Investment Evaluation of Rainwater Tanks

Anirban Khastagir & Niranjali Jayasuriya

Received: 18 June 2010 /Accepted: 12 July 2011 /Published online: 20 July 2011# Springer Science+Business Media B.V. 2011

Abstract Melbourne, Australia faced fourteen consecutive years of below average rainfallbefore drought breaking rains in 2010. Melbournians are also concerned about thesignificant increase in potable water price in the future where the cost is expected toincrease by 100% in 5 years. Stormwater harvested using rainwater tanks is an alternativesource of nonpotable water source where potable quality water is not required for use.However, prior to installing rainwater tanks, customers expected to investigate the financialviability of installing tanks. The objective of this study is to carry out cost effectivenessanalysis to estimate the payback period, cost effectiveness ratio and the levelized cost ofinstalling rainwater tanks in different geographical locations with significantly varyingmean annual rainfall (MAR). The paper also focuses on the impact of the inflation rate,interest rate (discount rate), the period of analysis on the previously stated cost parametersand determines the optimum tank size based on the MAR of the location. The study showedthat the payback period was as low as 14 years for a 5kL tank in an area where the MAR isaround 1000 mm (discount rate of 10% and inflation rate of 4.2%). The payback periodvaried considerably with the tank size especially in low rainfall areas (MAR ≤ 450 mm).This emphasizes the importance of selecting the optimum tank size to ensure maximum useof the rainwater to maximize the return on the initial investment.

Keyword Cost effectiveness analysis . Payback period . Levelized cost . Mains water price .

Rainwater Tanks

1 Introduction

Melbourne, the capital of Victoria, Australia leads the world in having the highest qualitydrinking water (Gato 2006). Nevertheless, like other developed cities in the world, it has toconfront growing water demand due to increasing population and economic development.In addition, Melbourne faced fourteen consecutive years of below average rainfall beforedrought breaking rains in 2010. According to Department of Sustainability andEnvironment, (DSE, 2006) the government has set a target for reducing per capita water

Water Resour Manage (2011) 25:3769–3784DOI 10.1007/s11269-011-9883-1

A. Khastagir (*) : N. JayasuriyaSchool of Civil, Environmental and Chemical Engineering, RMIT University, Melbourne, Australiae-mail: anirban.khastagir@rmit.edu.au

consumption by 25% and 30% by 2015 and 2020 respectively. On top of this, Stage 3awater restrictions for Melbourne commenced on Sunday 1 April 2007 and continued until2010. If the drought situation continued Melburnians would have to confront with Stage 4water restrictions which will not permit garden watering at all. Due to above averagerainfall in 2010/2011, the drought situation has somewhat eased. However, Governmentpolicy continues to promote sustainable use of resources including the use of rainwater.

According to smart water rebate, (SRWA 2007), the Victorian Government has alsoannounced that the cost of water will double by 2013. When deciding whether or not to investin a rainwater tank system, one of the important factors governing the decision is the initialcapital investment. As a result, it is important to investigate further the costs associated withinstalling domestic rainwater tanks and to explore how the consumer could optimize hisreturn on investment. Although the total expenditure of installing the rainwater tank is borneby the tank user (and possibly, partially by the Government if the proponent is eligible for arebate), the benefit of the tank is enjoyed not only by the tank users, but also the widercommunity as every drop used from alternative sources collectively helps to delay expensivesystem augmentation. The Victorian Government introduced the Water Smart Gardens andHomes Rebate Scheme which provides every household with an opportunity to assist waterconservation and to save money (Department of Sustainability and Environment 2007). TheGovernment had committed $10 million over 4 years to provide an incentive for Victoriansconnected to a reticulated water supply system to conserve water. The Government hasrecognised the importance of plumbing the rainwater tank to the toilet and/or for laundry(nonpotable use) and offered cash rebates for the installation of connected rainwater tanks.

