The Water Industry: A Massive Market Bubbles to the Surface
At this year's H2O Global Water Summit in Toronto, Canada, two hundred of the world's leading water companies and authorities gathered to assess the latest market developments. The event provided a telling barometer of opportunities and challenges in the water industry.
It's an interesting time to appraise the "blue segment" of green business. Over the past year, we have seen a torrent of water-related events that broadly impact society and industry: the Gulf oil spill; the completion of China's controversial Three Gorges Dam; the Mississippi flooding; and, most recently, the breakthrough of "Big Becky" under Niagara Falls. Big Becky is massive drill that has been boring bedrock for five years to provide hydroelectric energy to Canada. It is the largest renewable project of its kind in the world.
Despite these headline events, water has taken a back seat in sustainable business and cleantech. Over the past decade, the rallying cry of "water is the new oil" (or even the new carbon) has not materialized.
Yet with mounting water scarcity and water quality pressures, the convergence of water and energy issues, and the drive for greater resource efficiency, the market is clearly gaining momentum. Between 2005-2010, the Dow Jones Water Index surged 80 percent. Between 2007 –2010, it outperformed the S&P by over 20 percent.
There are already a large number of countries, industries and companies whose economics are critically reliant on water. And that number is going to increase exponentially in the next five years. Here's why:
The Current Market Need is Growing -- Fast
Water scarcity and water quality are already an issue in many parts of the world. Accelerating demand will put an already limited water supply under extreme pressure. Over the next ten years, demand is projected to increase 20 to 35 percent. By 2020, 37 percent of the world, developed and developing nations alike, will experience water stress.
The water predicament is all too easy to overlook in the U.S., where consumption exceeds 158 gallons a day per person, and users do not pay the true price of water. "Much of the world treats water with disrespect," observes Vikram Rao, Executive Director of the Research Triangle Energy Consortium. But the mindset is changing.
"We are already seeing the impact in Brazil, China, Russia, and Australia," said Steve Watzeck, Chief Marketing Officer of GE Water and Processing Technologies. "In the U.S., Montana and Wyoming are dealing with water issues and are harbingers of what is to come."
Water quality is equally pressing. Quality is fundamental to consumers, municipalities and industry. Over 70 percent of China's surface water is unclean. In North America, the rural and remote areas frequently face water quality problems.
All told, the demand for clean water is driving a huge market. Water is fundamental to industry as well as to life, and unlike oil, there are no alternatives. The global market for clean water is forecast to reach a whopping $1.6 trillion by 2018, according to the Alliance for Water Efficiency.
Corporate Sustainability Efforts are Increasingly Focused on Water Footprints -- and Embedded Water
"Big companies are driving sustainability, and water is an increasingly important factor," noted Sheeraz Haji, CEO of The Cleantech Group, a leading provider of cleantech market intelligence.
"Business executives are concerned with growth. Most industries need water for manufacturing operations. Looking forward, the ratios don't work. Companies need to get more efficient on water that is embedded in their operations."
Certain water-intensive industries are already implementing new water management strategies. The food and beverage industry, which includes the whole supply chain -- agriculture to consumer goods to retailers & restaurants -- is pioneering processes and technologies for efficiency and reuse.
Steve Watzeck (GE Water and Processing Technologies) is working with an array of Fortune 500 customers in this sector: "Water reuse is a major concern and focus. It is critical to the economics of these businesses. Companies like Frito-Lay are saving on water purchase and discharge."
Mining is another significant water consumer. Mines need access to water for extraction, and they need to treat solid and liquid waste. Yet most mines are situated in water scarce areas.
"In developing sustainable mining, water has become a critical economic resource," explains Hu Fleming, Global Director of Hatch Water. "In fact, water is more critical than energy. Mine sites are now being located proximate to water resources." Companies are shipping ore to water based operations.
Innovation Capital for Water is on the Rise
As market challenges drive opportunity, capital needs rise. For water, this places demands on governments, industry and venture investors to fund research and find new solutions.
