Water Technologies Prove Popular Investments
Burgeoning populations and a growing scarcity of water are making water technologies increasingly popular investments. Dr Gareth Evans analyses the opportunities.
Amid the brewing 'perfect storm' conditions of burgeoning populations, climate change, growing scarcity and increasing regulation, water provision has risen significantly on the worldwide agenda as the global ramifications of these issues becomes ever-more evident. As a consequence and despite the effect of the global economic downturn, the market for water technology is set for major growth.
There are two powerful technology drivers: the industry's long-standing awareness of the cultural and geo-political implications of the imperfect balance of water resources, and the growing perception among investors of the serious potential commodity value of potable supplies, which was highlighted in 2008 at the Churchill Club's annual business and technology discussion in the US, when Joe Schoendorf of venture capitalists Accel Partners said water technology will replace global warming as a global priority.
Investing in the global market
Goldman Sachs estimates the global market for purification and supply technologies is currently worth $400bn, but according to a wide consensus of the world's analysts, environmental bodies and business agencies, it is about to get much bigger, making it easy to understand why water is being labelled the new 'blue gold'.
While water stocks have followed the recent market fall, in most cases they have tumbled markedly less than in other industry sectors. The PowerShares Water Resources fund, for instance, broke even in the year to September 2008 at a time when Standard & Poor's 500-stock index fell by 14%. Water may not be entirely recession-proof but it does seem to be proving unusually recession-tolerant.
While embracing the challenges of increasing demand, environmental concern and growing resource scarcity represents a staggeringly lucrative possible opportunity, actually realising it is by no means a foregone conclusion. In its July 2009 report 'Water Technology Markets: Key Opportunities and Emerging Trends', Global Water Intelligence (GWI) makes the point particularly well, stating: "As we confront these issues, only one thing stands between success and failure: water technology."
Supply and cleanliness are clearly two major issues. Recent estimates from the US Office of the Director of National Intelligence suggest that 1.4 billion people in 36 countries will lack sufficient water for their potable and agricultural needs within little more than 15 years. Couple this with the over-extraction, salt-intrusion, poor sanitation and pollution across many parts of the globe and it is not difficult to see why water / wastewater treatment and 'clean' technologies are widely tipped for major investment.
As droughts, bushfires and escalating demand continue to put pressure on dwindling resources, the development of new potable water supplies forms another obvious focus. Desalination projects in particular seem to have been beneficiaries of this, with significant investments being made around the world.
Californian water authorities from Marin County to the Mexican border view water technology with growing interest. In the words of the state's governor, Arnold Schwarzenegger, "we need it; it's not a choice," – a message that has clearly struck a chord.
San Diego's new Carlsbad facility, for example, will provide nearly 200,000m³/day of desalinated ocean water once complete in 2012, making it the largest plant of its kind in the western hemisphere. Meanwhile, Spain, the Mediterranean region's biggest desalination market, is nearing the peak of a programme that has embraced both new technologies and innovative plant design, with an estimated €3.8bn ($5.4bn) earmarked for investment up to 2015.
The Middle East is another resource-challenged region investing heavily in desalination technology for long-term water security. By 2010, Israel's national water company, Mekorot, intends to have increased production to 200 million m³/year – half from seawater and the other half mostly from brackish water, with around 7% deriving from treated secondary effluents. Beyond this date the plans become even more ambitious. In January 2009 the company issued a tender for a $500m plant to be built to the south of Tel Aviv, with an intended annual capacity of 150 million cubic metres. Similar facilities are mooted elsewhere for the future.
The desalination market could itself be revolutionised if the new and potentially game-changing technologies, such as aquaporins and nano-composite membranes that are currently waiting in the wings, live up to their apparent promise.
Aquaporins is a biotech-inspired system being developed by companies including Danfoss AquaZ and Aquaporin that mimics kidney function while nano-composite membranes provide a better flux rate than conventional reverse osmosis membranes, significantly lowering the energy requirement for the process.
NanoH2O and Porifera, two University of California-inspired companies, are at the forefront of this nano-engineering while a Yale-derived company, Oasys, is driving its own approach to low-energy membranes through a technique of forward osmosis.
How successful these developments ultimately become as next-generation approaches to water purification remains to be seen, but with the recent GWI report placing them in the top ten of clean water technologies, many in the sector will be keeping an eye on their progress.
Resource issues aside, the demands of conventional infrastructure will inevitably remain a major feature in the industry, and global investment in this field seems certain to continue to be ramped up over the coming years.
In the US alone there are around 1.5 million miles of water and wastewater pipes and nearly three-quarters of this network will have exceeded its useful lifespan within the next five years. Add the fact that the country's fastest growing areas - Arizona, California, New Mexico and Utah - are also some of the driest and it is easy to see why a number of estimates put the US water infrastructure market at $1tn.
The US is scarcely unique. Against a backdrop of an annual water shortfall of 40 billion cubic metres and with routine moderate to critical shortages affecting around two-thirds of its cities, China too needs heavy investment. A sum of around £125bn over the next three years is being planned to address the worst of its infrastructure woes.
Between servicing the escalating needs of the fast-developing economies of China, India and the nations of South America, and shoring up the existing facilities with new infrastructure after decades of slow development programmes in many industrialised nations, the potential returns could be immense. As a now-retired water engineer once commented: "It doesn't matter how much water you've got if you can't get it to someone."
If, as many believe, the era of 'cheap' water is about to come to an end - with all that it will entail for people, industry and agriculture - his is a point that the market is unlikely to overlook. The opportunities are certainly there.