Nikolay Voutchkov, PE, BCEE International Training Program   1-4 February 2011 Lordos Beach Hotel Larnaca, Cyprus Day 2: Reverse Osmosis Desalination Systems – Design & Costs 15:30-16:30 Desalination Costs Nikolay Voutchkov, PE, BCEE Water Globe Consulting

Desalination Project Costs Key Components and Factors Construction Costs O&M Costs Total Cost of Water Production Methods to Minimize Costs TechnoBiz Training Program (www.technobiz-asia.com)

Desalination Cost Components Capital Costs: Construction (Direct or “Hard”) Capital Costs; Indirect (“Soft”) Capital Costs. Operation & Maintenance Costs: Variable; Fixed. Cost of Water: Annualized Capital Costs; O&M Costs. TechnoBiz Training Program (www.technobiz-asia.com) 3

Seawater Desalination Plant – Construction Costs RO System – 40 % to 60 % of Construction Costs Pretreatment – 15% to 20 % of Construction costs Discharge – 5 to 15 % of Construction Costs Intake – 5 to 20 % of Construction Costs TechnoBiz Training Program (www.technobiz-asia.com) 4

Indirect (Soft) Costs – 15 to 50 % of Total Capital Costs Cost Item % of Total Capital Costs Project Engineering 5.0 – 12.5 % Project Development 2.0 – 10.0 % Project Financing 3.0 – 17.5 % Contingency 5.0 – 10.0 % Total 15 – 50 % TechnoBiz Training Program (www.technobiz-asia.com) 5

Indirect Capital Cost Comparison Conventional Water Treatment Plant: Indirect Costs - 15 to 25 % of Capital Costs; Seawater Desalination Plant: Indirect Costs - 15 to 50 % of Capital Costs. Where Does the Difference Comes from? – Cost of Project Related Risks (Intake and Source Water Quality; Permitting; Technology; Reliability, etc.). This Difference Helps Understand Why Majority of the Large SRWO Projects Worldwide are Mainly Completed Under BOOT Delivery! TechnoBiz Training Program (www.technobiz-asia.com) 6

Intake Construction Costs – Key Factors Very Dependent on Source Water Quality Usually Between US$50 and 100/m³/day Beach Well Intakes Usually Less Costly Horizontal and Slant Wells Comparable to Open Intakes Infiltration Galleries Often are More Expensive than Open Intakes TechnoBiz Training Program (www.technobiz-asia.com)

Open Intakes Construction Costs TechnoBiz Training Program (www.technobiz-asia.com)

Well Intakes Construction Costs TechnoBiz Training Program (www.technobiz-asia.com)

Pretreatment Construction Costs Very Dependent on Source Water Quality & Type of Treatment Technologies Usually Between US$100 and 300/m³/day High Quality Well Water Sources Require Only Cartridge Filtration (Low Cost Pretreatment) Single-stage Granular Media Filtration Usually is Less Costly than Membrane Pretreatment TechnoBiz Training Program (www.technobiz-asia.com)

Seawater Pretreatment Construction Costs SWRO Plant BWRO Plants w/ Sallow & Deep Wells TechnoBiz Training Program (www.technobiz-asia.com)

SWRO System Construction Costs Dependent on Source Water Quality & Target Product Water Quality Usually Between US$300 and 1,000/m³/day Single-stage/Single Pass SWRO System is Least Costly Additional Costs for Two-Pass/Two-Stage RO System May Vary Between 15 and 30 % of the These of Single Pass/Single Stage SWRO System TechnoBiz Training Program (www.technobiz-asia.com)

Costs of Key RO System Components Construction Cost (US$/item) 8-inch SWRO Membrane Element US$450 –US$600/element 8-inch SWRO Pressure Vessel US$4,000 - US$6,000/vessel RO Train Piping US$200,000 – US$600,000 /RO Train RO Train Support Frame US$150,000-US$400,000/RO Train RO Train Instrumentation & Controls US$20,000 – US$90,000/RO Train High Pressure Pumps US$150,000 – US$800,000/RO Train TechnoBiz Training Program (www.technobiz-asia.com)

