Is the Global Water Sector Positioned for a Pivot from the Status Quo?

Albert Einstein once said, “In this midst of difficulty, lies opportunity.” This has never been truer than in the municipal water sector today. During a recent webcast, our panel asked a wide-range of Bluefield clients to rate their most challenging issue and where they see the greatest opportunity. Interestingly, “water infrastructure” was the answer to both.

Admittedly, we were not surprised, given the significant attention being paid to the just legislated infrastructure bill in Washington and how the now available US$55 billion will be allocated going forward. In light of the disruption over the last 20 months that has wreaked havoc across the water sector, from workforce disruptions to inflation, there is a silver lining to all of this change.

Here are several takeaways our water experts pointed to as both challenges and opportunities for water utilities, companies, and vendors, globally:

Third Party O&M and Solutions Providers Set to Gain from Workforce Challenges. We’ve been hearing a lot during the pandemic about “the great resignation”, but the pending wave of workforce retirements is something water utilities have been grappling with for some time. Although, the threat appears to be accelerating. According a recent AWWA survey 40% of North American water utilities are having trouble hiring right now and 23% are struggling to meet their minimum staffing requirements. To pour salt in the wound, there’s an added challenge of managing remote workforces in a post-COVID environment.

As a result, utility workforce pressures and labor shortages are likely to add further momentum to the market for third-party O&M and digital services. This is heightening demand for outsourcing across utility silos, from system operations to billing and asset management. By Bluefield’s estimation, this utility O&M, alone, currently accounts for about US$2.6 billion in annual spend and is growing at a healthy clip of around 6% per year. Research Director, Eric Bindler and Analyst, Isabel Kezman discussed this trend in Episode 40: Future of Water podcast.

Supply Chain Constraints to Usher in Alternatives. Manufacturing and transportation constraints for plastics, resins, iron, copper, steel, and other critical material inputs are driving double-digit increases in key product prices. As such, utility procurement groups are increasingly forced to weigh the benefits vs. cost question, now as often as every month. For example, steel and iron prices have climbed a whopping +60% over the last 12 months, pushing utilities’ teams to consider deferring projects until the market stabilizes. It is worth noting, our team of water experts has analyzed historical material price trends and if history is any guide, they are not likely to decline more than 40% in many cases. 

Times of great disruption and stress often drive buyers to reconsider new products, materials, and suppliers. As a result, vendors presenting alternative products and solutions to traditional approaches are poised to benefit. Whether they be polymer manholes, smart meters, or billing software, the last two years, could be considered a watershed moment for the competitive landscape. 

Climate and New Policies Reframe Global Infrastructure Opportunities. All infrastructure challenges are not created equal, and every region, globally, is facing its own challenges from securing reliable water supplies to limiting pollution from wastewater discharges. At the same time, new regulations in key markets, like Europe, are influencing investments in the water sector. In many cases, utilities will increasingly be adopting digital hardware and software solutions to optimize infrastructure and operations.

We may not think of the water industry as a major contributor to climate change, but water & wastewater pumping accounts for a meaningful share of global energy consumption. Further, wastewater treatment accounts for 5% to 10% of global methane emissions—which will need to be cut quickly if the world is to meet the new targets laid out at last month’s COP26 in Scotland.

A case in point is the wide-sweeping policies in the EU aim for carbon neutrality by 2050, and the UK water sector is moving toward net-zero emissions by 2030. Certainly, some of these reforms and policies will fail to deliver, but the outlook does signal stronger interest than ever in deploying smarter, greener solutions to address global water risks. 

Water Quality Challenges, ever present in the news, drive Alternative Remediation Measures. PFAS is an issue that has been around for many decades but is only now gaining notable public attention, globally. While the U.S. EPA is moving forward with enforceable limits for PFOA and PFOS concentrations, including US$10 billion dedicated to treatment of PFAS chemicals in the new infrastructure bill, a group of EU countries are making moves as well. During the summer of 2021, Denmark, Germany, Norway, Sweden, the Netherlands submitted to the European Chemicals Agency an intention to restrict the manufacture, marketing, and use of PFAS. 

To date, most drinking water treatments for PFAS consist of granular activated carbon, in large part because it is a well-understood, relatively low-cost technology with a large installed base for other water treatment purposes. Although, with the injection of federal funds and signals from the EPA of moving forward with federal regulation, we expect to see implementations of alternative technologies (e.g., ion exchange resins, reverse osmosis) in the coming years.

There is no doubt that funding for infrastructure, new and rehabilitated, is badly needed. But the open question is whether what is currently planned will be transformative.

There is no doubt that funding for infrastructure—new and rehabilitated—is badly needed. But the open question is whether what is currently planned will be transformative. That is, will it drive fundamentally new or different types of investments in the utility sector, particularly in crucial areas like sustainability and digitalization, or will it end up flowing primarily to more status-quo projects and priorities?