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Water Investment: Where's The Play?

Published 02/25/2014, 10:21 AM
Updated 07/09/2023, 06:31 AM

Severe weather events, it would seem, are becoming more common. As natural weather patterns change, water distribution and supply systems must adapt… so they may experience significant change going forward.

I recently heard from Bill Brennan, Equity CIO at Summit Global Management – a company that specializes in investing in water.

He suggested three themes water investors should consider:

· Adaptations to water systems to handle changing weather patterns

· Improving water safety

· Managing storm water in urban areas

Changing Weather

The northeastern United States was racked with freak snowstorms this winter that reached as far as South Carolina.

Hurricane Sandy is also still fresh in the minds of many residents of the Northeast as the largest hurricane recorded in the Atlantic. Sandy prompted an evaluation of water, sewer, and storm water systems. In New Jersey, the super-storm caused the state to spend $2.6 billion in repairs. The hurricane damaged over 100 drinking water facilities and sewage plants were damaged. The damage was worsened because of chronic underinvestment in infrastructure… especially for drinking water and for wastewater, which are reportedly in need of around $45 billion in investments over the next 20 years.

In New York and New Jersey, the storm caused 11 billion gallons of raw or partially untreated sewage to flow into the water supply. The sewage treatment plants were rendered inoperable.

As you can see, water systems in the Northeast simply were not adapted to the events that unfolded. If we see more of this kind of extreme weather activity, it will require more innovation and capital to meet the challenges.

In contrast to excessive precipitation in the Northeast, a severe drought is occurring in the western states. California has declared a “Drought of the Century” as rainfall is at less than 20 percent of normal and reservoirs are dwindling.

When changing, and more extreme, weather patterns hit water management systems that have been unchanged for decades – even centuries – adaptation is needed.

Arizona farmers have already begun to implement water conservation measures. They deploy laser technology in order to diminish runoff and keep field tables flat. Nevada has created a closed loop system where water from Las Vegas is recycled and returned to Lake Mead. California recently broke ground on the largest desalination plant in the Western hemisphere.

We should expect more sophisticated, resilient, and dynamic water management schemes to evolve – a primary trend to look out for within the space.

Water safety services

Recycling water for human consumption is an advanced field, and technology has allowed us to enjoy cheap, safe, and plentiful water for drinking, washing dishes, or brushing teeth. But there are still potential threats to drinking water quality, such as the chemical spills in Charleston, West Virginia at the beginning of 2014, or inflows of raw sewage into water supplies as we saw during Hurricane Sandy.

Pathogens and chemicals in the water are a serious danger to humans¸ and there are several new technologies that take advantage of the demand for high-quality water for human consumption.

The next generation of water systems is already deploying monitoring devices that will track multiple points for abnormalities and have the ability to immediately halt the flow in order to investigate and remediate a potential threat.

Nanotechnology sensors among other technologies are being used to identify problems that arise in order to quickly report them to an operator.

So we should look to improvements in technology and infrastructure to protect the quality of drinking water… Especially as weather patterns change, investments in infrastructure and technology to guarantee water safety could be another big trend.

Storm water management

Most people don’t consider the impact of storm water on urban areas, but rain that falls on urban areas can become an issue.

Because urban areas are covered with mostly impervious surfaces (like roads and parking lots), the amount of water that seeps into the ground is decreased. The water tends to go into nearby streams and channels, which can cause flooding and massive erosion of water beds. On top of that, the runoff water often contains trash, oil and rubber from cars, as well as fertilizer and pesticides from lawns and agriculture, and other pollutants.

Although states still dominate the investment picture for water, public-private partnerships have emerged that could allow some investors to take advantage of the need for systems to handle storm water runoff. Financial arrangements where water users pay for the services provided by storm water management structures could be the model for dealing with this issue.

Systems for managing, treating and distributing water are subject to change. Soon, they could be forced to adapt to irregular weather patterns. Modifying and upgrading existing structures, providing safe water for human use, and solving the problem of storm water runoff in urban areas could be a few big trends in water investing to look out for going forward.

Sprott Global take: I talked to Jason Stevens, an Investment Executive at Sprott Global Resource Investments Ltd.

“The highly-politicized water markets in the US are broken and extremely inefficient,” he said. “The added stresses of weather events such as droughts exacerbate water supply issues to our most critical industries. Making water investments now is exploiting what I believe to be an inevitable transition to less-subsidized, higher-priced water.”

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