Post-treatment Construction Costs Dependent on Target Water Quality: Hardness Alkalinity pH Need for Addition of Corrosion Inhibitors Type of Disinfection Need for Addition of Fluoride & Magnesium in the Drinking Water Usually Between US$20 and 50/m³/day TechnoBiz Training Program (www.technobiz-asia.com)

Post-treatment Construction Costs TechnoBiz Training Program (www.technobiz-asia.com)

Concentrate Disposal Construction Costs Disposal Method Construction Cost (US$ Million/ML/d) New Outfall w/Diffusers 0.50 – 1.50 Power Plant Outfall 0.05 – 0.15 Sanitary Sewer 0.03 – 0.10 WWTP Outfall 0.08 – 0.45 Deep Well Injection 0.65 – 1.65 Evaporation Ponds 0.75 – 2.50 Zero-Liquid Discharge 3.50 – 7.50

Key Capital Cost Components – 40,000 m3/day Plant w/ Low-Cost Intake & Outfall Cost Item Cost (US$) % of Total Intake 2.76 MM 4.8 % Pretreatment 4.64 MM 8.0 % RO System Equipment 18.56 MM 32.0 % Post Treatment 1.16 MM 2.0 % Concentrate Disposal 1.45 MM 2.5 % Buildings 1.74 MM 3.0 % Waste and Solids Handling 0.87 MM 1.5 % Electrical & Instrumentation 1.30 MM 2.2 % Other Items 2.90 MM 5.0 % Total Construction (Direct) Costs 35.38 MM 61 % Engineering Services 5.80 MM 10.0% Development, Financing & Contingency 16.82 MM 29 % TOTAL $58.0 MM 100 % TechnoBiz Training Program (www.technobiz-asia.com)

Capital Costs and Plant Size TechnoBiz Training Program (www.technobiz-asia.com)

Annual O&M Cost Breakdown Cost Item Range (% of Total O&M Costs) Variable O&M Costs 50.5 – 85.0% Fixed O&M Costs 15.0 – 49.5% Total 100 % TechnoBiz Training Program (www.technobiz-asia.com) 19

Variable O&M Costs Cost Item (% of Total O&M Costs) Power 35.0 – 58.0 % Chemicals 5.5 – 9.0 % Membranes & Cartridges 6.5 – 11.0 % Waste Stream Disposal 3.5 – 7.0 % Total 50.5 – 85 % TechnoBiz Training Program (www.technobiz-asia.com) 20

Fixed O&M Costs Cost Item (% of Total O&M Costs) Labor 4.0 – 11.0 % Maintenance 3.0 – 13.0 % Environmental & Performance Monitoring 1.0 – 5.0 % Indirect O&M Costs 7.0 – 20.5 % Total 15.0 – 49.5 % TechnoBiz Training Program (www.technobiz-asia.com) 21

Indirect O&M Costs – 7 to 20.5 % of Total Costs Administrative Costs; Operations Insurance; O&M Reserve Funds Required by Investor (Project Risks); Contingency; Staff Training and Professional Development; Operator Fees. TechnoBiz Training Program (www.technobiz-asia.com) 22

O&M Costs & Cost of Water 40,000 m3/day Plant w/ Low-Cost Intake & Outfall Cost Item Cost (US$/yr) % of Total Energy 3.24 MM/yr 55.5 % Chemicals 0.35 MM/yr 6.0 % Replacement of RO Membranes & Cartridge Filters 0.62 MM/yr 10.6 % Waste Stream Disposal 0.26 MM/yr 4.4 % Total Variable Costs 4.47 MM/yr 76.5 % Labor 0.33 MM/yr 5.7% Maintenance 0.38 MM/yr 6.5 % Environmental & Performance Monitoring 0.09 MM/yr 1.5 % Other O&M Costs 0.57 MM/yr 9.8 % Total Fixed Costs 1.37 MM/yr 23.5% TOTAL ANNUAL O&M COSTS $5.84 MM/yr 100 % Annual O&M Costs = US$5.84 MM/(40,000 m³/dayx365 days) = US$0.40/m³ TechnoBiz Training Program (www.technobiz-asia.com)

