Thoughts on the Water Industry

Financial distortion has made this industry a low priority for investments

• The World Bank estimates that more than $320 billion of subsidies (excluding China and India) globally go to water each year.
• This masks the high combined CAPEX and OPEX (energy, filters, chemicals, waste, skilled personnel) required to produce freshwater, and reduces the impetus to adopt more stringent water practices.
• It also makes it difficult to determine its true value and risk to a company’s operations. This is compounded by factors like:
• The highly localised nature of water which requires that the issue must be tackled in each specific location in contrast to commodities managed at a larger scale such as energy
• Complex supply chains which results in a lack of clear responsibility across the ecosystem (infrastructure companies, corporates, governments, and consumers)
• Poor quality reporting on water use at a corporate level and a lower priority of water risk mapping compared to other climate business risks e.g. carbon tracking

Patterns in water consumption are changing based on human needs

• Agriculture remains the thirstiest sector worldwide, (consuming 70% of freshwater) but Industrial activity is the fastest-growing sector, driven by the rise in data centres and AI. Sectors such as Oil & Gas and Mining are also under substantial pressure to reduce their water usage.
• Meanwhile, the Asia Pacific region is growing rapidly in demand for water compared to North America which was previously the highest consuming region.
• The water industry remains dominated by incumbents such as Veolia, Suez, and ITT Corporation, who have traditionally acquired niche technologies. There are increasing numbers of innovations being created outside of these industrial players.

A nascent water eco-system is growing due to institutions and innovations

• Overall global spending on water must increase fourfold to more than $1 trillion per year (1.21% of global GDP) to make up the predicted 40% freshwater shortfall.
• As of now, Dealroom estimates the water startups ecosystem is valued at over $25B, with 75% of value stemming from companies started since 2010.
• In 2021, $470 million raised by water start-ups across 90 countries in 2021 but this was a small part of the $54 billion invested in climate tech in 2021 overall.
• This shows a relatively young ecosystem with room to grow, especially in the water treatment and resource management areas.

• Consumption outgrowing production
• Water use has grown at over twice the rate of the world’s population increase in the last century. By 2025, an estimated 1.8 billion people will live in areas plagued by water scarcity, with 2/3rds of the world’s population living in water-stressed regions.
• Major cities are running out of water. The term ‘Day Zero’ became popular with Cape Town in 2016 but 11 major cities including London are expected to face chronic water shortfalls by 2030

• Corporate exposure across industries is fuelling interest in new innovations
• 69% of listed companies reporting to the Carbon Disclosure Project (CDP) said they are exposed to water risks with a potential value of $225 billion resulting in facility-by-facility reviews of supply chain operations for water-related risks
• The CEO Mandate for Water currently has 261 endorsing companies who have pledged to take action on water stewardship
• Industries such as Data, Oil and Gas, and Agriculture are amongst the industries most at risk from water disruptions
• Global companies such as ABinBev and Diageo have launched accelerator programs to find innovators addressing core supply chain issues including water
• Bloomberg Water Risk Valuation Tool seek to create “shadow prices” for water that reflect its true value for use in risk calculations, as opposed to the price paid.
• Investors are demanding more disclosure around climate risks and mitigations including water as a prerequisite for low interest long-term loans
• Development of water-specific investment funds such as Burnt Island Ventures and Echo River Capital

Predicted interest in technical innovation by industry:

• Tightening Regulatory Landscape on consumption and waste disposal
• Traditionally prices have not reflected water’s true value, however market-based and dynamic pricing mechanisms are being piloted in California, Australia, Israel, and Singapore to control water-intensive industries in water-stressed areas
• The Environmental Protection Agency (EPA) has bought in new regulation such as for PFAs which will impact 66,000 public water systems in the USA and require many to upgrade their treatment processes within five years
• Failures to dispose of wastewater have provoked outcry with contaminations and court cases such as in Flint, Michigan or there have been legal cases against companies like Dupont for knowingly contaminating drinking water
• Climate Change disrupting water supply
• Unpredictable rainfall patterns, shrinking ice sheets, rising sea levels, and floods and droughts are all reducing availability of water
• Pollution including microplastics, PFAs and sewage are contaminating available water sources
• Ageing infrastructure in need of investment
• Years of deferred maintenance and lack of investment in systems are materialising, with increasing strain put on systems by industrialisation and population growth
• Geopolitical risk management
• Many governments still do not realise how interdependent they are when it comes to water. Most countries depend for about half of their water supply on the evaporation of water from neighbouring countries – known as “green” water because it is held in soils and delivered from transpiration in forests and other ecosystems, when plants take up water from the soil and release vapour into the air from their leaves. Damage to environments such as deforestation or building damns disrupts water supply in neighbouring countries.
• Water scarcity will push between 24 and 700 million people to move by 2030 (United Nations, 2020). This is likely to force flashpoints on core political borders including Turkish-Iraqi-Syrian, Israeli-Palestinian, Indo-Pakistani, Uzbekistan-Kyrgyzstan-Tajikistan, Egyptian-Ethiopian, DRC-Chad and US-Mexico.

