m2 watering garden), a two persons, roof area 100 m2, b three persons, roof area 150 m2, c) four persons, roof area 200 m2

Very similar results of financial analysis were obtained for the locations of the systems in Budapest (Fig. 6.14a), Bratislava (Fig. 6.14b), Warsaw (Fig. 6.14c), and Stockholm (Fig. 6.14d). The variant with the lowest costs for these locations was the traditional solution of the installation with water supply from the water supply network and sewage discharge to the sewage system (Variant 0). The results and hierarchy of profitability of individual variants were not significantly affected by either the number of users of the installation or the size of the roof area. The largest differences in the LCC ratio were observed when comparing Variant 0 and variants using graywater recycling systems, i.e., Variant 4 and Variant 5. This was due to high capital expenditure that should be incurred when implementing GWRS. The use of alternative sources of water in single-family buildings for these locations was completely unprofitable, as the water savings obtained over a period of 30 years did not cover the capital expenditure and operating costs caused by replacing filters and pumps in both systems. Comparing both alternative water sources, it can be stated that much better financial results were obtained for rainwater harvesting systems.
Fig. 6.14

Results of the financial analysis for the building location in a Budapest (two persons), b Bratislava (two persons), c Warsaw (three persons), d Stockholm (four persons)

When analyzing the results of the research in the scope of the LCC analysis for all the locations considered, it was noticed that the use of alternative variants of water installation in single-family buildings is financially beneficial for their locations where the purchase price of water from the water supply network and for sewage disposal was above 3 EUR/m3 (Madrid, Prague, Rome) or if the annual increase in this price was significant (Lisbon). In the case of the other four locations, i.e., Bratislava, Budapest, Warsaw, and Stockholm, the implementation of rainwater harvesting systems and graywater recycling systems was unprofitable because in these cities, unit prices and their annual increase were at a lower level, which resulted in lower annual operating costs and as a result, higher LCC values.

6.4.2 The Impact of Life Span

In order to examine the impact of the analysis period on the value of LCC costs, there were carried out the studies in which the T parameter changed. It was assumed that T will be 20 years and 50 years. Accepting a longer period of operation of the system for research, as did by other authors (Roebuck et al. 2011; Morales-Pinzón et al. 2012; Silva et al. 2015), may lead to more favorable results from the investor’s point of view. This is also supported by the durability of materials currently used for building installations, mainly plastics, for which manufacturers declare a minimum service life of 50 years. For this reason, the research was conducted for the adopted initial input data which checked how the values of financial ratios characterizing the undertaking would change when the lifetime was extended to 50 years. The impact of a shorter analysis period on LCC costs was also examined, which may be significant especially in the case of variants with alternative water sources for which the LCC index value slightly differed from its level for a traditional installation solution.

The research results obtained in this area have shown that for locations where the use of alternative water system solutions was profitable already for the analysis period of 30 years, extending this period will only increase the value of the LCC indicator without changing the profitability hierarchy of these variants. It was assumed that a longer analysis period of 50 years could increase the profitability of implementing rainwater harvesting and graywater recycling systems in cities where it was unprofitable until now. However, the test results, which, for selected parameters, are shown in Fig. 6.15, did not confirm this.
Fig. 6.15

Results of the financial analysis for T = 50 years for the location of the building in a Budapest (two persons), b Bratislava (two persons), c Warsaw (three persons), d Stockholm (four persons)

As for T = 30 years, the largest LCC costs were obtained for variants with a wastewater recycling system (Variant 4 and Variant 5). Among the variants analyzed, the variant with the use of rainwater for toilets flushing, washing, and watering the garden (Variant 3) is most favorable compared to Variant 0. This is especially noticeable for four users of the installation. Such unfavorable results for variants with alternative water sources in buildings located in Budapest, Bratislava, Stockholm, and Warsaw, despite the extension of the LCC analysis period, are affected by relatively low purchase prices of water from the water supply network in these cities. In addition, the savings obtained, even over a long period of 50 years, do not compensate for the investment outlays that should be allocated to the implementation of RWHS and GWRS as well as the costs of replacing filters and pumps during the operation of these systems.