Cost of Water 40,000 m3/day Plant w/ Low-Cost Intake & Outfall Annual O&M Costs = US$5.84 MM/yr ($0.40/m³) Capital Costs, Cap = US$58 MM Capital Cost Recovery Factor, CRF = [(1+i)ᵐ - 1] / [ix(1+i)ᵐ] Where: m – period of repayment of capital expenditures; i – interest rate of capital For example, for m = 20 years & i = 5% CRF = [(1+0.05)²º - 1] / [0.05 (1+0.05)²º] = 12.462 Annualized Capital Costs = Cap/(CRF x Qp x 365 d) = US$58 MM/(12.462 x 40,000m³/d x 365 d) = $0.32/m³ Cost of Water = $0.40 + $0.32 = $0.72/m³ TechnoBiz Training Program (www.technobiz-asia.com)

Cost Comparison of 100 ML/d SWRO Plant with Conventional and Membrane Pretreatment TechnoBiz Training Program (www.technobiz-asia.com)

Comparison of O&M costs and Costs of Water Production – 100 ML/d SWRO Plant Conventional Pretreatment Membrane Pretreatment TechnoBiz Training Program (www.technobiz-asia.com)

Cost of Water Production TechnoBiz Training Program (www.technobiz-asia.com) 27

Cost of Water of Recent Desalination Projects TechnoBiz Training Program (www.technobiz-asia.com)

Costs of Recent US SWRO Projects Status Capital Cost (US$) Annual O&M Cost (US$/kgal) Cost of Water (US$/kgal) 0.6 MGD Sand City, CA In Operation since 2010 US$11.9 MM US$1.15/kgal US$2.91/kgal 25 MGD Tampa Bay, FL In Operation since 2008 US$138 MM US$1.54/kgal US$3.48/kgal 50 MGD Carlsbad, CA In Financing US$350 MM US$1.75/kgal US$4.00/kgal 2.5 MGD Santa Cruz, CA In Planning US$59-64 MM US$3.94/kgal US$7.6-8.0/kgal Brownsville Demo Project, TX US$22.5 MM US$2.80/kgal US$4.38/kgal 25 MGD-80 MGD Coquina Coast, FL US$180 MM -US$560 MM US$1.99/kgal US$4.47/kgal (US$5.35-US$6.10 w/ conveyance) TechnoBiz Training Program (www.technobiz-asia.com)

Key Factors Affecting Costs Source Water Quality - TDS, Temperature, Solids, Silt and Organics Content. Product Water Quality – TDS, Boron, Bromides, Disinfection Compatibility. Concentrate Disposal Method; Power Supply & Unit Power Costs; Project Risk Profile; Project Delivery Method & Financing; Other Factors: Intake and Discharge System Type; Pretreatment & RO System Design; Plant Capacity Availability Target. TechnoBiz Training Program (www.technobiz-asia.com) 30

Source Water Quality & Costs Water Source (TDS, ppt /Temperature, ºC) Construction Costs O&M Costs Cost of Water Pacific/Atlantic Ocean (33.5 ppt /18 ºC) 1.00 Caribbean (36 ppt /26 ºC) 1.04-1.35 1.02-1.10 1.03-1.22 Mediterranean (38 ppt /24 ºC) 1.06-1.40 1.04-1.15 1.05-1.28 Gulf of Oman/Indian Ocean (40 ppt /30 ºC) 1.15-1.50 1.10-1.25 1.12-1.38 Red Sea (41 ppt /28 ºC) 1.18-1.55 1.12-1.28 1.15-1.42 Arabian Gulf (45 ppt /26 ºC) 1.25-1.60 1.15-1.33 1.20-1.48 TechnoBiz Training Program (www.technobiz-asia.com)

Product Water Quality & Costs Target WQ Constr. Costs O&M Costs Cost of Water TDS/Cl = 500/250 mg/L; Boron = 1 mg/L. 1.0 TDS/Cl = 250/100 mg/L; Boron = 0.75 mg/L. 1.15-1.25 1.05-1.10 1.10-1.18 TDS/Cl = 100/50 mg/L; Boron = 0.5 mg/L. 1.27-1.38 1.18-1.25 1.23-1.32 TDS/Cl = 30/10 mg/L; Boron = 0.3 mg/L. 1.40-1.55 1.32-1.45 1.36-1.50 TechnoBiz Training Program (www.technobiz-asia.com) 32