Market Landscape

• The Global Water and Wastewater Treatment Market size was valued at around USD $303.45 billion in 2022.
• It is expected to rise from USD$326.31 billion in 2023 to reach a value of USD $573.29 Billion by 2031, a CAGR of 7.68%
• Wastewater processing systems have to date attracted the largest share of investment, and 2 of the 4 unicorns in water are in this space (Gradient and Solugen)
• Dealroom lists 114 companies who have raised a combined $2 billion.

Customer Segments interested in solutions

1. Mining / Oil & Gas
1. Problems
1. Customers want to reduce input water needs at the beginning of supply chain and reduce the costs of disposal at the end of the processes. The wastewater is highly contaminated and contains many solids which must be removed before disposal or else companies face severe fines for environmental degradation.
2. Some of the most common types of mining waste include tailings (which are the waste materials left over after ore has been extracted from the rock), and mine water (which can contain a range of pollutants). Tailings facility failures can leave serious environmental, social and economic issues.
3. Companies are losing materials in wastewater that could potentially valuable aka “found money”, so need to investigate material reclamation. Every year in North America, $20 billion worth of metals are lost in tailings ponds.
2. Potential investments
1. Wastewater treatment
1. New processes in membrane filtration, biological treatment and advanced oxidation can help with filtration processes
2. Solutions for water recycling and zero-liquid discharge can help reduce the overall volume of water disposed of as waste
2. Material reclamation
1. Weeefiner (startup) and Sensmet (mining company) are creating a water treatment solution that targets the selective recovery of metals from mining-impacted waters
2. Tersa Earth Solutions have an all-in-one solution for metal recovery, water treatment, and carbon abatement.

2. Industrials
1. Problems
1. Increasing scrutiny and local legislations on watershed extraction
2. Increasing costs for disposal forcing companies to reduce the volume and toxicity of wastewater
2. Potential investments
• Aquafortus: Zero-liquid discharge solutions for industrial processes
• Aclarity: Electrochemical process to destroy unwanted contaminants such as PFAS
• ZwitterCo: Membranes that operate in severe-fouling environments like farms, just raised a $58.4million Series B
• Digital Paani: An IoT-enabled platform that automates workflows for wastewater systems, enhancing industrial wastewater treatment

3. Municipalities

a. Problems

1. Growing urban populations increase wastewater volumes, requiring efficient treatment solutions to manage municipal wastewater effectively and prevent public health crises.
2. This is coupled with aging systems requiring heavy investment to modernise:
• In the USA alone, 16,000 wastewater treatment plants currently function, on average, at 81 percent of their design capacities; 15 percent of these facilities have reached or exceeded their design capacity. American Water Works Company (NYSE: AWK), the largest publicly traded water and waste service provider in the U.S., closes approximately 15 acquisitions every year, and the second largest utility, Aqua America (NYSE: WTR), has made 300 acquisitions over the past two decades.
• UK water companies have proposed investing £96 billion between 2025 – 2030, a 90% increase on the current period. Prices of water for consumers in the UK could rise by 70% by 2030 to help cover upgrades.
• Increased use of public-private partnerships to maintain infrastructure e.g. the European Investment Bank is one of the largest investors in the water space, deploying over €4.1 billion
• The European Investment Bank financed a €100 million loan for wastewater management across Cyprus

b. Potential investments

• CivilGrid: Provides data solutions for infrastructure projects, including water systems.
• Ziptility: Offers software to manage municipal water utilities.
• Daupler: Delivers incident management solutions for utility providers.
4. Fashion and textiles
1. Problems
1. Textile production is estimated to be responsible for about 20% of global clean water pollution due to dyes, chemicals, and finishing products
2. Clothing lines are now touting their environmental credentials to consumers to differentiate their brands

b. Potential investments

• H&M Group issued its first EUR 500 million green bond including prioritising wastewater management, includes an investment in Acousweep which separate microplastic fibres from wastewater

Market Landscape

The global smart water management market size is predicted to grow from USD$16 billion in 2023 to USD$41.53 billion by 2032, growing at a CAGR of 11.09%.

