ISSUE 6
OCT-DEC 2004

Domestic Pricing

Although the management of domestic water supplies is the responsibility of one single authority, prices throughout the island are not uniform. The current weighted average selling price is at approximately 1.45 €/m³ with the highest prices being charged during the summer period.

Water is most expensive in the municipal department of Naoussa (1.57 €/m³), Paroikia (1.54 €/m³) and Marpissa (1.52 €/m³), while the lowest prices are charged in the water-rich departments of Arhilohos (0.73 €/m³) and Leykes (0.42 €/m³).

No data exist on the conservation incentives of the existing tariff system, making it hard to estimate an elasticity of the demand on price.

In the scenario examined for domestic pricing, the goal was not of course to lower consumption in order to achieve a better coverage of domestic needs, but to estimate the effect that a price increase would have on demand.

For this purpose, and since consumption rates are relatively low, a small elasticity of -0.21 was assumed for residential consumption and an elasticity of -0.42 for tourist consumption.

The pricing scheme that was examined was a gradual increase (every two years) of average prices from 1.6 €/m³ to 2.5 €/m³. Figure 4 70 presents the new domestic demand under the examined pricing scheme for the BAU scenario.

Option results

Figure 1 presents the new domestic demand under the examined pricing scheme for the BAU scenario.

Figure 1. Domestic demand before and after pricing application (BAU demand scenario)

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Effectiveness

The significant domestic demand decrease, due to the rather large augmentation of prices and the high assumed elasticities, directly affects domestic demand coverage effectiveness (Figure 2). Especially under the LD+HW scenario, domestic pricing after 2007 stabilises effectiveness to 97%. Similarly, domestic deficits present a significant improvement, reaching almost 80% under the BAU+Normal and LD+HW scenario (Figure 3). Similar trends are observed for irrigation water use. For example, under the BAU+Normal scenario, effectiveness to irrigation demand coverage gradually increases up to the year 2015, when almost 80% of irrigation needs are covered, following the application of the pricing scheme.

Figure 2. Percent demand coverage effectiveness of Domestic Use Pricing to Domestic use

Figure 3. Percent Improvement of deficit in Domestic use with respect to the reference scenarios

After this point, the gradual increase of domestic demand, due to population growth results to the gradual decrease of irrigation effectiveness (Figure 4). The same observation stands for the relative improvement of irrigation deficits. However, the effect under the BAU+HD scenario is much more pronounced, in some cases exceeding even 50% with respect to the reference case (Figure 5).

Figure 4. Percent demand coverage effectiveness of Domestic Use Pricing to Irrigation use

Figure 5. Percent Improvement of deficit in Irrigation use
with respect to the reference scenarios

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Direct and Environmental Costs

In all cases the option results in a significant decrease of direct costs (Figure 6). This is due to the fact that operational costs are only associated with domestic use. Consequently, the reduction of supply delivered to domestic use incurs a direct cost decrease, which under the LD+HW scenario can reach even the 13% of the present value of the respective reference case.

Figure 6. Total direct cost difference of the Domestic Use Pricing option
under the three scenarios (Present Value – Million €)

Total environmental costs present a marginal decrease, since in some aquifers unsustainable groundwater abstractions are reduced. However, the total volume of groundwater abstractions more or less remains constant, and therefore, the decrease of the total environmental cost is very low (Figure 7).

Figure 7. Total environmental cost difference of the Domestic Use Pricing option
under the three scenarios (Present Value – Million €)

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