Real options analysis application for floodgate operation to control salinity intrusion in agricultural areas

Salinity intrusion caused by a rise in the sea level has adversely affected water utilization along rivers. One solution adopted by government agencies is to assign an appropriate river flow rate by utilizing a floodgate operation. Current floodgate operations rely on historical water drainage and operator experience, which lacks flexibility to respond to a fluctuating water supply. This paper proposed a framework using real options analysis (ROA) to create strategic alternatives to support decision-makers (DMs) regarding floodgate operational scheduling. The sea level was used to estimate the salinity intrusion distance and as a decision criterion. Apart from raising or lowering the floodgate, the ROA strategy may recommend to the DMs that they "wait-&-see" for a substantial sea-level change in the future and apply the "operate-as-before" approach in certain instances. The methods can be applied to a water discharge plan using separate floodgates in the same river basin or a dam.