The longer analysis period had a positive effect on the results obtained for the investment located in Prague. If the building is inhabited by two people, the variant with the lowest LCC costs, as for T = 30 years, is Variant 4 (Fig. 6.16a). However, it is noticeable that the profitability of option 5 increases, in which gray wastewater is also used in addition to rainwater. The LCC costs for this solution are only 2–2.5% higher than in Variant 3, and Variant 5 can significantly reduce water consumption from the water supply network, so it is more beneficial for the environment. This variant proved to be the most cost-effective solution for this location for the case in which 4 people use the installation (Fig. 6.16b). There is a significant difference between the traditional installation and the installation additionally equipped with GWRS and RWHS (Variant 5). The LCC costs, depending on the tank capacity, are lower from 14,000 EUR to 21,000 EUR from the costs in Variant 0.
Fig. 6.16

Results of the financial analysis for T = 20 years for the location of the building in Prague, a two persons, b four persons

Shortening the analysis period to 20 years, in turn, resulted in the reduction of the profitability of using individual installations with alternative water sources in the case of Prague. In a situation where the installation is used by two residents, the costs of LCC Variant 0 and Variant 3 were equalized, which for T = 30 years was the most cost-effective solution (Fig. 6.17a). With a higher water consumption for four people, the LCC index value of the variants with the graywater recycling system and rainwater harvesting system increases above these costs for a traditional installation solution. The only option with lower total costs remained the option using rainwater for flushing toilets, washing, and watering the garden (Variant 3), and the optimal tank capacity is, as for T = 30 years, 7 m3 (Fig. 6.17b).
Fig. 6.17

Results of the financial analysis for T = 20 years for the location of the building in Rome, a two persons, b four persons

In the case of Rome, for a 30-year analysis period, regardless of the number of people, Variant 4 and Variant 5 were unprofitable solutions. A similar trend was also maintained for a shorter time T (Fig. 6.18). Referring to the other alternative variants, it was found that if two people used the installation, they were also unprofitable, and for four users, they had lower LCC costs than Variant 0, but the cost differences are insignificant. The impact of the roof surface and the resulting charges for the discharge of rainwater into the sewage system did not have a significant impact on the results of the research in this regard.
Fig. 6.18

Results of the financial analysis for T = 20 years for the location of the building in Madrid, a two persons, b four persons

The biggest differences to the disadvantage of unconventional water installations with a shortened analysis period were observed for their location in Madrid and Lisbon. In the case of Madrid and two people using the installation, only Variant 2 and Variant 3 had lower LCC costs than Variant 0, but the differences in these costs compared to Variant 0 were only about 40 EUR and 380 EUR, for Variant 2 and Variant 3, respectively (Fig. 6.19a). As for T = 30 years, the optimal tank capacity was 7 m3. The same capacity of the tank turned out to be the most advantageous also when four people lived in the house. Also for this number of inhabitants, the most cost-effective installation solution was the use of RWHS for flushing toilet, washing, and watering (Fig. 6.19b). In this case, with a shorter T period, there was a change in the profitability hierarchy of variants, to the disadvantage of Variant 5, which for the longer analysis period was the solution with the lowest LCC costs. This was due to increased investment outlays in Variant 5, mainly related to the implementation of the graywater recycling system, which were not compensated by the savings resulting from the reduction of water consumption from the water supply network.
Fig. 6.19

Results of the financial analysis for T = 20 years for the location of the building in Lisbon a two persons, b four persons

Of all the locations analyzed, reducing the T time to 20 years had the greatest impact on the results of the study obtained for Lisbon. This was due to the highest annual operating costs. For a longer analysis period, all alternative installation solutions were characterized by a lower level of LCC costs than the traditional installation variant, while for T = 20 years, the differences in the costs of individual variants were very small (Fig. 6.20). An unfavorable change is especially noticeable in the case when the building was inhabited by four people, where the difference in the LCC value between Variant 0 and the most financially profitable variant has decreased from 43,000 EUR (T = 30 years) to about 4000 EUR (T = 20 years). In addition, for the smallest number of system users, there has been a change in the profitability hierarchy of the analyzed solutions and the variants with the graywater recycling system have ceased to be financially advantageous variants. The Variant 3 with a 7 m3 tank was the most favorable in this respect. In turn, for the largest number of inhabitants, the optimal solution, as for T = 30 years, was Variant 5 with a hybrid GWRS and RWHS system, but the optimal tank capacity in the rainwater harvesting system has decreased from 11 to 7 m3.
Fig. 6.20