Coombes (2002) illustrated that the use of rainwater tanks widely to supply outdoor andindoor demand would delay the construction of new water supply infrastructure byapproximately 34 years in the Lower Hunter region. In addition, the study explained thatthe installation of rainwater tanks in all new and developed dwellings could delay the needfor constructing the next dam by 26 years. Aladenola and Adeboye (2009) noted thatannually 74.0 kL of rainwater can be harvested per household in Abeokuta which is locatedin sub-humid tropical region of South-western part of Nigeria. The study further revealedthat harvested rainwater in Abeokuta could satisfy household monthly water demand fortoilet flushing and laundry use except for the months of November, December, January andFebruary. Collins and Davies (2004) stated that the construction of new water supplyheadworks infrastructure could be delayed by 34 years due to popularity of rainwater tanksin the future in Sydney. Marsden Jacobs Associates (MJA 2007) performed the cost-effectiveness analysis of rainwater tanks for 5 major cities (Brisbane, Sydney, Melbourne,Adelaide and Perth) in Australia. The study demonstrated that the levelized cost ofrainwater tanks varied from $5.1 (Sydney) to $11.59 (Adelaide). However, the study did notconsider the rebate scheme available for Melbourne (or elsewhere) which might furtherbring down the cost. Grant and Hallman (2003) performed life cycle assessment and costingof a 600 L and a 2250 L domestic water tank in the north-eastern suburbs of Melbourne.The 600 L plastic tank was used for watering the garden without installing a pump and the2250 L tank was used for garden watering and toilet flushing both. As such, the latterneeded a pump. The study revealed that the water saving was 15.5% for the 600 L tankwhere as for the 2250 L (garden and toilet use) it was 54.9%. The payback period wascalculated to be over 30 years for both tanks. Mitchell and Rahman (2006) performed a lifecycle cost analysis of a 75 kL rainwater tank for a commercial property in Sydney. Thestudy found that more than 60 years was required (expected lifetime of the tank) toeconomically profit from the rainwater tank if the present interest rate (around 5%) and themains water price persisted. However, the above authors reported that if the mains water

3770 A. Khastagir, N. Jayasuriya

price increased considerably the payback period reduced dramatically. Tam et al. (2010)reported that it was possible to obtain payback period as low as 6 years for a Gold Coasthousehold considering main water price $1.45 and discount rate of 3%. In addition,Eroksuz et al. (2006) illustrated that a reasonable payback period might result under somefavourable conditions such as higher interest rates and increases in the mains water price.However, Nazer et al. (2010) noted that although rainwater harvesting were foundunattractive in Palestine because of the high investment needed the social and healthbenefits might justify these investments.

Rahman et al. (2008) reported the development of a computing tool used to compute thebenefit cost analysis of rainwater tanks for a multistorey residential building in Sydney. Theauthors carried out a number of analyses to calculate the payback period for a 75 kLunderground rainwater tank and revealed that there are a number of parameters such as:roof area, discount rate, and water price and inflation rate that need to be considered whencalculating the cost benefit ratio. The most favourable financial condition the studyobserved was a combination of 1600 m2 roof area, 5% nominal discount rate, $1.634/kLwater price and inflation rate of 4.5% per annum for the price of water. The study revealedthat the above stated parameters would provide a benefit cost ratio of 1.34. Above authorsalso stated that using large water tanks built as on site detention basins in newdevelopments would result in downstream cost savings for Councils. A large roof andsite area are more favourable than small tanks in terms of water savings and financialbenefits. Roebuck and Ashley (2006) developed a computer based modelling tool forrainwater harvesting. They reported that the current practice of rainwater tank analysis isincapable of determining the actual hydraulic efficiency as well as potential water savingsfrom rainwater tanks. The study analysed the life cycle cost of a school building in theUnited Kingdom for a time period of 65 years. The study also compared the resultsobtained by using their model with the results provided by the rainwater tank supplier.According to the tank supplier, the payback period was 10 years whilst Roebuck andAshley (2006) noted that the payback period should be around 17 years. The rainwater tanksupplier, omitting the impact of interest rate whilst carrying out the analysis was found outto be the reason for this discrepancy. The above authors reported that it was important toconsider the interest rate when calculating the payback periods. The ‘Raincycle’ tooldeveloped by the authors used Monte Carlo simulation to calculate payback period.However, in the reported herein, a simple iterative tool has been introduced in preference toa more complex Monte Carlo simulation to calculate the relationship between paybackperiod, inflation rate, discount rate and the mains water price for Melbourne.

