The State of the Water Sector
As the world’s freshwater supply decreases, the demand for freshwater will increase and so will the need for innovative technologies that can save, harvest, conserve, treat and monitor water. Utilities and larger corporations will need to look at new ways to integrate these technologies and processes that can save them substantial money, energy and water. Incubators and venture capital companies that focus on accelerating and funding early stage water companies can spark the initial growth and development of these essential technologies but partnerships and relationships with utilities, corporations and incumbent solution providers will be needed to increase the adoption of these systems and support commercialization during later stages.
Diminishing Supply of Freshwater:
The Sustainable Development Goals (SDGs), established by the United Nations to achieve a more sustainable and equitable future, cite water access as a critical challenge to overcome by 2030. UN SDG 6 emphasizes the need that all individuals should have universal access to clean and affordable water, improved water quality, increased use of water recycling and efficiency technologies, and that water related ecosystems should be protected and restored.
Currently, 40% of the world is affected by water scarcity and this number is expected to increase as climate change exacerbates. Some estimates suggest that double the current affected population could face water stress by 2050 if commitments to keep global warming under 2°C are not met and future population growth is high. Regions in the Middle East, Western US, South Africa, parts of South America and Central and South Eastern Asia are particularly likely to be impacted.
Many leading corporates and governing bodies looking to align with the UNSDGs are making commitments and passing regulations and mandates to better manage water. For example, companies like Meta (formerly Facebook), BP, PepsiCo, Microsoft, and the Gap have made commitments to not only be water neutral but implement water positive commitments that replenish more freshwater than is used by funding water restoration projects. For example, Meta estimates that their investments in 14 restoration projects will replenish up to 3.2 billion liters of water in highly water stressed areas which is more than the 3 billion liters of water used to cool their data centers in 2020.
However, there is a still a growing demand for industrial water even as these commitments are made. When it comes to water consumption, 70% of freshwater is used for agricultural use, 20% for industrial use (food and beverage, oil and gas, mining, apparel, technology etc.) and 10% for household use. Certain industries, like food and beverage and apparel companies, are also reliant on the agricultural supply chains that produce the ingredients and materials (like cotton) that make up the basis of their products. This diminishing water supply is creating a substantial financial risk for companies and investors that require water to sustain their operations and investments. Over $425 billion of assets could be at risk over the next one to two years. This critical need for water is driving the growth of water related technologies. These technologies can be broken down into three main categories:
- Potable Water: Drinking water innovation including systems to harvest drinking water from non-conventional sources, tools to reduce water use and further purification of tap water.
- Monitoring and Analysis: Software and sensor tools to monitor water reserves, quality and ensure efficient use and distribution.
- Wasterwater Treatment: Technologies and processes which remove contaminants from water so it can be reused or returned to the water cycle which improve energy and resource efficiency.
Growing Need for New Technologies:
For regions with extremely limited access to freshwater to being with, such as certain areas in the Middle East, desalination processes (generating freshwater from saltwater) that use renewable energy are gaining popularity and investments. For example, Oneka, uses wave power to support a carbon neutral desalination processes and Desolenator, uses solar power for their net zero desalination system. Technologies that decarbonize traditionally energy intensive processes like desalination and aeration will be essential as corporations and governments look to meet their net zero commitments and carbon disclosure requirements. Reports have cited that roughly 10% of global carbon emissions can be attributed to water management and water related sources.
Monitoring and Analysis:
Aging water infrastructure is causing leaks. Depending on the region and country some loss rates can range from 15 – 40% of water lost due to leakage. Predicting leaks before they occur is necessary to prevent facility damage and save water and money. As a result, technologies that leverage machine learning, artificial intelligence, and sensors to predict leaks and maintenance issues are needed to supplement incumbent monitoring and sensing processes. In addition to this, the demand for water data and transparency is increasing which is reflected in the growth of digital water sales which have been increasing by 7% a year.
Increasing regulations, fines, restrictions, rationing and reuse policies are driving the need for technologies that treat, conserve and reuse water. Some countries and states are looking at policies that will more tightly monitor, track and ban harmful contaminants like PFAs (polyfluoroalkyl substances known as forever chemicals). It is estimated that in Europe, where some countries are looking to ban PFAs and set stricter standards on removing these contaminants from drinking water, that 10 – 20 billion Euros have been spent on PFAs removal over the past 20 years. In addition to stricter regulations on water discharge and contaminate removal. Water reuse policies like those in San Francisco require on-site water treatment and reuse for non potable applications such as toilet flushing, clothes washing, and irrigation. As a result, companies like epic cleantec, that specialize in on-site water reuse and can recirculate up to 95% of water used within in a building, will be necessary as more cities adopt similar building reuse policies and incentives.
Barriers for Scale and Adoption:
While the need for innovative technologies is clear and there is no shortage of strong technologies or innovation, there has been limited growth in the water sector when compared to the rest of the cleantech sector (Cleantech Group’s i3 data shows that less than 1% of cleantech early stage investments were in water). This is likely a result of the challenges that industrial users of water and utilities face when adopting new technologies. These barriers include risking reputational damage, disrupting operational flow, and lacking the time and money to retrofit systems and train staff. Overcoming these challenges when margins are tight and the risk of failure can be detrimental to decision makers and elected leaders make it less likely for new technologies to be adopted and integrated at scale. Some technologies like Software as a Service (Saas) monitoring and predictive maintenance systems are asset light and easier to implement but many hardware technologies can be cumbersome to install if there is no immediate pressing need from clients to improve their systems. However, incremental service options and pilot programs make is easier for users to test technologies and gradually implement new systems while also allowing innovators to trial shorter sales cycles.
What to Look Out For:
As water scarcity and water challenges intensify, the demand for innovative water technologies will grow especially in areas of decarbonizing incumbent water systems, leveraging artificial intelligence and machine learning to supplement traditional monitoring systems and integrating decentralized treatment technologies. These are some of the key focus areas that water centered venture capital institutions, like Echo River Capital, invest in. Other incubators and accelerators like Imagine H2O, waterNEXT, Current, and the 100+ Accelerator also provide opportunities for early stage water technology companies to partner and pilot technology with end users and utilities. Funds like Burnt Island Ventures, Mazarine Ventures, and PureTerra Ventures are also supporting early stage innovators in this field and the Colorado River Basin Fund is identifying and investing in solutions that solve for specific regional water challenges. However, without other larger players and utilities collaborating with innovators to scale their technologies, the potential for greater and widespread water, energy and cost savings will not be achieved.