Governmental regulations, municipal privatization and industry consolidation are driving growth in the U.S. water treatment market, according to two recent reports.
Regulations such as the Safe Drinking Water Act and the Interim Enhanced Surface Water Treatment Rule are placing pressure on municipal water treatment facilities to upgrade or install new equipment. At the same time, the movement toward privatization is prompting many municipalities to take steps to optimize their operations, cut costs and improve efficiencies.
According to a new report from Frost & Sullivan, the U.S. Water Treatment Equipment Market, which brought in more than $900 million in revenue in 1999, is expected to experience increasing annual revenue growth rates through 2006. The field of contract operation in the municipal water and wastewater market will continue dramatic growth and could penetrate 75 percent to 80 percent of the market in the next few years, according to the annual Water Issue of the Environmental Benchmarker & Strategist.
Municipal treatment plants, which will see the majority of the new industry growth, are turning to private businesses for the needed upgrades, according to Frost & Sullivan. An increasing number of plants are using Design-Build-Operate (DBO) contracts, where a private water treatment company takes up the initial financial costs related to retrofit or new construction work. This company in turn sells the treated water at a pre-set price to the municipality for several years.
?Growing preference for DBO contracts among industrial end users and municipalities presents lucrative revenue opportunities to companies that deploy cost-effective technologies,? said Frost & Sullivan analyst Matthias Kubr.
The DBO contract has several advantages, Kubr said. The water treatment facilities will be more likely to install advanced equipment, which will have a high initial cost that will be outweighed by long term savings. End users will deal exclusively with the contracted company and avoid the hassles of using multiple companies.
However, this trend may force manufacturers to offer a complete product line and ?one-stop shopping? for their customers. Smaller companies that are unable to provide this service could see their sales decline, unless they can find opportunities in niche markets.
According to the report, the key market ?restraints? are a lack of funding in the industry, which discourages expansion and new construction; the market is mature therefore potential is limited; and the long life span of equipment reduces replacement work. Key challenges cited by the report included industry consolidation and its threat to the survival of smaller companies; skepticism for alternative and advanced technologies; and demand for equipment that is efficient at small flow rates.
The increasing shift to privatization of municipal operations has been cited as one reason international companies are interested in buying U.S.-based companies in the water market, according to Steve Maxwell, Managing Editor of the Environmental Benchmarker & Strategist. Consolidation of the equipment industry will continue, with increasingly fewer, and larger, companies dominating the market.
Maxwell noted the buyout of USFilter by Vivendi, Nalco Chemical and Calgon Corp. by Suez Lyonnaise and Hach Corp. by Danaher.
As the Internet revolution continues, more rapid and better information also will change the way the water industry does business, he said. Consumers will have better access to water quality information, and that, in turn will drive demand for better monitoring and treatment technologies.
Infrastructure maintenance also will be a major driver for the foreseeable future, with huge capital expenditures projected for both water and wastewater. Maxwell noted the American Water Works Association estimate of $325 billion for drinking water infrastructure needs, and the Water Environment Federation?s estimate of $330 billion for wastewater needs over the next 20 years.
Frost & Sullivan, which is headquartered in Mountain View, Calif., is a global leader in international marketing consulting and training. Frost & Sullivan monitors the U.S. water treatment equipment industry for market trends, market measurements and strategies.
For more information on the $3,450 water industry report, call Rolf Gatlin at (210) 348-1017.
The Environmental Benchmarker and Stretegist is a quarterly publication of TechKnowledgey Strategic Group, a Boulder, Colo., based management consultancy serving the environmental services and natural resources industries. For more information, visit its website at www.tech-strategy.com/teb.htm.
