There was an active discussion around water at the recent Cleantech Forum in San Francisco. As there always is.

Everyone knows the old joke, applied to just about everything at one time or another, that runs: "hydrogen is the fuel of the future... and always will be," or "Brazil is the superpower of the future, and always will be."

Well, I wonder if that applies to water.

Will water always remain the "problem of the future," and not of the present? Despite the maxim that "water is the next oil," nobody ever seems to put their money where their mouth is in the water sector.

The basic story goes like this:

• The water industry is huge, mostly public owned by entities that have no money for the (pick your number of) billions in upgrades needed
• Population is growing every year
• Population is increasing most rapidly in driest regions
• Water is cheap, so no one conserves it (think about that statement as an economist and ask yourself if we really have a problem yet)
• Water is even more important than energy as a "basic right," so no government will let its population run short. Therefore, investing in water technology (desalination, membranes, remediation, purification, metering, etc.) to create solutions to the coming problem is a good idea.

But it never happens. The investment community just doesn't walk the walk when it comes to water. Why is that?

Some thoughts on why:

1. Motivation. The water industry, while huge, is not widely privatized and is very fragmented. It's not been heavily "technology" driven to date, and has proven to be even more cumbersome than the electric utility market to break new technologies into. Investor owned utilities, which are now a very large portion of the electric and gas utility market, are just a few percentage points of the water market. So very few of the potential customers for technology are big enough and profit driven enough to care.
2. Maturity. The technologies these water companies use is relatively old. Membrane technology used in reverse osmosis and more efficient valves and even smart control systems are not new ideas. And a lot of potential "breakthroughs" have been beat out of the industry already. So unless price radically changes - as in several orders of magnitude, it's likely that the technology we've got is "good enough" or at least hard to beat.
3. Price. Water is cheap (see above). Read: nobody's bearing any real pain today in most of the industrialized world. I'm not. I don't even get a water bill. I'll cut my morning Starbucks before I reduce my water usage. It's a bigger hit on my pocketbook. In pockets of the market, this may be changing (we do read about water crises in Australia from time to time, ultra clean water needed for semiconductor processes and additional water demand for a particular housing development in Southern California), but it is really hard to get a return on R&D when your customer is measured in "pockets" as opposed to "markets."
4. Solar, ethanol and carbon. Three years ago, water was the buzz of the venture conferences. Money looked like it might flow. Then the solar and ethanol markets took off, carbon trading got traction and climate change grabbed the headlines and the political mindshare (including mandates, rebates, and subsidies). Water - both the problems and the solutions - fell out of vogue.
5. Size and capital intensity. Like energy projects, water projects are often really big and expensive. Scaling up ALWAYS has more risk than one thinks it does. Like in energy, one just doesn't invest in a pilot for a new technology lightly. And just because one or two projects with a given technology are running does not a successful launch make. When 30 or 40 are running for 5 to 10 years, then you've broken through.

So I guess it remains to be seen if water is the problem of the future - or if it really is the next big thing. And it definitely remains to be seen if anyone can make big money investing in new water technologies and solutions.

Neal Dikeman is a founding partner at Jane Capital Partners LLC [1], a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog [2] and a Contributing Editor to Alt Energy Stocks [3].

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