The annual rainfall in Melbourne varies from 450 mm in the west to 1050 mm in northeast of Greater Melbourne. Khastagir and Jayasuriya (2007) illustrated that when onetravels from the west to the north east of Melbourne, there is a considerable variation in theoptimal rainwater tank size to meet the same demand at an equal reliability due tovariability in the rainfall. This variation can be as high as a factor of 7 when a tank forKinglake (North East) is compared with one for Werribee (West) to meet the same demandat equal reliability. Annual potable water savings (usage) by installing rainwater tanks alsodepend on the rainfall at the particular location. As a result, the cost of the tank and thepotable water savings will vary with the location across Melbourne. One of the importantconsiderations for selecting an optimum rainwater tank is the total expenditure incurred bythe consumer. In addition, it is also important to have an appreciation about the levelizedcost, payback period and the cost effectiveness ratio.

The main objective of the study is to carry out the cost effectiveness analysis ofinstalling a rainwater tank in different geographical locations with varying annual rainfall.

Investment Evaluation of Rainwater Tanks 3771

The study developed the methodology and estimated the payback period, the costeffectiveness ratio and the levelized cost of installing a rainwater tank in three differentareas in Melbourne with varying mean annual rainfall (MAR). The paper also examined theimpact of inflation rate, interest rate (discount rate) and the period of analysis on thepayback period with the geographic location with varying annual rainfall. The paper beginsby introducing a simple water balance model to calculate the daily reticulated water savings(rainwater usage) when a rainwater tank is installed in a domestic house. This is followedby defining different cost components mentioned above. It is difficult to predict the futureinterest and inflation rates due to wide fluctuation in the world economy. As a result, in thisstudy, a range of reasonable discount and inflation rates were considered in determining thepayback period. The payback periods and levelized costs were calculated and comparedwith rainfall variability at three locations in Greater Melbourne.

2 Methodology

2.1 Estimation of Daily Reticulated Water Savings Resulting from Installing a RainwaterTank

The storage level of the rainwater tank would depend on the volume of rainfall and thedemand for rainwater on that day. As reported in Khastagir and Jayasuriya (2007) asimple daily water balance model was used to calculate the rainwater tank size (Eq. 1).The loss of water due to evaporation from the tank was not considered as the tank wasassumed to be closed. The daily water demand (Dt) will depend on a number of factors. InMelbourne water authorities recommend the use of rainwater only for toilet flushing,laundry use, hot water systems and for garden watering (i.e. non-potable purposes). Thedemand values for toilet flushing, laundry use and garden watering were on averagevfound to be 16Lpcd, 39.7Lpcd and 191Lpcd respectively (Khastagir and Jayasuriya2008). The probability of the tank having sufficient water to meet the demand was givenas reliability (Eq. 2). If the required reliability was not achieved with the assumed tankcapacity, a new tank size (C) was assumed and the above procedure repeated until therequired reliability level was achieved. Usage of rainwater (mains water saving) can becalculated using Eq. 3.

Stþ1 ¼ St þ Qt � Dt Stþ1 � C ð1Þwhere,

S t+1 Storage volume in the tank at the end of t th dayS t Storage value at the beginning of t th dayQ t Runoff from the roof into the tank on the t th dayD t Total demand for water on the t th dayC Active tank capacity

Re ¼ P

N»100 ð2Þ

Usage ¼ Demand » P ð3Þ

3772 A. Khastagir, N. Jayasuriya

where,

Re Probability of the tank being not empty as a percentage (reliability)P Number of days the tank does not meet the full demand (not empty)N Total number of days.Usage Mains water savings kL/yearDemand Total water demand of rainwater kL/year

2.2 Government Rebate for Installing Rainwater Tanks

As mentioned before, the Victorian Government introduced the “Water Smart Gardens andHomes Rebate Scheme” which provides every household with an opportunity to conservewater and save money. Since the commencement of the Water Smart Gardens and theHomes Rebate Scheme in January 2003, there has been unprecedented interest andwillingness to take part and help save water (SRWA, 2007). Table 1 provides the rebatescheme introduced by Victorian Government (SRWA, 2007). According to the above report,around 150,000 rebates had been approved helping Victorians to save annually more than1.2 billion litres of water. Through the rebate scheme, the benefit for a plumbed rainwatertank connected to toilet flushing in Melbourne could be as high as $1000. Hence, the rebatefor installing a rainwater tank can be determined from Table 1 based on the tank size andthe expected use of rainwater. Present Value of Benefit (PVB) is calculated using Eq. 4.