Key Project Risks and Costs Permitting Risks – Very High for Large Plants; Source Water Risks – High for Most Large Plants; Technology Risks – High, Especially for New Technologies with Limited Track Record; Operational Risks – High – Experienced Operator Needed; Desalinated Water Demand Risks – High When Cost of Desalinated Water Significantly Higher than That of Existing Supplies; Power Supply & Entitlement Risks – Moderate; Regulatory Risks – Moderate; Construction Risks – High – Limited Experience; Financial Risks – High. TechnoBiz Training Program (www.technobiz-asia.com) 33

Project Financing Alternatives Government Financing: Key Advantage - Lowest Cost for the Final User; Key Disadvantages – Scarce & Limited. Bonds and Construction Loans: Key Advantage – Low Cost Funds (3 to 8 % rate); Key Disadvantages – Limited by the Credit Capacity of the Water Agency & Complex Approval Process. Private Project Finance: Key Advantage – Utility Responsible to Pay for Services & Borrowing Capacity Not Impacted; Key Disadvantages – Usually More Expensive for Small and Low-Risk Projects. TechnoBiz Training Program (www.technobiz-asia.com) 34

Project Delivery Alternatives Design-Bid-Build (DBB): Key Benefit - Utility Owns All Assets; Key Disadvantages – Utility Takes All Risks and Reduces Borrowing Capacity. Design-Build-Operate (DBO)/”Alliance”: Key Benefit – Utility Owns All Assets; Key Disadvantages – Utility Shares Some Construction & Operations Risks and Reduces Borrowing Capacity. Build-Own-Operate-Transfer (BOOT): Key Benefit – Utility Transfers Most Risks to Private Sector and Only Pays for Water it Receives; Key Disadvantages – Utility Does Not Own the Assets. TechnoBiz Training Program (www.technobiz-asia.com) 35

Risk Allocation Profiles for BOOT & Alliance (DBO) Project Delivery Type of Project Risk BOOT Alliance/DBO Permitting Private Public Source Water Shared Technology Operations Water Demand Public (Take or Pay – Private Equity at Risk) Power Supply Construction Financial TechnoBiz Training Program (www.technobiz-asia.com) 36

Worldwide the Lowest Cost of Desalinated Seawater Has Been Delivered Under BOO/BOOT Contracts! TechnoBiz Training Program (www.technobiz-asia.com) 37

Largest SWRO Desalination Projects Worldwide SWRO Plant Cost of Water (US$/m³) Power Use (kWh/m³) & TDS Ashkelon, Israel – 330 ML/d (Largest in The World) – BOOT 0.53 3.8 (40 ppt) Point Lisas, Trinidad – 130 ML/d (Largest in The Americas) - BOOT 0.72 4.8 (38 ppt) Tuas, Singapore – 136 ML/d (Largest in Asia) - BOOT 0.48 4.3 (33 ppt) Barcelona, Spain – 200 ML/d (Largest in Europe) BD+O 1.16 4.4 Fujariah, UAE – 170 ML/d (Largest in the Middle East) - BOOT 0.90 4.5 (38.5 ppt) Sydney, Australia – 250 ML/d (Largest in Australia) – DBO (Alliance) 2.29 4.2 (36 ppt) TechnoBiz Training Program (www.technobiz-asia.com) 38

Year 2004/09 The Five Lowest Cost SWRO Project Bids Worldwide SWRO Plant Cost of Water (US$/m³) Power Use (kWh/m³) & TDS Sorek, Israel – 411 ML/d BOO (startup – 2014) 0.53 3.7 (40 ppt) Mactaa, Algeria – 500 ML/d BOOT (startup – 2013) 0.56 Hadera, Israel – 330 ML/d BOO/co-located (startup – 2009) 0.60 Cap Djinet, Algeria – 100 ML/d BOO (startup – 2010) 0.72 4.0 (38 ppt) Carlsbad, USA – 189 ML/d BOO co-located (startup – 2012) 0.74 2.9 (33.5 ppt) TechnoBiz Training Program (www.technobiz-asia.com) 39