There is a long history of large industrial players including GE Power, Schneider Electric SE, ABB Ltd and Innovyze, Inc. acquiring other smaller companies in this space.

Dealroom shows 188 companies with a combined funding of $2.7 billion to date.

Problems to be solved

1. Operational inefficiencies: Due to damage and inefficiencies, an estimated 30% - 40% of global clean water is lost to leakage, resulting in wasted spend on energy and purification solutions for water which will never be used
2. Optimising spend using data: Digitalization including data collection, real-time monitoring, machine learning and artificial intelligence can provide real-time data on water usage, leak detection, and future resource planning.

Customer segments:

1. Agriculture
1. Problems:
1. The industry uses 70% of freshwater worldwide but up to 60% is wasted due to inefficient application and thus is a loss to farming companies
2. Drive for ‘Precision agriculture’ to optimize farm efficiency and productivity, so that each acre can produce higher yields while using less water
2. Potential investments:
• Swan Systems: Optimizes irrigation technology, helping agricultural users manage water resources efficiently.
• Verdi: Reduces the cost of irrigation automation and improves precision, aimed at farmers and large agricultural operations.
• AgMonitor: Offers decision-support tools for farmers to optimize water and energy use, leveraging machine learning for improved agricultural management.

2. Utility companies
1. Problems:
1. Aging systems don’t accurately track water usage so hard to accurately charge customers
2. Need to optimise water use when supplying large scale buildings and ensure continuous uptime without disruption
2. Potential investments:
1. Smart systems:
• SewerAI: AI for sewer inspection
• Varuna: Real-time data and actionable insights for water system management
• Gybe: Automates the processing of data from multiple sensors and satellites to measure watershed health, aiding environmental agencies and water utilities
2. Well-capitalised global equipment companies have been active acquirers of water assets:
• Siemens - Acquired BuntPlanet in 2021 to support customers with smart metering solutions
• Xylem - Acquired several startups specialising in smart water solutions including a $7.5bn acquisition of Pittsburgh-based water treatment company Evoqua
• Veolia - using Orange Business to grow Hubgrade, its smart digital platform enabling municipalities and industries to optimize the performance of their sites
• ABB - in 2024 acquired Real Tech, a company specialising in real-time water quality monitoring and testing with more than 10,000 installed solutions in municipal water and wastewater
3. Oil and Gas Industry
1. Problems:
1. The oil industry requires water for both the drilling and fracturing part of it’s supply chain. Yet, one-third of global oil refining capacity is currently located in high water stress areas, with this share set to increase to 55% by 2040
2. Potential investments:
1. Smart sensors help monitor the volume of water used in drilling and extraction processes including around quality compliance, water recycling systems, and wastewater treatment
• 2S Water: Specializes in real-time metal detection in water, beneficial for mining and industrial applications

4. Commercial Real Estate
1. Problems:
1. Need solutions to optimize water consumption at scale when supplying faucets, showers, toilets, and irrigation systems in large buildings like hotels, offices and residential complexes
2. Need to collect data to help identifying inefficiencies, reducing water wastage, and optimizing maintenance schedules.
2. Potential investments
1. Smart sensors
• Laiier: Smart sensors for leak detection
• Epic Cleantech: Water Reuse for sustainable buildings
• Shower Stream: Develops smart shower devices to conserve water in hospitality and residential sectors
• Spout: Innovates water filtration and enhancement systems for households
• Kelda Showers: Reducing water and energy consumption by up to 60% through an air-Powered technology

Market size

• There were just under 11,000 data center locations worldwide as of December 2023.
• The global data center cooling market size had a value of approximately USD$12.75 billion in 2023 and is projected to reach around USD$36.79 billion by 2032, exhibiting a compound annual growth rate (CAGR) of about 12.50% from 2024 to 2032.
• According to The World Counts, an open source community-driven project that aggregates consumption data from organizations around the world, more than 4.3 trillion cubic meters (approximately 1.1 quadrillion gallons) of water are consumed globally every year. 
• On average, a Google data center consumes 450,000 gallons of water a day.
• In total, Microsoft's consumption was nearly 1.7 billion gallons of water in 2022.
• The USA has by far the most data centres
• Technology giants including Google, Meta and Microsoft have pledged to become "water positive" by restoring watersheds around their data centres
• Over 100 data centre operators have signed up to the European Green Deal which includes prioritising water stewardship