Present Value of Benefit PVBð Þ ¼ Rebate amount $ð Þ ð4Þ

2.3 Cost Effectiveness Analysis of Rain Water Tanks

Cost-effectiveness analysis compares the costs and effectiveness of installing rainwatertanks. It is anticipated that for urban water supply systems, sustainable outcomes areachieved by identifying the least cost initiative which provides economically sustainablemeans of service provision. The use of rainwater tanks will reduce the usage of potablewater supplied using conventional infrastructure thus delaying expensive conventionalaugmentation infrastructure such as dams.

2.3.1 Components of Costs When Installing a Rainwater Tank

The cost of installing a rainwater tank can be divided into:

& Capital investment (tank cost)& Installation expenditure (accessories cost)

Table 1 Relationship between tank size, expected use and rebate amount for Melbourne (SRWA 2007)

Rebate scheme Tank size (kL) Expected use Rebate amount ($)

1 ≥0.6 Random use 150

2 0.6–1.999 Toilet flushing 150

3 2–4.999 Toilet flushing or Laundry use 500

4 ≥5 Toilet flushing or Laundry use 900

5 ≥5 Toilet flushing and Laundry use 1000

Investment Evaluation of Rainwater Tanks 3773

& Operation and Maintenance costs (miscellaneous costs)

The cost of the rainwater tank and the various accessories can vary based on the selectedtype and design of the tank. Figure 1 depicts the components of the costs involved wheninstalling a rainwater tank. The total amount spent on installing the tank is given by thePresent Value of Cost (PVC) calculated using Eq. 5. The following section explains theestimation of costs and values taken for the current study in calculating the PVC. The costof a rainwater tank and the various accessories can vary based on the selected type anddesign. The cost of a typical round, above ground tank was used for the current study.

PVC ¼ TC þ AC þ OMC ð5Þwhere,

PVC Present value of costTC Tank costAC Accessories costOMC Operation and Maintenance cost

2.3.2 Capital Investment/Tank Cost (TC)

Capital investment of a rainwater tank is the cost of the tank itself. Marsden JacobsAssociates [MJA, (2007)] reported that the price of a domestic tank varied from $1300 to$5000 depending on the shape, size and the material. In the current study, a typical aboveground round tank was considered for the analysis. According to Rainwater Tanks (2007)and Rain Harvesting (2007), the price of the rainwater tank can vary from $900 for a 1 kLtank to $4500 for a 16 kL tank. In this study, the price of a 5 kL rainwater tank wasconsidered to be $2000.

Cost of the tank

Capital Investment

Fitting and labour

Pump cost

Plumbing cost

Installation

Operation and Maintenance

Foundation cost

First flush device

Gutter guard cost

Fig. 1 Components of the totalcost of a domestic rainwater tank

3774 A. Khastagir, N. Jayasuriya

2.3.3 Installation Expenditure (Accessories Cost) (AC)

Once a rainwater tank is purchased there are additional costs involved in installing therainwater tank (ie pump, plumbing, fitting and labor, foundation, acoustic cover, first flushdevice, gutter guard etc.). These costs vary according to the tank user’s expectations, thesite location and the local council’s construction guidelines. Table 2 details the variation ofdifferent accessories costs.

2.3.4 Miscellaneous Costs or Operation and Maintenance Costs (OMC)

This type of cost generally includes yearly operation and maintenance costs (OMC). It isnormally anticipated that this cost will be minimal. While carrying out the cost effectivenessanalysis, it was found that the typical OMC for Melbourne was around 0.50$ (50cents) per kLof tank capacity as reported by MJA (2007). The total OMC is computed using Eq. 6.

OMC ¼ 0:5»Tank capacity kLð Þ»Analysis of life time Yearð Þ ð6ÞFor example, for a 5 kL tank with an expected lifetime of 40 years, the total annual

operation and maintenance cost will be around $100. Figure 2 depicts the breakdown ofdifferent cost components when installing a rainwater tank. Based on the accessoriesselected for the current study, the accessories cost of a tank is approximately 45% of thetotal cost to install a typical 5 kL above ground round tank.

