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Blog Climate and Environment, Energy

Unlocking the Power of Partnerships to Tackle Water and Energy Losses

Water

Climate funds have great potential to improve the efficiency of underperforming water utilities. Castalia developed a concept for a Climate Fund for Water and Energy Efficiency Performance-based Contracts (PBCs).  

Globally, water utilities lose 126 billion cubic meters of water every year, totaling a loss of US$ 39 billion per year. The cost of pumping and treating lost water plus the lost profit of water that is not sold generates huge financial losses for utilities. Non-revenue water (NRW) is the measure of water lost due to leaks, theft, or inaccurate metering. High NRW levels deplete valuable water resources, increase the climate footprint, reduce the financial sustainability of water utilities, and result in poor water service provision. Additionally, pumping water that is lost in the sanitation and distribution process results in wasted energy. Addressing NRW reduces greenhouse gas emissions in the form of saved water and energy and enables utilities to provide reliable water services.   

PBCs are 68 percent more effective at addressing utility’s water losses and inefficient use of energy compared to NRW initiatives undertaken by utilities alone. PBCs allow utilities to engage specialized private sector firms to provide NRW reduction services while enabling utilities to retain control of ownership and operations. Developed as a results-driven framework, PBCs link payments to the achievement of specific targets such as reducing water losses and enhancing revenue collection. They also include financial penalties for not meeting targets, transferring project risk from the utility to the contractor. PBCs also foster transparency and accountability by establishing clear performance benchmarks, thereby ensuring that service providers remain accountable for their progress.  

Even though PBCs are a demonstrated solution to saving water and energy globally, the wide-spread implementation of PBCs has been limited, particularly in some regions. Some challenges of implementing PBCs include high transaction costs for individual projects, lack of technical capacity in utilities, and lack of fiscal space to finance project preparation and implementation. In the Caribbean, for example, the geography of the countries leads to small-sized projects. Therefore, transaction costs for developing PBCs in the Caribbean are high, making projects financially unviable before they even start.  

A climate fund for water and energy can support the uptake of NRW and energy efficiency PBCs. A fund designed to bring together development finance institutions and the private sector would support the creation of standard PBC contracts for water utilities, provide technical support for implementation, aggregate multiple projects, and mobilize climate finance more efficiently for aggregated PBCs. 

Involving multilateral organizations to create and manage funds for the widespread adoption of PBCs for non-revenue water reduction increases the chances of effective implementation. Development finance institutions have the capacity, connections, and trustworthiness to guarantee effective collaboration with government, utilities, public and private investors, and service providers. Additionally, their reach enables the adoption of PBC’s in multiple countries, reducing the cost of project implementation.  

A fund like this would also be eligible to attract climate finance due to the nature of the work which results in saving water and energy. Climate finance is also more attractive to utilities because it is easier to access and cheaper than commercial finance.   

For more information about the Fund concept developed by Castalia, download the following document available in English and Spanish.

 

Sources: 
https://ppi.worldbank.org/content/dam/PPI/resources/ppi_publication/web_publication/WPS8054.pdf 
Kingdom, Bill, Jemima Sy, and Gerhardus Soppe. 2018. “The Use of Performance-Based Contracts for Nonrevenue Water Reduction: Output of the Global Program on Developing Good PBC Practices for Managing NRW.” Washington, D.C., World Bank.
R. Liemberger, A. Wyatt; Quantifying the global non-revenue water problem. Water Supply 1 May 2019; 19 (3): 831–837. doi: https://doi.org/10.2166/ws.2018.129
September 15, 2023
Tags: Water sector insights
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WASHINGTON, DC
+1 (202) 466-6790
1747 Pennsylvania Avenue NW, Suite 1200
United States of America

SYDNEY
+61 (2) 8075 4654
Suite 3652, Level 36, Gateway
1 Macquarie Place
Sydney NSW 2000
Australia

AUCKLAND
+64 (4) 913 2800
74D France Street, Newton South
New Zealand

WELLINGTON
+64 (4) 913 2800
Level 2, 88 The Terrace
New Zealand

PARIS
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6 Rue Duret
France

BOGOTÁ
+57 (1) 508 5794
Calle 81 #11-08, Piso 5, Oficina 5-127
Colombia

Thinking for a better world.

Castalia-logo-negative-2col

PROJECTS        NEWS        BLOG        CONTACT

© Copyright 2019 Castalia. All rights reserved.

Terms | Privacy | Credits | Sitemap

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