Stochastic Evaluation of the Investment Risk by the Scale of Water Infrastructures—Case Study: The Municipality of West Mani (Greece)

Abstract

Social structure is based on the availability of the Water-Energy-Food Nexus. To cover these needs of society, several solutions of different scales of infrastructures coexist. The construction of infrastructure is capital-intensive; therefore, investment risk is always a consideration. In this paper, we try to evaluate the investment risk by interest rates (IR). We show that IR is a key indicator, which includes multiple parameters of prosperity expressing the political and economic status quo of the society. The selection of a particular scale influences the required capital and is thus one of the most critical decisions. Water supply infrastructure is one of the foundations of society, and the selection of the optimal scale of such infrastructure is often a great challenge in civil engineering. As a case study, we analyse three different scales of water supply infrastructures for the area of West Mani (Greece), i.e., dam, water ponds, and seawater desalination. We evaluate each case by the capital intensity by performing stochastic simulations of interest rates and identify the optimal solution as the one with the smallest median unit cost, in this case, the water ponds. In order to assess the impact of the development level of a country on the resulting unit cost stochastic properties we apply the optimal solution to various countries with different development levels and IR. We show that IR in the least developed countries, being generally higher and more variable, increases the unit cost, including its variability, which ultimately indicates higher investment risk.

Keywords

• stochastic simulation
• investment risk
• optimization
• interest rate
• water cost
• scale of infrastructure