What All Recent BOOT Projects Have in Common? All Yielded the Lowest Costs and Power Use of Desalinated Water in Their Respective Markets; Plant Performance & Permitting Risks Reside with the Private Sector; Debt Repayment is Private Sector Obligation; Private Sector Only Gets Paid for Delivering Product Desalinated Water; Public Utility Can Buy Out (Transfer) Project Ownership Once Plant Has Proven Its Long-term Performance. TechnoBiz Training Program (www.technobiz-asia.com) 40

Ashkelon – Lowest Cost of Water Worldwide – How Did They Do It? TechnoBiz Training Program (www.technobiz-asia.com) 41

Ashkelon – How Did They Do It? Low Cost Conventional Pretreatment – Single Stage Dual Media Filters; Large Size (20-micron) Cartridge Filters; Three-Center RO Design w/ Pressure Exchangers: Low Cost Post-Treatment – Calcite Filters & Blending; Self-Power Generation – 80 MW Gas Generators and Purchase of Rights to Gas Field Use; Discharge Collocation with Power Plant in Well Mixed Tidally Influenced Zone – No Need for Outfall. TechnoBiz Training Program (www.technobiz-asia.com) 42

Sydney and Huntington Beach Desal Plant Construction Costs 250 ML/d Huntington Beach 189 ML/d/(250 ML/d) US$ Desalination Plant 492 310 (410) Intake and Outfall 230 16 (21) Delivery 557 110 (146) Project Costs 260 61 (81) Total Capital Costs 1,539 497 (658) Note: Sydney Costs Source – WDR - July 2007 TechnoBiz Training Program (www.technobiz-asia.com) 43

Perth & Sydney SWRO Plants Cost Breakdowns   Perth Sydney Capacity (ML/d) 125 250 Distance from intake (km) < 1 4.5 Distance to delivery (miles) 26.2 14.3 Total Capital Cost ($M) $325 $1,539 Total Capital Cost – Desal Plant ($M) $281 $982 Total Capital Cost - Delivery ($M) $44 $557 Annualized Capital Cost ($M/yr) $25 $120 Total Annual O&M Costs ($M/yr) $17 $46 Annual O&M Cost – Desal Plant ($M/yr) $16 $42 Annual O&M Cost – Delivery ($M/yr) $1 $4 Cost of Water – Capital Component ($/m3) $0.70 $1.65 Cost of Water – O&M Component ($/m3) $0.44 $0.58 Cost of Water – Delivery Component ($/m3) $0.02 $0.06 Total Water Cost, $/m3 $1.16 $2.29 adapted from Waterlines:NWC Australia

Be Careful When Comparing Costs! Projects Differ By: Source Water Salinity and Temperature; Product Water Quality; Unit Cost of Construction, Labor and Permitting; Cost of Capital; Unit Cost of Power; Source of Equipment Supply; Project Completion Schedule. Projects Have to Be Normalized for These and Other Factors for Accurate Comparison. TechnoBiz Training Program (www.technobiz-asia.com) 45

Typical Cost and Energy Ranges (Medium & Large SWRO Plants) Classification Cost of Water Production (US$/kgal) SWRO System Energy Use (US$/kgal) Low-End Bracket 2.0 - 3.0 9.5 – 10.5 Medium Range 3.5 – 5.0 11.0 - 12.0 High-End Bracket 6.5 - 11.5 12.5 – 14.0 Average 4.0 11.5

Common Features of Low-Cost Desalination Projects Low Cost HDPE Open Intakes or Beach Wells; Near-Shore/On-Shore Discharges w/o Diffuser Systems or Co-discharge w/ Power Plant of WWTP Outfalls; Point of Product Water Delivery within 5 Miles of Desalination Plant Site; RO System Design w/ Feed of Multiple Trains by Common High Pressure Pumps and Energy Recovery Systems; Turnkey (BOOT, BOO) Method of Project Delivery.