Problems to be solved

• Data systems are thirsty: A data centre using evaporative cooling systems has a water usage effectiveness of 1.8L per kWh (compared to an industry ideal of 1.2L per kWh) and can consume 3-5 million gallons of water per day, equivalent to the capacity used by a city of 30,000- 50,000 people.
• Rising demand: Due to AI and increased internet productivity data centres are hyperscaling. These centres consume vast amounts of water for “cooling” servers and ensuring energy efficiency, reliability / uptime, and scalability.
• Global warming: Whilst most large data centers have replaced cooling systems like old air-conditioning, even better performance is going to be required because of temperatures associated with global warming. Google and Oracle, both faced downtime during a heatwave in Europe in 2023.
• Public protest: Backlash again high levels of consumption in drought-prone areas

Potential solutions for the industry

• Collect and analyze water usage data including direct and indirect consumption. Water usage effectiveness (WUE) is a metric to reveal water use and compare against: the average data center uses 1.8 L of water per kWh.
• Operational efficiency i.e., increasing cycles of concentration so that water can be used more efficiently and reduce overall consumption
• Find ways to reduce or reuse water. 
• Some cooling systems can recirculate water to avoid waste.
• Iceotope Technologies: Provides cooling solutions that significantly reduce water usage (up to 96%) and power consumption
• Explore alternative sources of water. 
• Instead of taking water from local water reservoirs, set up a system to harvest rainwater and greywater
• Google's data center in Hamina, Finland, has found a way to use seawater to cool equipment.
• Experiment with new water management and cooling techniques such as liquid cooling and advanced HVAC systems
• Google, for instance, applies AI and machine learning to train deep neural networks in the data center to help optimize water metering, monitoring and management.
• Tado: Provides smart climate control solutions
• Coolgradient: for AI data center optimization software (recently raised from 4Impact)
• JetCool: Microconvective cooling (recently raised USD $17 million Series A led by Bosch Ventures)

• Lack of urgency: Water usage in supply chains is still undervalued as a business risk: CDP found that just 4% of 3,000 companies it surveyed set water-related targets for their supply chain as well as their own operations. It may take time for industrial players to ramp up their investments in water.
• Increased subsidies: There is a risk that water stress leads governments to further increase water subsidies than reduce them to show a true price of water. Water is still largely seen as a public good so in times of crisis governments step in.
• Development cycle: Water investments have long timelines from design to procurement and construction: as a result the approach that tends to be reactive and focused on fixing and maintaining failing systems rather than preventative work
• Regulation: Water remains a highly regulated utility and has important public health restrictions, making those who own assets conservative in what they’ll implement and how technology is managed.
• Budgetary constraints: Public sector investment is often limited by budgetary constraints, especially in times of austerity
• Collaborative Capital Stack for scaling: Venture funding alone is often not enough to help a company scale. Growth capital, equity investments, joint ventures, channel and sales partnerships, and other deal structures may be needed to help startups target a specific market initially.

• WWF Report: Water crisis threatens US$58 trillion in economic value, food security and sustainability
• A deep dive on the water crisis, Morgan Stanley
• Zion Market Research™ Data Center Cooling Market: Size, Share, Growth, Trends, Challenges, and Future Prospects
• Tech Target: How to manage data center water usage sustainably.
• Echo River Capital Portfolio | Echo River Capital
• Burnt Island Ventures The Islanders — Burnt Island Ventures
• Dealroom: 600+ Water technology companies
• H&M Group: Annual and Sustainability Report 2023
• Wastewater Wastewater
  Research at Pale Blue Dot
• The impact of textile production and waste on the environment
• Investing in Water: Global opportunities in a growth sector, Impax Asset Management
• https://www.emergenresearch.com/industry-report/digital-water-market
• High and Dry: How water issues are stranding assets (CDP, 2022)
• EIB: Water Overview 2024
• Data centre trends in 2023 by Clifford Chance
• Water: A Major Stake of Conflicts in the Twenty-First Century, Open Journal of Social Sciences