Will Investors Find Gold in Water Incorporated?

June 16, 2009

Posted by Don Dunnington at 08:22 PM | Comments (0)

Steve Hoffmann, founder of WaterTech Capital, a private investment company focused on the water industry, is betting water will become the world's most precious resource in the near future.

You can read all about his rationale for investing in what you might call "Water Incorporated" in his new book, Planet Water: Investing in the World's Most Valuable Resource. The book was reviewed recently in The Wall Street Journal (May 27, 2009) by Roger Bate, who concedes Hoffmann is "a financier, not a writer" but reading the book "might well guide [you to] some very satisfactory investments."

Bate writes, "Mr. Hoffmann does an able job of laying out the basics of water scarcity and delivery, and he presents a persuasive case for water's looming importance, rivaling oil as the most important commodity this century.... [However] what's of interest in Planet Water is Mr. Hoffmann's advice about water as an investment opportunity."

Bate particularly likes how Hoffmann gets into the specifics of the companies and technologies that will prosper in an era of precious water:

"When he describes the appalling water losses from leaking pipes, for instance, he turns the discussion to the methods being employed to find holes in piping, such as ‘ultrasonic transducers, cable-based sensors, digital signal processing, ground-penetrating radar, thermography, and advanced software tools.' A savvy investor, he says, would examine this sector of the water economy."

In his book Hoffman sees water utilities, largely owned by local governments in the U.S., turning to private investment to fund upgrades of ancient infrastructure and pay for new technologies to improve water quality or process otherwise undrinkable water.

Hoffman also shows up in Businessweek's "Water: A Rising Tide of Smart Investing Plays" by David Bogoslaw (April 23, 2009). Bogoslaw writes:

"There is growing recognition that this resource—which has no substitute—may turn out to be the hot commodity of the 21st century, much as oil has been for much of the past century.

"The higher value ascribed to water has less to do with depletion and scarcity than cost. While there's as much water on the planet as there has ever been, cheap water is in short supply…. What remains are more expensive sources of water—from oceans, groundwater, or reclaimed used water—which require either desalination, chemical disinfectants, or other processes to be made suitable for drinking."

Bogoslaw quotes experts who see water prices in The U.S. doubling or tripling over the next few years. Even starting at water's current bargain price in most of the U.S., this level of increase may attract more private investment. He cites other factors favoring water sector privatization around the world, despite the trend toward more central government intervention, as exemplified by the recent bailouts of the financial sector and the auto industry:

• Higher water purity standards, not just for human consumption but for industries such as semiconductor manufacture
• Costs of repairing infrastructure
• Cost of providing more clean water
• The downturn of the U.S. housing market, which has eroded the local tax base

Bogoslaw writes that a backlash against privatization will likely intensify. "Still, there's growing recognition of the need for further market-oriented solutions, since people lack sufficient motivation to use water more efficiently unless they're paying more for it." He cites Steve Hoffman and his new book's prediction that we will see companies emerging "that are dedicated to resolving water challenges."

In his book Hoffman anticipates that over time increased mergers and acquisitions will have to occur. "Customer demands for comprehensive, cost-effective solutions discourage a segmented industry structure," he writes.

Hoffman says that companies focused on instrumentation, regulatory compliance monitoring, membrane manufacturing, pumps, and environmental remediation will be among those consolidating in the future.

Don Dunnington
Blog Moderator

Water for Power: Report Says Southeast US Could Save Water by Saving Energy

June 07, 2009

Posted by Don Dunnington at 03:20 PM | Comments (0)

Water and Wastewater dot com publisher Joe Taylor sent me a news release from the World Resources Institute suggesting that the stress on water supplies in the Southeast United States could be relieved through greater energy and water conservation.

Their newly released report, "Water for Watts," provides this chart of water use, based on U.S. Geological Survey data that shows about 65 percent--nearly 40 billion gallons of water--is withdrawn each day for thermoelectric power in the Southeast United States.

Since so much fresh water in the Southeast goes to feeding power generation boilers, the report suggests that reducing energy demand would also reduce water demand.

"Reducing electricity demands is not only critical to addressing our energy challenges, but also to meeting regional water needs," said Ben Taube, executive director at the Southeast Energy Efficiency Alliance and a co-author of the new report. "Lawmakers at the federal, state, and local levels should consider policies that create incentives for the efficient use of both water and energy, especially in light of recent droughts."

I checked with an application engineer at Pennsylvania Crusher, which provides coal crushers to about 80 percent of all the coal fired utilities in the US. He confirmed that nearly all older power plants use once-through systems that take water from a river or lake, or even the ocean, to use for cooling and then discharge heated water back into the same water system.

The "Water for Watts" news item didn’t address how much of the 40 billion gallons withdrawn daily by Southeastern utilities is returned. Whatever their net water use, once-through systems do have significant impacts on local aquatic environments, such as the fish and fish larvae caught in the water uptake and the impact of discharged heated water.

Closed-cycle cooling systems use up to 98 percent less water than once-through systems. In closed-cycle systems, cooling water is pumped through the power plant’s condenser and then through cooling towers. New power plants generally are required to have closed-cycle cooling systems. Older plants still using once-through systems might be required to convert to closed-cycle cooling when their water permits are up for renewal.

As the report points out, water availability has become a source of conflict between states in the Southeast. Alabama, Florida, and Georgia have fought over control of the Apalachicola / Chattahoochee / Flint River Basin and similar issues arose in North and South Carolina over the Catawba River.

The authors project that population growth in the Southeast could lead to a 30 percent increase in thermoelectric power generation by 2025: "Without policy action to encourage efficiency and water-efficient power production, this higher electricity demand could further exacerbate water scarcity problems."

Don Dunnington
Blog Moderator