Water resources allocation considering water supply and demand uncertainties using newsvendor model-based framework

A novel newsvendor model-based framework for regional industrial water resources allocation that considers uncertainties in water supply and demand was proposed in this study. This framework generates optimal water allocation schemes while minimizing total costs. The total cost of water allocation consists of the allocated water cost, the opportunity loss for not meeting water demand, and the loss of the penalty for exceeding water demand. The uncertainties in water demand and supply are expressed by cumulative distribution functions. The optimal water allocation for each water use sector is determined by the water price, the unit loss of the penalty and opportunity loss, and the cumulative distribution functions. The model was then applied to monthly water allocation for domestic, industrial, and agricultural water use in two counties of Huizhou City, China, whose water supply mainly depends on Baipenzhu Reservoir. The water demand for each water use sector and the monthly reservoir inflow showed good fits with the uniform and P-III distributions, respectively. The water demand satisfied ratio for each water use sector was stable and increased for the optimal water allocation scheme from the newsvendor model-based framework, and the costs were lower compared with the actual water allocation scheme. The novel framework is characterized by less severe water shortages, lower costs, and greater similarity to actual water use compared with the traditional deterministic multi-objective analysis model, and demonstrates strong robustness in the advantages of lower released surplus water and higher water demand satisfied ratio. This novel framework yields the optimal water allocation for each water use sector by integrating the properties of the market (i.e., determining the opportunity loss for not meeting water demand) with the government (i.e., determining the water price and the loss of the penalty for exceeding water demand) under the strictest water resources management systems.