Inventing to Meet Water Needs

It amazes me how almost all companies in the water business have at least one page explaining global water needs.  It's like everyone tries to sell the same product in exactly the same way in the water business.  I can memorise some of the more oft quoted statistics, mostly taken from the UN World Water Development Reports. 

The funny thing is that half these companies are not really doing anything to solve these problems.  Yes, everyone is indeed looking into cheaper, alternative ways of treating water and wastewater, and when the costs get low enough, the poor will eventually benefit.  But the poor are a "by the way".  It is clear what the target markets are -- the rapidly growing markets of China and the Middle East, where people who can afford present technologies may be willing to pay top dollar for the latest technologies. 

I have always wondered if it were possible to align the needs of the poor and the high-tech developments in the water industry -- I have been repeatedly told that altruism is an idealistic concept for the NGOs.  But more and more, I'm beginning to realise that it is possible.  And India may be leading the way. 

The Economist recently did an article on the new business models in emerging markets.  One of the business models is described as "reverse innovation", or the stripping of all the bells and whistles of modern innovation to the bare essentials that people need, and then toughening them up for the rough environments that they will be used in.  Like Nokia's mobile phones to India, which apparently have flashlights (frequent powercuts), multiple contact lists (several people share a phone), and rubberised keypads. 

I also stumbled upon Acumen Fund, a non-profit venture fund that invests in companies who provide affordable, critical goods and services.  It sounds a bit like the development banks (eg. Asian Development Bank, World Bank), except the fund actually provides venture "patient" capital to early-stage for-profit companies who are developing products for the poor, and they're willing to take on quite high risk companies.  I'm not sure how all of this actually works out in reality, but I'm hopeful that the availability of such funding will encourage more product development aimed at the poor.  Maybe after these products are developed, companies can reverse the "reverse innovation" again, and produce nicely packaged, yet still affordable versions of these products to the richer countries! 

Above: An affordable reverse osmosis system by Environment Planning Group Limited 

Source: Acumen Fund Website  

Money for Water

I tried to do a search of the venture capital (VC) investments in the water industry, and based on findings from Greentech Media, put together a chart of the level of VC investment over the last six years. 

I couldn't find any data on 2007 -- apparently different sources have wildly different opinions on the level of VC funding for that year -- so that's been left blank.  In general, the level of VC funding has fluctuated from year to year, and I think it might be slightly premature to conclude any real trend.  But if 2010 continues to grow at the same rate as in Q1, it may indeed look like the VCs are finally showing interest in water. 

The water industry has traditionally been accused of having a relatively low level of VC funding.  With the water industry estimated at over US$400bil, VC funding works out to about 0.03%.  According to Wikipedia, VC funding for the dot com industry was about 0.06% in 1994, rising to 1.09% in 2000, before crashing to 0.16% in 2003.  I suppose the water industry is nowhere on that scale yet, but neither have I seen anything about the IT industry's level of VC funding being the optimal level. 

Indeed, I couldn't find much information on what an optimum level of VC funding for any industry should be.  I guess the criticism is in comparison to our alternative energy sisters -- solar energy itself saw US$1.4bil of VC funding in 2009 despite a market size of far less than US$100bil.  But the estimated growth rate of the solar PV industry is staggering.  CAGR estimates range from the high 20s up to 40%!  The global water industry, on the other hand, is looking at a more conservative 7%. 

Anyway, assuming the "experts" are right about VC funding being low for the water industry, a google search threw out these possible reasons:

1. 
   
   No "game changing" solutions
2. 
   
   Low returns and long gestation periods
3. 
   
   Water problems can be solved by legislation without the need for technology
4. 
   
   Poor understanding of the water industry
5. 
   
   Water is too cheap -- it is not seen as a profitable industry
6. 
   
   Competition from other cleantech industries seen as more promising and exciting

All the reasons cited are somewhat related.  The fact that water is so cheap and that it is considered a human right by some, means that it is unlikely to ever be very profitable.  And as long as it is not seen as very profitable, it will be difficult to attract much interest and understanding of the industry.  With less interest and competition in the industry, there is a lower likelihood of "game changing" solutions being developed, and there would be no impetus to shorten the long gestation periods.  At the end of the day, it seems easier to legislate water restrictions than to develop new and cheaper water sources. 

As many people have pointed out, water needs to be priced more attractively to pique investors' interest.  Then again, water is an important resource in many industries and allowing the price of water to rise may inflate the prices of many other goods and services.  Perhaps governments should take on the responsibility of rewarding innovation in this industry.  After all, they are the ones who have to ensure an adequate supply of water at an affordable cost.

GWI Newsletter -- Israeli Government to Blame for Water Crisis (Part 3)

Israel would rather be known for its technical innovations, but recently, it has been getting in the news for all the wrong reasons.  International relations aside, the state now lacks 15.2bil m3 of water in its reservoirs due to over extraction of water. This is more than five times Israel's annual water demand! A government-appointed committee puts the blame squarely on several government agencies:

• Water Authority -- lacked public transparency, failed to coordinate with other government agencies, did not warn of the crisis in time, took no action to prevent overproduction, and did not adequately explain the consequences of a delay in implementing desalination on the necessary scale
• Finance Ministry -- delayed the desalination plan asking that conservation and water reuse be done first, but provided insufficient resources to do so

Cliched as it maybe, every cloud has its silver lining, and companies can now look forward to the rolling out of a large number of projects, ranging from large desalination plants and major network expansions, to groundwater protection measures.

Bank-rolling these projects, though, may be more of a challenge. Tariff hikes of just over 40% have already been scheduled for this year, but it is estimated that tariff rates will have to rise by at least 60% to cover the full cost of these projects. The Finance Ministry is, obviously, facing difficulties in raising tariffs any further, and are likely to have to allocate funds from the state budget. Honestly, can they afford not to?

Main source:
Report Reveals Israel's Crisis of Confidence

GWI Newsletter -- Spotlight on Libya (Part 2)

Libya is not afraid of big projects. Just take a look at its massive US$11bil 4,000km Great Manmade River (GMMR) project to supply groundwater from the South to the Northern agricultural areas. In spite of this, Libya is still anticipated to face a shortfall of 2mil m3/day of water, which will worsen to 11mil m3/day by 2025. Moreover, there are signs that the water sources feeding the GMMR are being drawn down too quickly.

Initially wary of desalination, an extensive network of desalination plants has now be planned for the next 10 years. And specifically, they are only interested in reverse osmosis technology, which the highest echelons of the Libyan government are convinced is the best method, despite alternative technologies proposed by potential developers. Many international desalination developers have been knocking at Libya's doors, including Singapore's Hyflux, who inked a Memorandum of Agreement (something similar to pre-qualifying for a tender) at SIWW 2009 for two desalination plants in Libya.

But as with any country's forays into new areas, Libya has its share of difficulties. In this case, it is the procurement model. Even after two years, the General Desalination Company is still undecided on its procurement strategy.  International companies are hopeful for a privately-financed Build-Operate-Transfer model, but a recent EPC tender for a desalination plant suggests that international companies may be better off sourcing good local contractors as partners in the short term.

Main Sources:
Libya Weighs Up its Water Supply Options
A New Look for Desal in Tobruk
Libya's $11 Billion Water Lifeline
Hyflux in JV to Develop 2 Seawater Desalination Plants in Libya