Economic Value of Storage in Multireservoir Systems

Abstract

Following three decades of rather low investment in dams, many regions throughout the world are now seeking to further develop new storage capacity to meet exploding demands for water and to hedge against the risk posed by climate change. Storage capacity is often perceived as a key element of climate change adaptation strategies, while at the same time contributing to socioeconomic development through irrigation, energy generation, fish production, and municipal and industrial water supply. The benefits provided by dams must be balanced with the associated environmental and social costs, which can take various forms, such as the degradation of ecosystems because of altered flow regimes and the relocation of people from the impoundment area. The benefits of storage essentially come from the ability to move water in time, making it available during the low-flow season when it becomes more valuable. As river basins develop and new dams are constructed, it may be important for planning and operational purposes to assess the individual contribution of each reservoir to the benefits of storage. This paper presents a methodology to determine the economic value of storage in multireservoir systems based on the marginal net benefit functions of storage and on hydroeconomic modeling. A cascade of reservoirs in the Euphrates river basin is used to illustrate the methodology.