Key Reasons for Cost Disparity Between High-End & Low-end Cost Projects (US$2.0 – 3.0 vs. US$6.5-11.5/kgal) Desalination Site Location (NIMBI vs. Science Driven) Costly Plants Have Overly Long Product Water Delivery Pipelines 120 MGD Melbourne Plant – Cost of Plant/Delivery + Power Supply Systems = US$1.7 BB/1.1 BB (50 miles) 66 MGD Sydney SWRO Plant – Cost of Plant/Delivery System = US$560 MM/US$490 MM (10 miles of underground tunnel under Botany Bay). Environmental Considerations Complex Intakes & Diffuser Systems Phasing Strategy Intake and Discharge System Capacity; Pretreatment & RO System Design; Labor Market Pressures Method of Project Delivery & Risk Allocation TechnoBiz Training Program (www.technobiz-asia.com) 48

Where Future Cost Savings Will Come From? TechnoBiz Training Program (www.technobiz-asia.com) 49

Main Areas Expected to Yield Cost Savings in the Next 5 Years (20 % Cost Reduction Target) Improvements in Membrane Element Productivity: - Polymetric Membranes (Incorporation of Nano-particles Into Membrane Polymer Matrix) – CSIRO & UCLA; - Larger Membrane RO Elements (16” Diameter or Higher). Increased Membrane Useful Life and Reduced Fouling: - Smoother Membrane Surface – Carbon Nanotube Membranes – CSRO & University of Texas (Austin). - Increased Membrane Material Longevity; - Use of Systems for Continuous RO Membrane Cleaning; - UF/MF Membrane Pretreatment. Commercial Forward Osmosis Systems; Co-Location With Power Plants; Regional Desalination and Concentrate Disposal; Larger RO Trains and Equipment; Full Automation of All Treatment Processes. TechnoBiz Training Program (www.technobiz-asia.com) 50

Nano-Structured SWRO Membranes TechnoBiz Training Program (www.technobiz-asia.com)

Potential to Reduce 60 to 80 % of Energy Costs & 15 to 25 % of Cost of Water OASYS TechnoBiz Training Program (www.technobiz-asia.com) 52

Research Directions to Meet the Long-Term 80 % Cost Reduction Goal Improve Membrane Useful Life and Productivity; Develop Corrosion Resistant Non-Metallic Materials to Replace High-Quality/High Cost Stainless Steel RO Piping; Reduce Pretreatment Costs; Develop New-Generation Energy Recovery Systems; Introduce Low-Cost Technologies for Beneficial Concentrate Use and Disposal; Explore New Technologies for Seawater Desalination Different from RO and Thermal Evaporation. TechnoBiz Training Program (www.technobiz-asia.com) 53

Aquaporine-Based Desalination TechnoBiz Training Program (www.technobiz-asia.com)

“The Best” of Seawater Desalination Present Status & Future Forecasts Parameter Today Within 5 Years Within 20 Years Cost of Water (US$/m³) US$0.6-0.8 US$0.5-0.6 US$0.1-0.2 Construction Cost (Million US$/ML) 1.2-2.4 1.0-2.0 0.5-1.0 Power Use (kWh/m³) 2.8-4.0 2.5-3.5 2.0-2.5 Membrane Productivity (gallons/day/membrane) 5,000-12,000 8,000-15,000 20,000-40,000 Membrane Useful Life (years) 5-7 7-10 10-15 Plant Recovery Ratio (%) 45-50 50-55 55-65 TechnoBiz Training Program (www.technobiz-asia.com) 55

Concluding Remarks The Ocean Will Become One of the Key Sources of Reliable and Draught-Proof Coastal Water Supply in the Next 10 to 20 Years; Large-scale Seawater Desalination is Economical Today and Will Become Even More Cost-Competitive in the Future; The Future of Seawater Desalination Is Bright – 20% Cost of Water Reduction in the Next 5 Years; Long-term Investment In Research and Development Has the Potential to Reduce the Cost of Desalinated Water by 80 % In the Next 20 Years. TechnoBiz Training Program (www.technobiz-asia.com) 56

Seawater Desalination Costs Questions? TechnoBiz Training Program (www.technobiz-asia.com)