IUE e chapter 6: measuring utility outputs properly at each stage, and the evolution of utility value chains


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Chapter 6 describes how to measure utility outputs at each stage of the value added process, the gradual evolution of utility value chains over the last forty years, and their likely global evolution up to 2030. For drinking water and, particularly, sanitation, this is linked to a detailed examination of the UN’s 2015 Sustainable Development Goals for 2030, and to some longer term problems of planetary stewardship.

Chapter 6 draws on the fundamental concepts of the utility value chain explained in Chapter 1, and the theory of market structures explained by sunk costs in Chapters 3 and 4.¬† Starting with the first stage of bulk energy and water production, measuring utility outputs is very simple: it’s the quantity of energy or water produced. However the cost with which it can be produced is strongly linked to natural plant economies of scale, which in turn are ultimately¬†driven by the size of population served – the clustering of population. The problem is that per unit of output, it is bound to be cheaper to produce energy or water for a million people who live clustered together in one city than for a million people who live in a thousand villages, each village 10 km or so from the next. Yet the utility which provides the energy or water service does not control where the people choose to live. This is the heart of the problem which is examined in this chapter and the next – Chapter 7: how should we measure the outputs of each utility fairly, allowing for exogenous cost-drivers that are beyond any utility management team’s ability to influence? Chapter 6, therefore, carefully distinguishes what is the real ‘output’ of each stage of the utility value chain, and therefore what should properly be used when measuring the efficiency of each utility stage. In particular the outputs of water treatment, sewage, and sewage sludge treatment plants are properly explained.

The problem of fair measurement of utility outputs is further compounded if cities have to retro-fit services such as sewers into an existing very busy underground network, digging up land under existing existing infrastructure or private properties. This chapter explains all the main successful approaches and the main theoretical concepts that need to be covered by hard, practical, but fairly-measured, data.

The chapter concludes by examining the evolution of utility value chains in the long run, including energy networks, water, and particularly wastewater, which are the major utility challenges in achieving the UN’s 2030 Sustainable Development Goals.

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