The integrated hydro-economic simulation framework

Given this diverse set of challenges linked to uncertainty, it would appear that a project evaluation framework using repeated simulations to test the performance of different system configurations in various plausible states of the world may provide new insights. To use the

conceptual framework introduced in Chapter 1 of this research, such a framework would be applied to the infrastructure alternatives of interest to the planner, across a series of plausible climate scenarios, water withdrawal conditions and economic states of the world. The simulation framework could be used to test the effect of natural variability and climate change on the physical behavior of systems, as well as the economic uncertainties associated with changes in the physical system and the value of the physical outputs derived from it. It could also serve to help identify the most important

uncertainties in the planning problem, thereby informing the selection of more robust system designs. A schematized representation of such a framework is shown in Figure 7 (changes from the traditional framework are italicized). Here I provide only a quick overview. Climate scenarios, water withdrawal conditions and states of the world would first be selected. Next, analysts would generate a

perturbed hydrological regime corresponding to these climate scenarios: stochastic streamflow generation seems a promising tool for this purpose. Other linkages and impacts – for example, physical changes in water demands and evaporation, or economic changes in the relative value of the hydropower obtained from the system – would then be specified, using theoretical or empirical relationships. Finally, a tool would be developed for conducting economic simulations which can incorporate the physical and economic uncertainties associated with climate change and the projects being evaluated. Many of the required changes will be specific to the planning application of interest.

Figure 7. A modified simulation framework for economic appraisal of water resources investments, showing the two levels (hydrological and economic), with additions to the traditional framework

identified by shading and italics.

Perturbed hydrology (stochastic) Future Demand Projection(s) Water Resources System New Project(s) Hydrological Simulation Model Repeated simulation

Climate Scenario(s), Water Withdrawal Condition(s), State(s) of the World

Economic System Impacts NPV distribution

Repeat process for other scenarios and infrastructures Compare alternatives

Other Economic Impacts

Physical System Impacts (i.e. hydropower, water demands met, flood flows)

Economic Level of Framework

Economic Appraisal Model

Monte Carlo Simulation Hydrological

Level of Framework

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3.4 Summary

In this chapter, we reviewed the basic textbook planning framework used for evaluating the economics of large water resources infrastructures. We began with a rudimentary mathematical representation of the continuity equations for describing water flows in the model. We discussed the complementary roles played by optimization and simulation approaches in design and sensitivity testing of different infrastructure arrangements. We then reviewed some of the principal constraints which have historically prevented wider use of the systems planning approach, devoting particular attention to problems related to uncertainty and changing conditions. The chapter closed with a proposal for a modified analytical approach for simulating the economic performance of new projects in a variety of possible future situations. The next chapter describes in detail the steps taken to apply such a modified framework to the planning of planning Joint Multipurpose Programme investments in the Eastern Nile.

4

O

B

N

In this chapter, the specific methods and models used to make the evaluation framework operational for evaluating the costs and benefits of the Blue Nile infrastructure projects are discussed in more detail. The operational version of the framework is composed of eight steps (Figure 8). Steps 1 through 5 are within the hydrological level of the framework, and steps 6 through 8 are in its economic level. For the purposes of exposition, the presentation below assumes that climate change is the only dimension of “unmeasurable” uncertainty reflected in the modeled situations (rather than including withdrawal conditions and states of the world). The extension of this procedure over other uncertain dimensions is straightforward and requires additional repetition of the procedure. For example, if one were interested in studying the infrastructures in multiple withdrawal conditions, one would simply repeat the entire procedure in steps 1 through 7 for each such condition.8

The steps are: 1. a) Definition of climate scenarios and project alternatives; b) selection of a single scenario and

project alternative for analysis;

2. Specification of the linkages between the climate scenario and the water resources system; 3. Generation or choice of inflows corresponding to the runoff in the selected climate scenario; 4. Simulation of physical incremental changes due to the project alternative being analyzed using a

hydrological simulation model;

5. Cataloguing of the physical measures of the project’s incremental effect on the system; 6. a) Simulation and b) storage of economic measures for the given climate scenario and project

alternative, using a Monte Carlo economic simulation model;

7. Selection of the next climate scenario, and/or project alternative, repetition of steps 1-6; and 8. Analysis of results and evaluation of the project alternatives across climate scenarios with the aid

47

Figure 8. Flow chart showing the operational framework. Solid arrows show the steps of the modeling procedure; dotted lines represent functional linkages between model components.

As shown, three models were developed and parameterized for use in the Blue Nile application: a. A hydrological simulation model – Nile_Simmodel.xls – calibrated for the Nile Basin system

(schematic shown in Figure 9);

2. Specify climatic factors and linkages for scenario k:

Changes in temperature, precipitation, and runoff at

Nile_simmodel nodes

Run Model 2

Nile_simmodel.xls

Simulate physical outcomes

5. Catalog physical / incremental simulation outputs Physical Linkages: Net Evaporation Crop-water requirements Hydrological Effects (White

Nile regression)

1a. Define climate scenario(s) 1,…,K and projects 1,…,P

1b. Select scenario k; Select project p

Run Model 1:

Inflow_Generator.xls

Generate N perturbed inflow

sequences for scenario k

3. Obtain inflows using climate- runoff linkage If n ≤ N If n > N If using stochastic flows If using historical flows

6a. Run Model 3:

EARM.xls

Simulate economic outcomes

Economic parameters: Costs, Benefits, Discount rate,

planning horizon, etc. Economic Linkages: Offsets, Value of water, Value of

HP, etc. First: If using stochastic

inflow series’, specify N number of simulations, otherwise N = 1; Second: set n = 1 6b. Store Economic Outcomes: NPV Probability distribution, Sensitivity diagrams 7. If k < K, set k = k+1, go to step 1, or

if k = K & p < P, set k = 1 & p = p+1, go to step 1

Else if k = K and p = P 8. Stop and process results

Begin, Set k = 1 p = 0

4. Select inflow sequence n

Set n = n + 1

If p = 0

If p > 1

If k < K or p < P

b. A stochastic streamflow generator – Inflow_Generator.xls – used to generate flow sequences with historical or perturbed characteristics for input to the simulation model; and

c. An economic appraisal model – Economic Assessment of Reservoirs Model (EARM.xls) – for conducting simulations of the costs and benefits of the three JMP project alternatives. 9

Lake Victoria Lake Kyoga Owen Falls/ Victoria Outlet Kyoga Inlet Lake Albert Paraa / Kyoga Outlet Albert Inlet Pakwatch / Panyango Net inflow Victoria Net inf low

Albert Net inflow Kyoga Mongala Inf low Torrents Sudd exit Loss Sudd Malakal Inf low Sobat Melut Gebel Aulia Khartoum Lake Tana Bahir Dahr / Tana Outlet Kes sie

Net inf low Tana Inf low Mandaya Inflow Karadobi Inflow Border Karadobi Mandaya Border Sennar Ros eires Inf low Dinder Inf low Rahad Lake Nass er Merowe Khasm el Girba TK-5 Inflow Atbara Inflow Tekeze Inf low Girba Tam aniat Has sanb Atbara Dongola Model Node Inflow Lake Potential Reservoir Existing Reservoir Withdrawals Loss es El Deim Tana-Be les Link Loss Nasser To Egyptian cities, agriculture and sea

Figure 9. Simmodel.xls schematic, showing inflow, routing and reservoir nodes

4.1 a) Definition of climate scenarios and project alternatives; b) selection of a scenario and