Parking allows a Lessee to carryover unused allocation against a Lessors entitlement. This article describes how Parking arrangements work.
- In all systems, allocation can only be carried over against entitlement
- Parking providers a Lessee with access to carryover capacity against a Lessors entitlement
- Parking arrangements are from one irrigation season to another
- Carryover rules vary by state and river system
- There are risks associated with carrying over water including spill and availability
How it works
Parking is a contractual arrangement which allows one party to carryover allocation from one season by utilising the entitlement of another party.
Under a parking agreement, allocation is transferred onto the license of another entitlement holder (Lessor) in order to be carried over to the following season. The allocation is returned to the original owner (Lessee) in the following season less any carryover and spill losses incurred as determined by the relevant water authority.
Parking arrangements can occur against Victorian Low Reliability (LR), Victorian High Reliability (HR), NSW General Security (GS) and South Australian High Security (HS). Allocation can not be carried over against NSW High Security. For more information on the carryover functionality of each entitlement class see our Carryover page.
The availability of allocation to the Lessee is dependent on the entitlement it was parked against. This can be within the first few weeks of the new irrigation season if parked against LR. If allocation is parked against HR then it may only be transferred back to the Lessee after New Year if the water authority deems the storage spill risk to be high.
Aside from Parking, there are other Products which can be used to carryover water.
As with any product there many factors which need to be considered before entering into an agreement.
First and foremost it is about understanding what entitlement your water will be parked against. As discussed in our carryover article, different entitlements have different risk profiles. There is a risk that you will loose some or all of your allocation when parking water against some entitlement classes (HR and GS) and, as a result, the price of parking space varies by entitlement.
The second consideration is understanding when you will have access to your allocation in the following irrigation season. Once again, this is largely dependent on the entitlement being used to carryover your water however, in some instances, your water may only become available when storages reach a certain threshold. You therefore need to ensure you have factored this into your planning.
When making a decision to park water it is wise to consider the outlooks for the following seasons released by various authorities in conjunction with prevailing allocation prices. Remember that the water in your account today has a value – you could sell it to another party at a price – and this should be the basis of your analysis. Lets look at an example.
Lets assume it is near the end of the season; you have 200ML of allocation and the prevailing market price for your allocation is $80 per ML. If you were to sell the allocation today you would receive $16,000 (excluding fees and charges) – this is your base option.
You have found secure parking space at $30 per ML against Victorian LR and the allocation will be transferred back to your account by August. You will pay $6,000 (200MLx$30) to park your allocation on top of the value of your allocation being $16,000 ie a total value of $24,000. You will loose 5% of the 200ML in evaporation losses and therefore only have 190ML transferred back. The value of your allocation in the following season is therefore $126.32 per ML ($24,000/190ML).
So based on the numbers you’ve calculated, you need to make an assessment whether the allocation price at the start of the following season will be higher or lower than the $126 per ML. If you predict it is going to be lower and you believe there will be sufficient volumes in the market you may be better of selling your 200ML before the end of the season and entering the market early to secure another 200ML. On the other hand, if you anticipate the price is going to be higher than $126 the entering into the parking arrangement will result in a better outcome.
The above example is very simple. The truth is, you won’t always make the right decision however, doing the calculations will provide you with confidence that you’re making an informed decision based on the available information.
The price to park allocation is highly dependent on the prevailing market price for allocation, water availability outlook for the following season and the type of entitlement against which the allocation is being parked. As a guide prices start around $15 per ML but can be $35+ per ML if demand is high.
In recent seasons the demand for parking has been high due to reducing water in storages which has resulted in allocation prices increasing.
H2OX charges $1 per ML to both the Lessor and Lessee of a parking agreement. The Lessee pays the water authority fees to transfer the allocation to and from the Lessors licence. No additional contract, setup or handling fees are charged.
Parking arrangements are a simple and cost-effective product to carryover allocation from one season to the next and can be effective in securing some or all of your water requirements in the following season.
Before you start making decisions, ensure you have all the facts by calling H2OX on 1800 988 118 to discuss the available options.