2.4 Future Value of Cost and Effectiveness

The effectiveness of using the rainwater tank was calculated by considering the volume ofreticulated water supply saved using the rainwater tank. Future value of water price, theeffectiveness of using the rainwater tank and the Net Present Value of Effectiveness ofinstalling the rainwater tank were calculated by using Eqs. 7, 8 and 9 respectively.

FVWP ¼ WP � 1þ rð Þn ð7Þ

FVeffect ¼ FVWP �WS ð8Þ

NPVeffect ¼Xn

t¼0

FVeffect

1þ nð Þn ð9Þ

Table 2 Variation of accessories cost

Type of accessories Variation in cost ($) Reference Prices taken for the current study

Pump 150–500 Shopping Australia (2008) Basic pump ($400)

Plumbing 300–500 Archetypes Design (2008) Garden ($400)

Toilet ($400)

Laundry ($500)

Foundation 200–500 Rainwater Tanks (2007) Concrete base ($200)

First flush device 78–600 Rainwater Tanks (2007) Roof water box ($600)

Gutter guard 60–100 GRG (2007) Gutter length 10 m ($70)

Investment Evaluation of Rainwater Tanks 3775

where,

FVWP Future Value of water per kL after n years ($/kL)WP Current Water Price ($/kL)FVeffect Future Value of total water saved after n years ($)WS Volume of water saved (usage) calculated using From Eq. 3 (kL/year)r Discount ratei Inflation rateNPVeffect Net present value of effectiveness (cost of total water saved after n years) ($)n Number of years of analysis

2.5 Cost-Effectiveness Ratio (CER)

Cost-Effectiveness Ratio (CER) can be defined as a ratio between Net Present Value(NPVcost) of cost (Eq. 10) and Net Present Value of effectiveness (NPVe ; Eq. 9). The NPVis the difference between the total cost of installing the tank (PVC; Eq. 5) and theGovernment rebate (PVB, Eq. 4). The cost-effectiveness ratio (Eq. 11) will indicate whetherthe project will be financially beneficial after a certain period of time. For instance, ifCER≤1 after 10 years, the investment will be financially beneficial after 10 years. Hence,CER value is considered to be an indicator of the financial viability of installing therainwater tank as far as the potential customer is concerned. In this study, the cost iscalculated by subtracting the benefit (possible rebate) from the total cost (tank and relatedfacilities cost). As mentioned earlier, effectiveness was computed by considering the totalmains water savings due to the use of the rainwater tank. The CER should be less than zerofor an investment to be viable purely from an economic perspective.

NPVcos t ¼ PVC � PVB ð10Þ

CER ¼ NPVcos t

NPVeffectð11Þ

54%

45%

1%

Tank cost Accessories cost Operation and maintanence cost

Fig. 2 Breakdown of costs toinstall a typical 5 kL roundabove ground tank

3776 A. Khastagir, N. Jayasuriya

where,

CER Cost-Effectiveness RatioPVC Present value costPVB Present value benefitNPVCost Net Present Value of costNPVEffect Effectiveness of rainwater tank (Net present value of effectiveness)

2.6 Payback Period

The payback period is the time taken to recover the initial investment i.e. the amountof time taken to break even on the investment. It is both conceptually simple andeasy to calculate. It is important for a potential tank consumer to know the elapsedtime before the rainwater tank is cost-effective when compared with ongoing use ofreticulated water supply. The payback period (PBP) is the number of years lapsedbefore the cost-effectiveness ratio becomes less than one. The PBP was calculatedusing Eq. 12. A trial and error method was used to compute the PBP for differentscenarios listed in the following section. As the first step, the PBP value was assumed forthe analysis. If the CER<1 status was not achieved with the assumed pay back period, anew PBP was assumed and the above procedure repeated until the CER<1 status wasachieved.

PBP ¼ NCER�1 ð12Þ

where,

PBP Payback period (year)NCER≤1 Minimum Number of years required to obtain CER≤1

2.7 Levelized Cost

The net present value of the total cost of building and operating the rainwater tank over itseconomic life, converted to equal annual payments is known as the levelized cost. Ingeneral, it is important to know the levelized cost of the rainwater tank, with a view tocomparing it with other alternative sources including traditional use (mains water supply) tohave a clear understanding about the efficacy of tank water use. The tank user can comparethe mains water price with the above stated levelized cost to better understand the economicjustification for the tank. The levelized cost of rainwater stored in a tank is calculated usingEq. 13.

