A new market for advanced water technologies

Those who once viewed water as a free, limitless resource are starting to respect it as a precious commodity to be conserved, recycled, purified and carefully managed.

In the water-rich region of Alberta, Canada, for example, water availability is limiting the extent to which the viscous oil bitumen can be extracted from one of the last great deposits of oil known as the Albertan oil sands.

There is a triple threat underway to the world’s water supply. The three threats are: scarcity, infrastructure decay and climate change.

In the U.S., projected water shortages are significant. According to the U.S. Environmental Protection Agency (EPA), 36 states will face water shortages by 2013. In addition, most of the population growth in the United States is projected for the driest areas.

Water usage patterns are also of keen interest. People living in New England use less than 20 gallons per person per day, but people in dry southwestern states consume approximately 200 gallons per person daily. More than half of that water is used to irrigate lawns and gardens.

Projections show that demand in the Sun Belt will exceed supply by 2020. Major rivers such as the Colorado and the Rio Grande cannot feed the growing thirst. “Water supply shocks” have hit lush, green places such as Atlanta and Durham, N.C.

What’s all this mean to investors? Investors want to see strong evidence of water investment opportunities, in which high–growth, innovative technologies generate significant revenues. Those examples are still seen as scarce.

It will take some work to find the best opportunities.“The biggest drawback is the dearth of pure–play water investments,” said Thomas Rooney, managing director of RCI, an engineering consulting practice. “That leaves investors with the challenge of scouring over hundreds of small or micro–level water technology companies in order to invest smartly in water.

Add to that the fact that this is a truly global market, and the new investor needs to scour North America, Europe, and Asia as a minimum. The bottom line is a dearth of obvious choices, high multiples where it’s obvious, and a great deal of due diligence to find a clean deal at a reasonable multiple.

Today, most water systems in developed countries are highly centralized, heavily regulated and slow to adopt new technologies. The water industry is dominated by a handful of international equipment and service conglomerates and more than 50,000 water utilities in the United States. The leading primary funds that invest in venture funds as limited partners see the long–term potential of these technologies, yet less than two percent of cleantech investments in Q4 2007 were in water technologies, according to the Cleantech Group.

Centralized water infrastructure systems have served developed countries since the Industrial Revolution. So when it comes to the second threat of decaying infrastructure, most centralized systems are viewed as an Achilles’ heel for water management. The drinking water piping network in the United States extends more than 700,000 miles, and much of the infrastructure is more than
100 years old.

With over 1.2 billion miles of sewage piping in the US, sewage and storm water collection systems fail daily, stopping business and creating significant health hazards.

Four main technology product opportunities address the challenges in decentralizing water infrastructure:

• Real-time monitoring technologies to improve infrastructure and water quality at the point of use
• On-site wastewater reclamation
• Advanced membranes to enable cost-effective means for saving energy and water
• More efficient cooling technologies.

These technologies can provide dramatic benefits. For example, when water from commercial operations such as shopping centers, retailers, and office buildings recycle potable water on site for use in toilets and irrigation, 70 to 85 percent of the potable water can be saved, as well as most of the energy required to deliver, process and dispose of that water.

The rapid emergence of desalination throughout the developed world is indicative of this ongoing crisis in water supply.“We’re going to see water in certain locations begin to pass energy as a priority,” said Thomas Rooney, water expert and managing director at RCI.

At the Artemis Project, we map out the overall market for decentralized water management in the following technology segments:

• Water monitoring—on-site in-situ real-time water monitoring for pathogens as well as
• Cooling solution
• On-site wastewater recycling—industrial and commercial applications
• Advanced water metering
• Stormwater and flood control, rainwater harvesting
• Smart irrigation
• On-site water disinfection
• Membranes for water treatment
• Advanced filtration without membranes
• Produced water (from oil exploration and drilling)
• Energy efficient water pumping

At present, The Artemis Project is speaking with an initial group of rising advanced water technologies to more precisely map out this emerging market and list the most promising “Water Tech 50.” We look forward to your input.

This article is an abstract of a report called Water Matters: Venture Investment Opportunities in Innovative Water Technology, by The Artemis Project.

Principal Laura Shenkar has more than 20 years of experience launching innovative technologies throughout the world, and was a member of the leadership team of three successful startups.

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