Real Option Perspective to Value the Multi-Stage Construction of Rainwater Harvesting Systems Reusing Septic Tank

• Published in: Water resources management Vol. 28; no. 8; pp. 2279 - 2291
• Main Authors: Kim, Byungil, Anderson, Kyle, Lee, SangHyun, Kim, Hyoungkwan
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer-Verlag 01-06-2014; Springer Netherlands; Springer; Springer Nature B.V
• Subjects: Analysis; Atmospheric Sciences; Civil Engineering; Climate change; Construction; Construction costs; Drought; Earth and Environmental Science; Earth Sciences; Earth, ocean, space; Environment; Environmental engineering; Exact sciences and technology; Expansion; Feasibility; Flexibility; Geotechnical Engineering & Applied Earth Sciences; Harvesting; Households; Hydrogeology; Hydrology; Hydrology. Hydrogeology; Hydrology/Water Resources; Rain; Rainfall; Resource management; septic systems; Septic tanks; Sewage disposal; Strategy; Studies; uncertainty; Water conservation; Water harvesting; Water resources; Water scarcity; Water shortages; Water treatment; South Korea; Far East; Asia; Korea; Korea, Rep; Climate change; Rainwater harvesting; Septic tank; Real option; surface water; rainfall; water resource management; rain water; strategy; Rainwater harvesting Septic tank; climate change
• ISSN: 0920-4741; 1573-1650
• DOI: 10.1007/s11269-014-0613-3

Recently, rainwater harvesting systems have received increased attention due to their capability for adapting to water scarcity and climate change. However, a key obstacle to the implementation of rainwater harvesting systems is that they are often not financially feasible given difficulty in determining optimal system size. A key premise of previous studies was that all rainwater harvesting systems are constructed in a single construction event even though it is possible to construct a system in multiple stages. This assumption limits managerial flexibility in the construction of rainwater harvesting systems, which is particularly valuable in scenarios where it is difficult to forecast future rainfall patterns. Therefore, we propose a multi-stage system expansion strategy for the implementation of rainwater harvesting systems using decommissioned septic tanks under scenarios of uncertainty in rainfall from a real option perspective as a means to improve the financial feasibility of implementing rainwater harvesting systems. We tested this strategy by evaluating a proposed rainwater harvesting system for a midsize apartment complex in Jeonju, South Korea. The multi-stage expansion strategy generated an option value of 9,896 USD. This study will help to improve the financial feasibility of rainwater harvesting systems by adding the value of managerial flexibility through a sequential expansion of RWH systems as new information becomes available.