LC ¼ NPVcos t

WS � PBPð13Þ

where,

LC Levelized cost ($/KL)NPVcost Net Present Value of cost calculated using Eq. 10 ($)WS Volume of water saved (usage) calculated using Eq. 3 (kL/year)PBP Payback period calculated using Eq. 12 (years)

Investment Evaluation of Rainwater Tanks 3777

3 Results and Discussion

The significance of inflation rate, discount rate and mains water price on the paybackperiod while installing a rainwater tank in a household were analysed for three rainfallstations in the Greater Melbourne area with a MAR of low (Werribee MAR=454 mm),medium (Berwick MAR=710 mm) and high (Kinglake MAR=1054 mm). The resultsobtained from this study can be used for other major Australian cities with similarrainfall namely Adelaide (MAR=553 mm), Canberra (MAR=631 mm) and Brisbanewith MAR of 1189 mm (BOM 2009). A number of scenarios were used to compute thepayback period for an average household size of 3 people (ABS 2001). The water usedfor toilet flushing and laundry use depends on the number of occupants living in thehouse. Levelized cost will assist the tank user to compare the savings based on themains water price with the total cost of installing the rainwater tank and help theconsumer to better understand the economic justification of investing in the rainwatertank taking in to consideration of the MAR of the location. The levelized cost ofrainwater for different tank sizes and for different time periods (life cycles) for the threeabove mentioned locations were also analysed. Numerous numbers of scenarios can beselected to carry out analysis. The scenarios that were tested in this study are shown inTable 3. It can be observed from Table 3, that all these four scenarios cover the full rangeof domestic tank sizes, roof sizes, variation in inflation, discount rate and the mains waterprice for Melbourne.

3.1 Annual Reticulated Water Savings

As mentioned earlier, using water from the rainwater tank can save reticulatedpotable water supplied to the property. Table 4 presents the annual water savings (WS)from a typical household of 3 people by installing a 1 kL, 3 kL and a 5 kL rainwater tankin Werribee (MAR=454 mm), Berwick (MAR=710 mm) and Kinglake (MAR=1054 mm) areas. A rainwater is considered to be used in toilets, laundry and in thegarden.

Table 3 Scenarios used in the analysis to identify the relationship between payback period (PBP), inflationrate, discount rate and mains water price

Scenario name Tank size (kL) Roof size (m2) Inflation rate (%) Discount rate (%) Mains water price($ per kL)

Scenario 1 1–5 250 4.2 5–10 0.9

Scenario 2 1–5 250 3–5 5 0.9

Scenario 3 5 250 5 5 0.9–1.4

Scenario 4 5 250 4.2 5 0.9

Table 4 Mean annual reticulated water savings (kL/year) from different tank sizes in three different locations

Werribee Berwick Kinglake

1 kL 3 kL 5 kL 1 kL 3 kL 5 kL 1 kL 3 kL 5 kL

30.6 44.8 50.1 38.8 53.4 58.2 47.3 61.0 64.2

3778 A. Khastagir, N. Jayasuriya

3.2 Relationship Between Payback Period (PBP), Inflation Rate, Discount Rateand the Mains Water Price

3.2.1 Scenario 1

It was assumed that the tank size studied varied from 1 kL to 5 kL. The rainwater demandfor this analysis was considered to be for toilet flushing, laundry use and garden watering.Table 5 depicts the relationship between the PBPs for the rainwater tanks of different sizesfor Werribee, Berwick and Kinglake respectively. Table 5 below illustrates that with theincrease in tank size the PBP decreases as the maximum rebate peaks at $1000 for a 5 kLtank. In addition, in high rainfall areas, it is possible to have a shorter PBP in comparisonwith the low rainfall area as more potable water is saved. One of the important factorscalculating the PBP was the price of the mains water and the discount rate associated withthis price. It can be concluded from the analysis that the PBP reduces for a specific tanksize with the increase of the discount rate. The reduction is more in low rainfall Werribeethan in high rainfall Kinglake. Furthermore, there is a large variation in the PBP with thetank size in low rainfall Werribee than in Kinglake. Thus, it is important to select theoptimum tank size especially in the low rainfall areas based on the roof area, the demandfor rainwater and the reliability of supply. Although, the initial investment is high when thetank size is big, the PBP is shorter in areas with a high MAR. As mentioned earlier, basedon Tam et al. (2010) it was possible to obtain payback period as low as 6 years for a GoldCoast household connected with a 2 kL tank and 100 m2 roof area. The study considered

