By Steve Maxwell
Although we casually talk about the ‘water industry,’ strictly speaking there is really no such thing as ‘the’ water industry. What there really is instead is a group of very disparate, balkanized and fundamentally quite different businesses – all of which have something to do with delivery of clean water, but which can’t all be accurately classified under any single heading.
A diffuse and fragmented industry such as the water business is therefore very difficult to classify and analyze. Nonetheless, there are some rough market statistics for these overall water-related businesses.
The US market is now generally estimated at around $120 billion (USD) per year, with estimates of the world market around $450 to $500 billion (USD) annually. And new sectors or new opportunities continue to emerge, while new companies continue to develop and older pre-existing companies continue to refashion themselves as water players.
Technology driven
New treatment technologies, particularly in the POU/POE marketplace, continue to be developed and existing technologies continue to be applied for the first time to water treatment uses. Companies that were scarcely thought of as water firms a few years ago are more and more frequently being classified as water industry participants. Still, over time, these companies seem to be coalescing into more and more of a distinct industry.
There can be no doubt that fundamental supply and demand considerations insure continuing – and probably somewhat accelerating – growth into the long-term future. Indeed, it is very difficult to construct any kind of reasonable future scenario in which this industry will be characterized by anything other than very steady, sustained growth.
The growth of the overall business will probably continue in the neighborhood of HoH five to seven percent a year – or, generally speaking, a little in excess of the US GNP or population growth rates. The total global water market is generally agreed to be somewhere in the range of $400 to $500 billions (USD) per year.
Several key factors—economic forces, social forces, political realties—have been responsible for driving this overall expansion and evolution of the broader water industry.
Expansion and evolution factors
Concerns over quality and scarcity are clearly the key drivers behind the challenges, regulations, all commercial business opportunities and, ultimately, projected growth for the water business over coming decades. Dozens of reports and studies have pinpointed the fundamental lack of clean water as one of the most serious long-term threats facing mankind.
In the US, we have both quantity and quality challenges across the country. More humid cities in the east, such as Atlanta, are running short of water – with the state of Georgia trying to redraw its historical border with Tennessee for the purpose of appropriating some 500 million gallons (1.89 microliters) of water per day.
On the other side of the country, we see large California aquifers becoming unusable because they are contaminated with perchlorates derived from industry. Although it has become commonplace (and lately somewhat trite) to describe water as ‘the oil of the 21st century’ in terms of its global economic and political significance – it may well turn out to be true.
Awareness and understanding
Public awareness and understanding of this wide spectrum of water problems is rapidly increasing. As the general populace becomes more aware and concerned, public perceptions and public demands gradually become more important drivers of public policy and legislation.
These concerns about public drinking water quality are clearly a key driver behind the POU/POE industry in particular. More and more people seek to insure the purity of their own drinking water.
In turn, regulation and enforcement continue to intensify. Growing public awareness and concern gradually translates into greater government review, oversight, legislation, regulatory control, enforcement – and greater capital spending. This seems unlikely to change, in contrast to other general areas of environmental legislation – where public interest, regulation and enforcement have waxed and waned during the past couple of decades.
The American public seems insistent upon ever-stronger and broader regulatory protection when it comes to their drinking water. This trend also heralds a strong future for the residential and commercial POE/POU industry.
These interlocking and reinforcing industry drivers in turn give rise to a number of critical trends in the water business. These include supply, demand, market and competitive conditions and how we manage and utilize our increasingly precious water resources.
Key trends
A few of these key trends in the water industry are highlighted below. (Editor’s Note: The remainder of these key trends are dealt with in much more detail in Maxwell’s full 2009 State of the Water Industry Report, from which this article is excerpted.)
During the past several years, numerous studies and observers have drawn attention to the woeful and dilapidated state of the American water and wastewater treatment infrastructure. This system loses almost seven billion gallons (2.65 microliters) of clean water a day through leakage – and experts maintain that we should be spending an additional $11 billion (USD) per year, simply to maintain the existing infrastructure.
Water pollution problems continue to grow and new contaminants continue to be unleashed and discovered. One recent study found that tap water in 42 states is contaminated with more than 140 unregulated chemicals that lack safety standards, and suggested that US EPA should be doing a far more thorough job of regulating drinking water.
