Value proposition
Introduction
CSIRO led a project through the Australian Water Recycling Centre of Excellence to help reduce fresh
water use in the agri-food sector by increasing the amount of water being recycled. An Excel-based tool
was developed to estimate the net present value (NPV) of a proposed water recycling investment. The
‘value proposition’ tool can assist screening of investment options based on site-specific factors such as
the cost of water and wastewater disposal. Figure 1 lists the components that are considered in the tool.
This project aims to reduce fresh water use in the agri-food sector by increasing the amount of water
being recycled.
Change in product value
•Water recycling may have an effect on product value.
Increased production
•Overcoming a water constraint may allow an increase in
production.
Resources recovered
•Energy and nutrients as well as water may be captured as
part of the new treatment process.
Pollution reduction
•Pollution may be reduced and reduce trade waste
charges.
Infrastructure offset
•Municipalities with infrastructure constraints may offer
offsets for reduced industry demand.
Investment cost
Net present value
•New treatment process capital and operating cost
•Sum of value less investment cost
Figure 1. Components considered in the value proposition tool for a water recycling investment
Upper and lower range estimates can be entered for future water, waste and resource prices. The results
identify the importance of each cost factor on the financial viability of a proposed project. This can be
useful for testing the price of water or waste disposal that would be required to make a project viable. For
example, if the results show that water costs are the most important factor for the NPV, then the results
can be tested to find the price of water required to change the feasibility of the project.
The spreadsheet calculates the value of a water recycling initiative based on data entered by the user.
The calculations fit within a framework for considering the value of a project. Users follow a seven stage
process, outlined in Figure 2. The tool calculates the Net Present Value of the investment in Box 8.
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Figure 2. Components of the Value Proposition
Objective
Industry forums identified the need for a simple planning tool to support the development of a value
proposition for water recycling from a business perspective. The tool was developed, tested and modified
through collaboration with industry partners. The tool was trialled with the following companies:
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Kellogg’s
Meat and Livestock Australia (generic abattoir)
Bega Cheese
A dairy manufacturing case study site
Outputs and outcomes
The key outputs include:
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developing a value proposition tool
producing case study reports and fact sheets (an extract of the results is shown below)
writing a proposal for further development based on industry feedback.
Figures 3 and 4 provide examples of results from the value proposition tool. For more information, refer to
the dairy manufacturing case study.
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Figure 3 shows a comparison of value and cost. In this case, the most likely value was about $23 million
and the most likely cost was about $21 million in present value over the period of analysis. However, the
overlap of the 95% confidence interval suggested that the difference in value and cost was not significant.
Figure 3. Comparison of value and cost
Figure 4 shows a breakdown of the components of value for a particular investment. The greatest
component of value for the dairy manufacturing case study was derived from overcoming production
constraints and the increased revenue from an expansion of production. Increased production gave a net
present value of about $9.5 million over the period of analysis and was about 42% of the total value to the
dairy factory. The value of the reused water was about $6.6 million, or 29% of the total value. The
increased production and the water saved gave a value of about $16 million, with an upper and lower
95% confidence interval of $17.4 and $14.9 million respectively.
29% or $6.6m
42% or $9.5m
Figure 4. Components of value
This shows that, in this case, the added value from increased production and water savings is
significantly lower than the costs (i.e. the upper estimate of value is lower than the lower estimate of cost).
This means that all value streams are required to ensure that value is greater than cost. Although only
approximately 30% of the value, the reduced cost of wastewater disposal and the value of recovered
phosphorus were important for the financial viability of recycling water.
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Reduced cost of wastewater disposal and the value of recovered phosphorus
were important for the financial viability of the value proposition.
Conclusions
Developing the value proposition tool was successful.
The tool supports research integration within the project.
Each company and project is different - the tool provides flexibility to quickly screen and test the
sensitivity of the results.
The tool is only one part of the decision-making process and needs to be used as part of internal
company processes to evaluate an investment option.
Recommendations
Further research could enhance decision support by considering risk management and other
values. Additional industry support would be required to further develop an economic assessment
of recycled water proposals.
Access to the value proposition tool. A current version of the Value Proposition Tool is
available on the website. A number of industry participants recommended their industry
associations customize the tool to support a business case.
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