Results of the financial analysis for T = 20 years for the location of the building in Lisbon a two persons, b four persons

Considering that the annual increase in the purchase price of water and sewage, which was included in the study, had a significant impact on the value of total costs, a sensitivity analysis of the investment was carried out based on change, including this parameter. The results of this research are presented in Sect. 6.5.

6.5 Sensitivity Analysis

In order to assess the investment risk associated with the use of the analyzed installation variants in a single-family residential building located in various European cities, a sensitivity analysis was carried out for selected calculation cases. This analysis consisted of determining the value of total LCC costs assuming that individual components of operating costs or investments would change by a specific percentage. When analyzing the share of total OMC operating costs and INV investments in the LCC costs of the considered installation variants, it was noticed that the latter accounted for 19% to 75%, 22% to 78%, 20% to 87%, and 14% to 68%, respectively, for investments in Warsaw, Bratislava, Budapest, and Stockholm. The lower values are the INV share for Variant 0 and the maximum for Variant 5. In these locations, therefore, it was justified to examine the impact of INV changes on the LCC value, because it was this part of the total life cycle costs that determined the profitability of individual plant configurations.

In operating costs, the vast majority of them were costs related to the purchase of water and the discharge of sewage to the sewage system, while the cost of electricity associated with pumping rainwater or gray water accounted for only 2–3%. Therefore, it was assumed in the research that only the costs of purchasing water and draining sewage would change. Considering the results of the LCC analysis and the cost-effectiveness of individual installation options for each location, it was found that it would be justified to examine the impact of reducing operating costs on the total costs of LCC in Lisbon, Madrid, Rome, and Prague, i.e., in cities where the use of alternative installation solutions was cost-effective. For these four locations, investments accounted for a maximum of 20%, and in some computational cases, they were only 1%. Therefore, it was decided that a sensitivity analysis for these locations would be made taking into account the total operating costs.

The sensitivity analysis was carried out for the following ranges of changes in OMC costs or INV investments: ±10, ±25, and ±50%. The study adopted two change scenarios:
  • Scenario A—change in the value of initial investments.

  • Scenario B—change in the value of operating costs resulting from the amount of tap water used and the amount of sanitary wastewater discharged from the building to the sewage network.

Due to the extensive data received, this chapter presents selected results of this analysis. In the case of variants with rainwater harvesting system, the focus was on those tank volumes that proved to be optimal in the first stage of research.

The results of the research regarding changes in initial investments (Scenario A) are shown in Figs. 6.21 and 6.22. On their basis, it can be concluded that reducing the INV amount by 10% does not change the profitability hierarchy of individual variants, both for the case when the installation is used by two and four residents. The traditional option (Variant 0) was still the most cost-effective solution for all locations. A 25% reduction in investments for variants with alternative water sources results in an increase in LCC costs for Variant 0, which in turn causes a change in the profitability of the investment in favor of Variant 3, but only in the case of Stockholm. For other cities, the use of unconventional installation variants in a single-family building is still financially disadvantageous. It is only by halving the investments that the financial efficiency of the analyzed options for all locations improves. In the case of Warsaw, Bratislava, and Stockholm, the most cost-effective solution is the variant, which provides for the implementation of a rainwater harvesting system for toilets flushing, washing, and watering the garden (Variant 3). However, in a situation where the investment was located in Budapest, the lowest LCC costs were obtained for two variants Variant 3 (two persons) and Variant 5 (four persons) assuming the use of rainwater and gray water. Generally, it can be stated that, with one exception, the highest LCC costs for all locations and for all computational cases were the variants equipped with a graywater recycling system. This means that due to the very high investments that are necessary to implement these systems, it is not cost-effective to use gray water as an alternative source of water in locations where there are relatively low fees for purchasing water from the network.
Fig. 6.21

