Adelaide Desalination Plant

The Hon. J.S. LEE (15:04): I seek leave to make a brief explanation before asking the Minister for Water and the River Murray a question about the desalination plant.

Leave granted.

The Hon. J.S. LEE: In March this year the minister commissioned an independent cost-benefit study to determine whether water from the Adelaide Desalination Plant should be used to boost irrigation allocations during times of low water availability. The study was conducted by one of Australia's leading natural resource economic consultancies, Marsden Jacob, and it has been reported that the desalination plant is too expensive to top up water allocations for Riverland irrigators.

Renmark Irrigation Trust Presiding Member, Peter Duggin, stated to ABC that 'there is still a great deal of fear in our community and we have not actually fully recovered from the previous drought'. It was reported that findings from the cost-benefit study will help inform longer-term state policy on how allocations and costs could be shared between different water users. My questions to the minister are:

1. With the Riverland irrigators still recovering from the previous drought, and with the study indicating that water from the desal plant is too costly, how does the minister intend to allocate enough water for South Australian irrigators?

2. What costs were involved by the state government to commission the independent study conducted by Marsden Jacob?

3. With the independent report finalised, what recommendations will the minister implement to ensure water allocations are beneficial and cost effective to our water irrigators?

4. Under what circumstances would the desal plant be used, and what are the government's trigger points?

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (15:06): I thank the honourable member for her most important question. As I have previously announced, the government has commissioned an independent cost-benefit analysis on the potential use of the Adelaide Desalination Plant to offset reductions in allocations to irrigators. The study was in a direct response to feedback from the irrigation industry stakeholders during consultation by the SA Murray-Darling Basin NRM Board on the River Murray Water Allocation Plan.

The cost-benefit analysis was undertaken by Marsden Jacob and drew on cost information supplied by SA Water and verified by the Essential Services Commission of South Australia (ESCOSA). The study confirms that producing water from the desalination plant would not be a cost effective way of boosting allocations for irrigators at the current market price for water.

This reflects the fact that the plant was built to provide water security for urban use in Adelaide during drought. Such a policy change would be of net economic benefit only when River Murray water allocation prices are greater than the marginal cost of running the ADP. The lowest incremental cost of running the ADP, I am advised, is $510 per megalitre, which occurs in years when SA Water has high demand from the River Murray.

However, average River Murray allocation prices are unlikely to reach this minimum threshold level in 2016-17, I am advised, and are more likely to fall within the following ranges: $250 to $300 per megalitre when end-of-year irrigation allocations are around 80 per cent; $300 to $350 per megalitre when end-of-year irrigation allocations are around 60 per cent; and, $350 to $375 per megalitre when end-of-year allocations are around 40 per cent.

While it has not been possible to reliably forecast allocation prices when end-of-year allocations are at 10 or 20 per cent, allocation prices are not expected to repeat the peaks of $560 per megalitre of the millennium drought. Although the study confirms that it is not economic to run the desalination plant to boost allocations for irrigators this water year, the state government is committed to exploring other options for factoring the plant into River Murray water allocations for 2016-17 and beyond. That further work will be undertaken to examine the best way to share water between River Murray users, given the water security provided by the desal plant to water users in the City of Adelaide.