Global investments in water innovations are up, especially in regions that are experiencing significant current water stress. According to The Cleantech Group. China has invested $3 billion in desalinization. China holds 50 percent of water related patents issued last year. The Israeli government has allocated millions to develop the sector; the country has spawned some of the leading water technology companies and is striving to be the "Silicon Valley of Water." In Singapore, where water is considered 'mission critical' and the island nation depends on water imports from Malaysia, the government has invested approximately $350 million and mapped out a 20-year plan for water self-sufficiency.
Private money is not yet significant in this market, but that is changing quickly. "Water is currently a thin slice of cleantech venture capital investments. Only 3 percent of total cleantech investments are in water related companies," reports The Cleantech Group. "The good news is it's growing. In 2010, $257 million went into water related start ups, up from a record high of $140 million on 2009."
According to Razi Uddin of Leavitt Capital, a Chicago based private investment group that has been particularly active in buying water rights, " The smart money is already scouring the globe for plays in this sector."
The Link Between Water and Energy Deepens
Energy has been and continues to be the primary focus and preoccupation of business leaders, especially as oil prices escalate. That said businesses are better understanding the intrinsic and expanding ties between energy and water:
Moving water around consumes a lot of energy. In California, energy comprises about half of the state's water delivery cost.
A significant challenge in energy production is the need for clean water, and the treatment of wastewater. Water has long been needed to cool nuclear and other energy plants, and wastewater treatment has been an important consideration and byproduct. This is ever more the case as we consider how to extract energy from oil shale. The process requires more fresh water than other energy sources, and discharge is a huge issue. To tap the energy potential of these reserves, it is critical to tackle the water challenges.
As wastewater treatment technologies advance, scientists are finding that certain processes not only address the solvents and toxins in the wastewater, but the treatment process is itself a source of energy. A number of start-ups -- such as Israeli-based Emefcy and TaKaDu -- solve water wastewater issues and produce green energy as a byproduct.
The hot spots of water innovation mirror those of green business: efficiency, recycling & reuse, and measurement.
The three most active areas of water innovations are (1) water efficiency and reuse; (2) wastewater treatment and resource recovery; and (3) water metering and monitoring.
Corporate, government and private investors share excitement about these three opportunities. Current demand is high. The economics are attractive and provide nearer term returns. Although the market can be fragmented and complex, the need for these solutions is growing among industrial and municipal markets alike.
There are proven technologies in each of these areas. In some cases, large service and equipment players like GE and Siemens are providing the innovations. In many cases, solutions come from start-ups. The Artemis Project sponsored a Top 50 competition to recognize those companies that hold greatest promise of addressing the world's water challenges. The winners were recognized at the Summit. Among those generating significant "buzz:"
• Evandtec -- optimizes energy and water efficiencies. Canada.
• Emefcy -- treats wastewater & produces green electricity as a byproduct. Israel.
• Hydropoint -- provides monitoring and metering for landscape irrigation. California, U.S.
• Takadu -- provides monitoring water distribution networks. Israel.
Many in the water industry, like Nick Parker, Chairman and Founder of The Cleantech Group, recall the days when they had to bring their family and pets to populate a water industry conference, much like the early days in tech or cleantech. Those times are over. This year's H20 was well attended by water lords of days past, newcomers from all over the world, large companies and small.
"We believe the market is at an inflection point," remarks Chris Spain, Chairman and Chief Strategy Officer at HydroPoint. "We see a dramatic change in how corporations and municipalities view water and the need for water management. The macro drivers such as decaying water infrastructure, increased legislation, water quality threats, climate change and population growth are pushing water 'front and center' as a critical issue that has to be intelligently addressed. Two to three years from now every city and corporation in areas where water is not plentiful will have to adopt smart water management -- it will be a 'must have' rather than just a good idea."
Water image CC-licensed by Luz A. Villa.