The results of calculations of the LCC indicator assuming a decrease in the value of investments INV (Scenario A) for the case when the installation is used by two people

Fig. 6.22

The results of calculations of the LCC indicator assuming a reduction in the value of investments INV (Scenario A) for the case when the installation is used by four people

However, it should be noted that such large fluctuations in the value of initial investments will not take place due to the fact that their amount, in contrast to the costs associated with the use of the installation, can be determined very precisely at the investment planning stage. The sensitivity analysis carried out in this regard, however, allowed drawing an important conclusion, namely cofinancing for costs allocated to the implementation of alternative water systems may increase their financial efficiency and contribute to their wider use in countries where they are rarely used. Such funding as an element of pro-ecological policy has been practiced for many years in various countries around the world.

In the case of cities where investments constituted an insignificant part of LCC costs, their change would not cause significant differences in the value of total life cycle costs, and thus would not affect the profitability hierarchy of individual installation variants. Taking this into account, research on investment sensitivity for these locations was carried out, taking into account the reduction of operating costs by 10%, 25%, and 50% that could be caused in the future, less than expected increase in water purchase prices and prices for sewage disposal into the sewage system. The results of this analysis are shown in Figs. 6.23 and 6.24. They clearly show that the investment based on the implementation of systems with alternative water sources in Lisbon is not sensitive to changes according to Scenario B. Even reducing the operating costs by half will not change the most cost-effective option, i.e., Variant 5, which brings the greatest water savings. In the case of Rome, where the differences in LCC costs between the considered variants were a slight reduction in costs in the examined area, it improves the financial efficiency of the traditional installation solution (Variant 0), to the detriment of the variant with the rainwater harvesting system (Variant 3). The situation is similar in the case of Prague. Madrid was the second city after Lisbon with the largest share of operating costs in the total costs of LCC. However, the location of alternative water system variants in its area is more risky than in Lisbon, with a 50% reduction in operating costs, the LCC indicator for Variant 0 reaches the same level as for variants with RWHS and GWRS, especially for four users.
Fig. 6.23

The results of calculations of the LCC indicator assuming a reduction in the value of operating costs (Scenario B) for the case when the installation is used by two people

Fig. 6.24

The results of calculations of the LCC indicator assuming a reduction in the value of operating costs (Scenario B) for the case when the installation is used by four people

Variant 0, i.e., the traditional installation layout, always has the lowest investments. As a result, most investors are currently choosing such a solution for plumbing and building installations, without analyzing the operating costs associated with the operation of the system in the long run. Meanwhile, the Life Cycle Cost analysis showed that operating costs can determine the level of the LCC indicator and decide on the financially most favorable option. It is especially observed for cities with high fees for water and sewage disposal and/or their annual increase is significant. In the study, these were the following locations: Lisbon, Madrid, Rome, and Prague. It was in these cities that the implementation of alternative solutions for water installations supplied with rainwater and gray water was financially profitable. The necessity to incur additional investments for rainwater harvesting system (RWHS) and graywater recycling system (GWRS) and the lack of coverage by savings resulting from their use meant that unconventional installation systems were unprofitable in Warsaw, Bratislava, Budapest, and Stockholm.

The sensitivity analysis conducted also showed that the results obtained in the first stage could be considered correct, and the investments consisting in the implementation of RWHS and GWRS were slightly susceptible to changing individual parameters of the financial model. No significant changes in the profitability hierarchy of the installation variants were observed.

The results of the LCC analysis also have a practical aspect and can be a guide for potential investors and operators to apply this type of system already at the investment planning stage. An additional impulse to use them, especially in locations where their use is not profitable, could also be funding from the state budget or from pro-ecological funds of international organizations, as is the case in many other countries.

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Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.The Faculty of Civil and Environmental Engineering and Architecture, Department of Infrastructure and Water ManagementRzeszow University of TechnologyRzeszówPoland

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