Many man-made pharmaceutical and health-care compounds have only recently been detectable at all – but are now found on a widespread basis throughout natural waterways. This suggests an even more important reason that POU/POE treatment is essential.
More efficient and sustainable use of our existing water resources is increasingly viewed as a ‘new source’ of water – reducing demand to increase supply. It is logical (and environmentally preferable) to fix existing water infrastructure first in order to provide the best and most immediate opportunities we have to extend the overall availability of water before building new infrastructure.
Conservation habits and more efficient water allocation are inextricably tied to water prices and those regions where water is less expensive naturally tend to focus less on efficiency, conservation and recycling. One thing is certain: as water prices continue to rise, there will be ever-increasing incentives for more careful recycling and re-use.
With greater economic incentives, individuals and households will begin to use and re-use water more carefully. Industrial companies will re-think their approaches and re-tool their manufacturing systems, to utilize less water and to better recycle their wastewater streams.
Monitorization and treatment
The ability to monitor and track (and more importantly, to understand the implications of) the physical and chemical composition of water is becoming ever more important. The treatment, storage and distribution infrastructure increasingly depends upon a plethora of monitoring data and analytical information in order to function efficiently.
As a more informed public demands better information about their drinking water, as more comprehensive regulatory controls evolve, new contaminant effects and the potential for harmful interactions will be better understood. It seems certain that testing and monitoring requirements will only continue to grow.
Most observers do not believe that there are any truly revolutionary technological breakthroughs just around the corner that have the potential to radically transform the water industry overnight. Incremental technological advance, however, is ubiquitous across the water industry. Thousands of technology developers are actively working on commercializing better ‘mousetraps,’ and there is a steady march of innovation in many different technological sectors.
Tap safety
As the general public has become more aware and concerned about water, individual consumer preferences and demands have become more significant factors of the business. The most critical trend or consideration here is growing concern amongst consumers, particularly the more affluent, that tap water may not be safe to drink.
Remarkably, the Metropolitan Water District of Southern California reported several years ago that almost two-thirds of their customers no longer thought it advisable to drink the water coming out of their taps. These types of concerns correlate closely with market demand for the POE/POU industry.
Tap water quality groups suggest that public tap water is truly one of the great economic bargains of all time. Residential treatment groups – which include POU/POE equipment manufacturers as well as bottled water suppliers – caution that the only way you can really ever be sure your water is safe is to treat it within the confines of your own home or drink it out of a pre-packaged bottle.
Although the ultimate outcome of this debate may still be in question, the effect so far has been to strengthen the markets both for bottled water and for POE/POU home treatment products. In addition, new markets are beginning to emerge in areas such as residential water monitoring and testing services.
POU vs. centralization
The more substantive and serious question that arises out of the tap water safety debate has to do with POU treatment and larger policy questions about the efficiency of centralized water treatment. Very little of our treated municipal water is actually used for drinking. I
If we only drink one percent or less of all the water that is treated to our very stringent regulatory standards, the question arises as to whether it makes any sense to treat all water to those exacting standards? Doesn’t it make more sense to save a lot of money in the construction of large and sophisticated central facilities and just have each home and business treat the very small amount of water that they drink, cook with or bathe in, at the point where it is actually consumed?
As many readers of this magazine will quickly note, several of these key trends point to a potentially strengthening residential and POE/POU industry in the future. We are seeing more and more consumers feeling that they have to take matters into their own hands – treating or re-treating water to their own specifications at the point of use.
The residential water treatment business is likely to be one of the beneficiaries of this trend and is, therefore, likely to experience accelerating growth in the future. In the next installment, we will review some of the potential solutions that have been proposed for dealing with the world water crisis.
About the author/company
Steve Maxwell is Managing Director of TechKNOWLEDGEy Strategic Group, a Boulder, CO-based management consultancy specializing in merger and acquisition advisory services and strategic planning for the water and broader environmental industries. Maxwell is also the Editor and Founder of “The Environmental Benchmarker and Strategist,” the environmental industry’s most comprehensive source of competitive and financial data. He is also the Editor of a recent book published by the American Water Works Association, entitled “The Business of Water,” a collection of past business and commerce related articles from the “Journal AWWA.” He has advised dozens of water firms on strategy and transactional issues and can be reached in Boulder at (303) 442-4800 or via e-mail at [email protected].