Digital Water. Smart Water. Water 4.0. These are some of the names given to a set of digital technology-based innovations currently transforming the water sector. At all stages of the water value chain – from source, through utility provider, water treatment and services businesses through to customer – companies are employing digital solutions to create networks that are more flexible, efficient and cost effective. Before launching into the specifics of Digital Water, it is worth considering a number of factors currently driving this transformation.
Firstly, global water supply is faced with several pressing threats, mostly anthropogenic, with the significant one being climate change. In regions prone to flooding, rising sea levels threaten to contaminate fresh water aquifers and farmland, while in dryer regions, droughts will appear both harsher and more frequent. These problems are exacerbated by the fact that 60% of the world’s population lives by crowded water basins shared by multiple states – many of which are facing other pressures such as political instability, civil unrest, poverty and corruption – raising the likelihood of natural resource conflict.
A serious challenge for the developed world comes in the form of aging infrastructure. We all saw how serious an impact aging infrastructure could have when, in September 2014, decrepit pipes and cold weather caused neurotoxic lead to leach into the water supply of the city of Flint, Michigan with disastrous results. The UK is not immune and is set to spend £25 billion to upgrade its infrastructure, covering an asset base that includes over 800,000 km of sewer and water supply pipes.
On top of these supply challenges comes increased demand. By 2040, industrial consumption is expected to account for 38% of total water usage, up from 21% today. By 2050, 70% of the world’s projected 10 billion population will live in cities, including a more water-intensive, emerging middle class. With this, water suppliers will be tasked with creating more extensive networks while also tackling issues surrounding unequal accessibility and sanitation.
The drive to digitize water is not all reactive, however. Policymakers are accelerating digital adoption through regulation designed to improve the standard of water and wastewater management. For instance, in the UK, Water Services Regulation Authority (OFWAT) now mandates at least three digital methods by which water companies interact with customers to improve the ease of engagement. In California, the Sustainable Groundwater Management Act requires the use of digital technologies to measure real time resource usage, driving more sustainable patterns of consumption.
Another force driving adoption is changing generational expectations and digitalization as a society-wide phenomenon, one that carries significant momentum and seeks to permeate all aspects of our daily lives.
Against this backdrop of climate pressures, aging infrastructure, urbanization and population growth, rising industrial consumption and regulation, Digital Water claims to offer some promising solutions. A growing number of companies and utility providers are bringing together Operational Technology (OT) and Internet of Things (IoT) technology, to detect and diagnose complications, optimize network flow and manage consumption. The solutions they offer utilize several building blocks:
Telemetry, imaging technologies and geographic information systems:
Companies such as Cloud to Street and NASA’s GRACE program are using remote sensing technologies including drones and satellites to map water resources and measure fluxes, helping utility providers prepare for the consequences of extreme weather (e.g. sewage overflow due to heavy rain) and even provide data water quality (e.g. turbidity, algal blooms, etc.).
Supervisory Control and Data Acquisition (SCADA) systems:
SCADA systems can provide real-time data on water quality, flows, pressures and levels. This information can be used to predict demand and optimize availability, detect and diagnose complications in the network (e.g. pipe corrosion or water discoloration) and provide information for long-term operational planning (e.g. prioritize repairs and replacements for aging infrastructure). Industrial majors such as GE, Schneider Electric, Rockwell, Siemens and ABB jockey for control as leading producers of the industrial technology at the core of these advanced systems.
Blockchain technology and smart metering:
Digital Water also impacts how water companies can engage with customers. Blockchain technology has the potential to facilitate fast, secure and transparent transactions between utility providers and their customers. Furthermore, smart meters enable companies to generate accurate, automated billings based on granular consumption data and build household profiles to inform new tariffs and marketing approaches.
Artificial intelligence, machine learning and immersive technologies:
The great strides being made by the likes of Google, Microsoft and IBM in the fields of machine learning and artificial intelligence are already transforming the water sector, assisting a host of systems that are data-rich, information poor. AI can recognize patterns in data to optimize the planning and execution of projects and provide a clearer insight into resource-loss in real-time. Furthermore, Augmented Reality (AR) and Virtual Reality (VR) technologies offer new ways to support decision making in the field by providing holographic representations of physical assets and offering immersive situational training for workers.
Taken altogether under the umbrella of Digital Water, these innovations are helping tackle the substantial challenges and demands on this key natural resource. Digital Water offers: 1) customer benefits of increased affordability, greater engagement, fairer billing and a more reliable service 2) operational benefits of predictive maintenance, and enhanced flexibility and efficiency 3) financial benefits of reduced operational expenditure and increased revenue potential 4) resiliency benefits of greater sustainability and enhanced workforce development.
Baird Capital's Investment Approach
At Baird Capital, we are seeking to make investments in high-quality businesses that are providing technology enabled solutions in the water sector. With our global capabilities and deep sector experience, we believe we are well-positioned to help differentiated and growing companies in the sector, particularly those with international ambitions. If you would like to discuss investment opportunities in relation to any industrial technology business with strong secular drivers and international growth aspirations, please contact any of the team members on this page.