Table 5 Payback periods from different tank sizes for a typical household (3 people) in Werribee, Berwickand Kinglake area (250 m2 roof area)

Discount rate Tanks Size (kL)

Werribee Berwick Kinglake

1 kL 3 kL 5 kL 1 kL 3 kL 5 kL 1 kL 3 kL 5 kL

5% 49 36 28 33 25 19 27 21 18

7% 35 28 24 26 21 17 23 19 16

10% 27 22 19 21 17 15 18 16 14

10

15

20

25

30

35

40

45

50

0 1 2 3 4 5 6

Tank Size kL

Pay

bac

k p

erio

d Y

ears

5% inflation rate

4% inflation rate

3% inflation rate

Fig. 3 Payback period of rain-water harvesting system for dif-ferent tank sizes due to variationin inflation rate (Werribee)

Investment Evaluation of Rainwater Tanks 3779

that main water price and discount rate were $1.45 and 3% respectively. In the presentscenario, mains water price was considered to be $0.9 taking into consideration the waterprice of retail water companies in Melbourne (Water price 2007). In addition, discount ratewas considered to be at least 5% which was compatible with the rate of 7% suggested byOBPR (2010). In addition, based on Khastagir and Jayasuriya (2007) tank capacity variesconsiderably due to variation in MAR and subsequently facilitates the significant variationin tank cost. The variation in result in payback periods in the present study and Tam et al.(2010) was due to the variation in mains water price, discount rate, mean annual rainfall,roof area and tank capacity.

3.2.2 Scenario 2

Scenario 2 was carried out by keeping the discount rate at 5% and varying the inflation ratefrom 3% to 5%. The PBP was calculated for different tank sizes. Figures 3, 4 and 5 depictthe relationship between the PBPs for different rainwater tank sizes with the inflation ratefor the three selected locations.

The figures illustrate that the payback period also increases with the increase of the inflationrate. According to the graphs, the PBP varies between 30 to 46 years fromKinglake toWerribeeat a 5% inflation rate for a 1kL tank. Similar to Scenario 1 in low rainfall areas the paybackperiod varies considerably with the tank size and the inflation rate.

10

15

20

25

30

35

40

0 1 2 3 4 5 6

Tank size kL

Pay

bac

k p

erio

d y

ears

5% inflation rate

4% inflation rate

3% inflation rate

Fig. 4 Payback period of rain-water harvesting system for dif-ferent tank sizes due to variationin inflation rate (Berwick)

10

15

20

25

30

35

0 1 2 3 4 5 6

Tank size kL

Pay

bac

k p

erio

d y

ears

5% inflation rate

4% inflation rate

3% inflation rate

Fig. 5 Payback period of rain-water harvesting system for dif-ferent tank sizes due to variationin inflation rate (Kinglake)

3780 A. Khastagir, N. Jayasuriya

3.2.3 Scenario 3

Scenario 3 kept the tank size fixed at 5 kL. Roof sizes as well as the demandwere assumed to besame as in Scenarios 1 and 2. In addition, the inflation rate and the discount rate were alsoconsidered constant (5%). However, the mains water price was varied from $0.9/kL to $1.4/kL.Figure 6 depicts the relationship between the PBPs for a 5 kL rainwater tank due to thevariation of mains water price. The figure indicates that the PBP is significantly affected inthe Werribee region if the mains water price is increased. For Werribee, when the water priceincreases from $0.9/kL to $1.4/kL, the payback period reduces by 15 years. The lowest PBPof 20 years was obtained in Kinglake when the mains water price increased to $1.4/kL.

