A risk-based decision model for rainwater resource supply in forward contracts

Rainwater is a supplemental source of water, in addition to surface water and groundwater. In the future market, forward contract is a common mode of trading, but it requires supplier to provide a fixed quantity of supply, which may result in suppliers being unable to fulfill their contracts due to uncertainties. Therefore, determining the contract volume of rainwater resource and evaluating its risk is important for contract negotiations. This paper aims to propose a contract volume risk decision model based on rainfall uncertainty and efficiency uncertainty of rainwater harvesting system (RHS), to provide decision support for determining contract volumes in rainwater resource forward transactions. A mathematical model is first introduced to quantify the uncertainty of rainfall. Then RHS’s efficiency is proposed to indicate how much rainwater resource is able to be provided by RHS per unit amount of rainwater. An optimal operation model is established for simulating the operation of RHS. Uncertainty description of RHS’s efficiency is developed from this RHS simulation model based on the historical rainfall records. Furthermore, the risk of rainwater resource supply is defined as the probability of not being able to fulfill the contract volume and a solution method is proposed. Afterwards, two sets of decision-making processes are proposed for different negotiation scenarios. Finally, this decision support approach is validated using a real-world example, and the results show that the approach provides effective and reasonable support for decision making in rainwater resource forward trading.