Water utility innovation – why the USA needs a new utility model

Water demand has grown at twice the rate of population growth, the United Nations anticipates that 2/3 of the global population will be experiencing water stress by 2025, and even more will be affected by flooding. Alleviating this stress to both rich and poor countries requires new paradigms of investment, where both public and private dollars contribute to the solution. Although the eight largest economies of the world have a combined water market of over 25 billion dollars trends in the investment and patent applications indicate water innovation has been flat for several decades. As the world desperately needs new innovation to handle drought, floods and pollution, nothing less than the world stability is at stake.

In the US, the public water systems have made incredible accomplishments, including the almost complete eradication of water borne disease, while serving over 350 million people 24/7. Despite this success, the need for water innovation has not been greater since the 1890’s when cities were expanding and water resources were being polluted. Water supply agencies are now facing a convergence of technical, political and financial challenges exceeding any they have seen.

There are three converging drivers that will keep water on the forefront of government, industry and almost all 350 million people in the USA:

• An interest in modernizing our infrastructure leading to surges in capital expenditures such as the American Reinvestment Act, and thousands of local projects.

• A spotlight on increasing water challenges here in the US as a result of the drought of the West, the floods of the Mississippi River and other urban flooding events.

• The drum of climate change, which continues to grow louder and is becoming synonymous with drought, floods and major storm events.

The issues of water and climate change are converging, and with the resolutions from COP 21 in France climate and water will continue to be in the forefront of the news. Each of these is driving people to ask questions and seek solutions and this will continue until we change our paradigm.

Furthermore, our innovators face five significant hurdles when dealing with US water utilities.

1. The industry of managing water is quite frankly risk averse. This industry attracts and trains very logical and conservative engineering minds, as it should. Consider your mindset if several million people’s health was dependent upon the operation of facilities under your responsibility.
2. The industry is exceptionally fragmented. According to USEPA, there are over ~52,000 community public water systems and 15,000 wastewater systems in the USA. It makes for a daunting task to test, scale and commercialize new technology when your customers are so fragmented and conservative.
3. The long sales cycle, which is driven by the above conservative nature, and the restrictive purchase rules associated with public sector work. These policies often do not differentiate between experimental discretion and the purchase of a commodity. This long sales cycle, combined with lack of exit options, and investment platforms is unattractive to private equity, further reducing innovation.
4. The next barrier is characterized by a desire to “see how it works in my back yard”, but the back yards are not available to companies without a contract with the utility…and contracts are often not won by firms without track records and multi-million dollar insurance coverage.
5. Finally, water infrastructure lasts for decades, this long asset life, with different segments failing at different time points. This leads to incremental investment, as opposed to disruptive system changes. Fortunately, after decades of stagnation in water related patent filings, innovation models are beginning to emerge and innovators are eager to bring creative ideas and technologies to market.

In Massachusetts, Cincinnati, Milwaukee, and Philadelphia, water innovation centers/hubs are developing platforms to lower innovation and commercialization hurdles. Each has their own objective, but they all have the notion of collaboration between University, industry and utility professionals. Chicago is discussing something similar, but what the industry needs is something different. To make disruptive change, utilities should open themselves to:

• Brick and mortar testing facilities built into existing utility plants
• A focus on new potentially disruptive technology, not tweaks to existing systems
• Ability for public water utilities to invest and receive returns

This arrangement would be a shared learning experience, that not only allows testing at scale (a real difficulty for benchtop experiments), but also in an environment where the up and down stream processes are also innovating. This ecosystem of innovation is typically only found at graduate level bench top experimentation. What is needed is innovation on real treatment water flows where utility employees see the innovation process on their own systems. Placing current operators and engineers with the entrepreneur may inspire change and lead to many arenas of change. And finally, with regulatory changes that allow utilities to capture the value from innovation-commercialization, the utility would be able to invest at different stages of technology development. This brings a return to the utility and rewards some of the risk taking, providing relationships to initiate new technology sooner.

This suggestion clearly does not address all the innovation needs of the water sector, and a lot easier to state than to achieve. But it is a critical step towards testing, and adopting innovation while instilling a cultural shift towards experimentation. Larger reforms in pricing, regulation, and purchasing are needed to enable a complete transformation. But as the world desperately needs new innovation, and the US Water Utilities and business ingenuity are to contribute, we must envision a different innovation model. Turning our utilities into collaborators, testing grounds, and a resource of expertise will only happen when they are the epicenter, not the end-use. If we hope to make a difference, change the world, and preserve our water resources for future economic, social and environmental goals, we need to change our model. With a vision, we can start to move the policy pieces into place.