3.2.4 Scenario 4

As reported before, the concept of levelized cost will enable the tank user to compare themains water price with the cost of installing and running a rainwater tank understanding ofthe economic justification for purchasing the tank. Figures 7, 8 and 9 depict the levelizedcost of rainwater for different tank sizes for the duration of 40 years, 30 years and 20 yearsrespectively for the above three locations. From the above Figures it can be seen thatlevelized cost of price of rainwater stored in a tank depend on the MAR (and thusharvestable stormwater) for a particular location. In addition, the levelized cost decreases if

0

5

10

15

20

25

30

35

40

45

0.9 1.1 1.4

Water Price (per kL)

Pay

bac

k p

erio

d y

ears

Werribee Berwick Kinglake

Fig. 6 Payback period of rain-water for 5 kL tank due tovariation in mains water price forthree different stations (Werribee,Berwick and Kinglake

0

0.5

1

1.5

2

2.5

3

3.5

6543210

Tank size kL

Lev

eliz

ed C

ost

($)

20 Years

30 years

40 years

Fig. 7 Levelized cost of rainwa-ter for different tank sizes for theduration of 40 years, 30 years and20 years respectively (Werribee)

Investment Evaluation of Rainwater Tanks 3781

tank life increases. During the analysis, the mains water price was fixed at $0.9/kL. Thelevelized cost varied from $1.54/kL (Werribee) to $1/kL (Kinglake) for a 1kL tank when theduration of the project life is 40 years. The levelized cost of rainwater almost doubles forKinglake when the project duration reduces from 40 to 20 years. In Worried, the levelizedcost was above $0.9 kL even for a 5kL tank with 40 years of project duration indicating theprice of rainwater will always be above the reticulated water price. However, if the tank sizeis more than 3 kL in Berwick and Kinglake the levelized cost is less than the price of waterif the project duration is 40 years.

4 Conclusions

The Victorian Government has announced that the price of water will double within thenext 5 years. A number of scenarios were carried out to calculate the payback period, cost-effectiveness ratio and the levelized cost in installing different size rainwater tanks indifferent locations in the Greater Melbourne area in Australia with different mean annualrainfall values. Capital cost and the accessories cost are the two major costs of installing around, above ground rainwater tank. The accessories cost contributed 45% of the total costof the tank if connected to the toilet, laundry and the garden. In determining the costeffectiveness of the rainwater tank, the mains water price, discount rate and the inflationrate were found to be key determinants impacting the payback period of the rainwater tank.

0

0.5

1

1.5

2

2.5

3

0 1 2 3 4 5 6

Tank size kL

Lev

eliz

ed C

ost

($)

20 Years

30 years

40 years

Fig. 8 Levelized cost of rainwa-ter for different tank sizes for theduration of 40 years, 30 years and20 years respectively (Berwick)

0

0.5

1

1.5

2

2.5

3

0 1 2 3 4 5 6

Tank size kL

Lev

eliz

ed C

ost

($)

20 Years

30 years

40 years

Fig. 9 Levelized cost of rainwa-ter for different tank sizes for theduration of 40 years, 30 years and20 years respectively (Kinglake)

3782 A. Khastagir, N. Jayasuriya

Ideally, a high mains water price, low inflation rate and high discount rate and high rainfallsresults in the least payback period. The study covered cost effectiveness analysis for threerainfall stations in Greater Melbourne with a MAR of low (Werribee MAR=454 mm),medium (Berwick MAR=710 mm) and high (Kinglake MAR=1054 mm). Hence, theresults obtained from the study can be used to determine cost effectiveness of rainwatertanks for other major Australian capital cities namely Adelaide (MAR=553 mm), Canberra(MAR=631 mm) and Brisbane (MAR=1189 mm) where similar precipitation regimesprevail. It is also possible to obtain a payback period as low as 14 years for a 5 kL tank inKinglake with a discount rate of around 10% and inflation rate of 4.2%. The paybackperiod varied considerably due to the variation of tank size (1 kL–5 kL), especially in lowrainfall Werribee. In this area, unless the mains water price increases substantially (beyond$1.4/kL), the rainwater tank user has to wait for 40 years to reach the payback period. Thisobservation emphasizes the significance of selecting the optimum tank size to ensuremaximum use of rainwater, and the most effective initial capital investment. It is concludedthat the payback period is comparatively low for a large tank installed in wet Kinglakealthough the initial investment will be substantial. In high rainfall areas by installingrainwater tanks significant amounts of expensive potable water is saved.

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