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Do artificial reefs work? Vol 2. The return on investment calculation

July 16 2009 | Artificial reefs, Jim's Blog,
by Jim

I kicked off this series a few weeks ago with a post on artificial reef user feedback.

This time around I want to talk money. More specifically return on investment (ROI).

Part of this equation is just the money part (minus any details related to what you get for your money). I'll share some published and not-so-published figures that frame the amount of investment we're talking about with artificial reefs. Then, I'll segue into the return on those investments because the size of the investment (even a large one) isn't a big deal if the return out paces it.

First up, let's talk money.





That's the opening line from an article earlier this year on a New Zealand artificial reef. Nice hook. It got my attention. But the truth is what got my attention was Pratte's Reef, which was put in years ago on a mitigation agreement with Chevron (details on this below).

I don't want to take too long on this point as this is one of the easier concepts to understand, artificial reefs are not cheap.

The following are three price tags for three different reefs (before cost overruns, incremental design/construction work, etc).


These figures are from the "Cost" section, page 51 of the Brevard County
Multi-Purpose Artificial Surfing Reef, Feasibility Study. Final Report
.




My Pratte's Reef knowledge is more oriented around the money required to take it OUT. Last year we spent $250,000 and took out less than half of the reef. It turns out that putting an artificial reef in is pretty straightforward and taking it out isn't as easy as anyone thinks. It cost approx. $550,000 to put this reef in (it's a very small reef) and it looks like we'll spend at least that much to take it out.

There is an interesting FAQ regarding Pratte's Reef here (pdf). It illustrates some of the issues, costs and details surrounding this reef.

One of the lines I hear from people about artificial reefs is "what's the big deal, pop it in the ocean and if it doesn't work just cut the sand bags and take it out." If you're seriously considering a reef and you think this please contact me and we'll share the gory detail of how challenging it is to take a reef out. The short version is that it's not only quite challenging and expensive it's also fairly dangerous.

Bottom line, plan on spending something close to a dollar to take out the reef for every dollar you spend to put it in.

This issue hasn't colored our thinking about artificial reefs as much as it's informed it. The cost to get into any large-scale initiative/operation may seem like a lot but it's usually cheaper to get in than to get out. This point simply adds more to the return on investment dialog, it doesn't nullify a case to build a reef. It just says take this part of the expenses into account, raise funds for this.

Here is our FAQ on artificial reefs, reef removal, monitoring, history and Surfrider Foundation's official policy.

This brings me to point number three which starts to take these points into a holistic view.



My favorite example of this is Brevard County in Florida. Their feasibility study (all 68 pages of it) is thorough, well thought out and comprehensive. You can find that study here.

Like most places that contemplate adding an artificial reef their issues included the need to reduce beach erosion, improve surfing conditions and increase associated recreational opportunities.

Look over this table, perhaps the most important step of the return on investment exercise.



This table is from page 64 of the Brevard study linked to above. Let me explain it.

Essentially it's summarizing a complex feasibility study in one table. The table takes into account additional maintenance needed, the benefit derived from the reef related to slowing down natural erosion, the economic impact the reef would have in attracting a "major surf contest" and the overall number of days per year of "improved surfing days."

In order to make a business case to spend a dollar the benefit / cost ration must exceed "1" (otherwise you'd simply be spending a dollar and getting less than a dollar in benefits back).

Most, perhaps all, business cases that are acted on the number exceeds "1". As this table illustrates (and the study summarizes) the "likely best case scenario was that for every dollar spent, 44 cents of value would be enjoyed." That 44 cents isn't over and above the original dollar spent, it's a discount on that dollar. Would you invest $100 on January 1st if you the best case scenario was for your money would be worth $44 on December 31st? No.

They didn't invest in this proposed reef either. The return on investment didn't hold up. It would have been political suicide to say "let's spend a dollar of taxpayer funds and get less than half back." I'm sharing this study as it's one of the better, holistic studies around. Surfrider didn't build it, a town looking at bringing in an artificial reef did. Anyone can argue with it, debate it, etc. In fact I suggest you do these things as we need MORE debate about artificial reefs and their associated return on investment. I'm simply pointing to a solid cost benefit analysis and suggesting that any entity even remotely thinking of putting in an artificial reef should create something similar.

Oh, and make sure you include the cost to take the reef out in case it doesn't work. I don't believe the Brevard County study included such figures so, from my perspective, the business case outlined in the table above isn't even best case as it assumes the town will never, ever pay to remove the reef. (I'll address the "not working" aspect of this point in a later post in this series).

Pointing back to the Mt. Maunganui article I referenced (and linked to) above. It cites 18 sessions in a six month window that surfers used the reef. Let's use the cited cost of $1,500,000 and assume 36 sessions per year and a five year period. That's more than $8,000 per session, every session... for five years. I'm guessing the local taxpayers aren't thrilled with this return on investment... and that doesn't include the $1,000,000 plus it'll cost to take it out.

Again, I'll restate that my goal with this series is to promote dialog. I'm not suggesting I'm an expert on this subject. I'm simply suggesting there is a lot of misinformation about the various factors around artificial reefs. If you disagree with me, I welcome it. Identify who you are, who you work for and what your qualms are with what I've posted. I'll view this series as a success if I spur on some dialog.
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