Regulation, Innovation Driving Water Industry Growth

Wall Street is bullish on the water industry and particularly in water technologies, as evidenced by a number of high profile transactions that have occurred in our industry over the past year, most notably Siemens’ acquisition of USFilter, General Electric’s acquisition of Ionics; Danaher’s acquisition of Trojan Technologies, ITT’s acquisition of Wedeco, and Pentair’s acquisition of WICOR.

Dec 1st, 2005

Wall Street is bullish on the water industry and particularly in water technologies, as evidenced by a number of high profile transactions that have occurred in our industry over the past year, most notably Siemens’ acquisition of USFilter, General Electric’s acquisition of Ionics; Danaher’s acquisition of Trojan Technologies, ITT’s acquisition of Wedeco, and Pentair’s acquisition of WICOR.

There has also been increased private equity capital entering the water marketplace, which was responsible for Nalco’s acquisition from Suez. Even the chairman of WWEMA, Bob Williams of Ashbrook Simon-Hartley, partnered with two U.S. investors - Blue Sage Capital and Atreides Capital - to acquire his company from RWE Thames Water this past year.

Why the attraction? First and foremost, ours is a relatively stable and dependable business.

The global market for water is estimated at around $300 billion. The U.S. market stands at $100 billion, of which one-fifth represents water equipment and chemical sales. While there is uncertainty about the exact growth rate, it is estimated to be in the 4-6% range domestically and 8-10% internationally, with certain sectors and product niches growing faster than others.

Desalinaton is an example of one sector niche that is growing faster than average. Desalination is a $5 billion global market, growing 10% - 15% annually. Nothing has contributed to ocean desal’s increasing viability and growth as much as the continuing improvements in membrane technology. Additionally, manufacturers continue to improve the efficiency of high-pressure pumping and energy recovery systems and the effectiveness of RO pretreatment. These technological innovations have substantially decreased the capital, operations, and maintenance costs for ocean desal.

Improvements in membrane technology also are helping drive the water reuse movement, which is making inroads across the nation. Currently about 1.7 billion gallons are reused in the U.S. The goal is to reach 12 billion per day by 2015.

Industry Drivers

Regulations will continue to affect treatment technologies and spur innovation. The forthcoming disinfection by-products rule will force many water utilities to change their disinfection treatment techniques by investing in membrane, UV and ozone technologies. EPA estimates that about 1,000 UV installations could be added after the rule is enacted later this year.

Water utilities will also face a lower maximum contaminant level for arsenic, beginning in January 2006, and will be investing in ion exchange and membranes as well.

The soon-to-be-released Ground Water Rule will require many small ground water systems to add disinfection to their systems, with UV being a likely solution.

As regulations drive technology, so does technology drive regulations. Improvements in analytical technology now allow the detection of contaminants in water supplies that were never anticipated. Low part-per-trillion detection of endocrine-disrupting compounds and pharmaceutical and personal care products are receiving increasing attention.

New contaminants such as methyl tertiary butyl ether (MTBE) and perchlorate are being detected and regulated at the state level, again driving demand for advanced treatment technologies.

On the wastewater side, the Total Maximum Daily Load (TMDL) program is spurring demand for nutrient removal technologies, such as sequencing batch reactors. Addressing the nation’s combined sewer overflows is estimated to cost $50 billion.

There will also be growth in the treatment of residuals. New technologies are coming on the market that will aid in volume reduction and also meet the Class “A” requirements promulgated by the U.S. EPA, such as thermal digestion, dewatering boxes, solar sludge drying beds, and indirect rotating chamber dryers.

Water Security

The potential for terrorist contamination using illicit compounds represents a threat scenario for which water utilities are not adequately prepared. Because of the lethal nature of chemical and biological agents, rapid detection is imperative. Early detection of these contaminants via online or real-time monitoring has been identified as a feasible way to provide early warning to protect public health. On-line, fixed monitoring technology is poised to expand greatly, as are portable sensors and field test kits.

Automation

Technology will continue to transform the utility workplace from traditionally labor-intensive (and high cost) work activities to automated systems. Increasingly powerful supervisory control and data acquisition, radio frequency identification tag technology, automated meter reading systems, geographical information systems, and distribution system modeling tools will find greater deployment at water utilities.

Pipeline Rehabilitation

Insitu pipe treatment technology will grow in importance as cities confront their decaying underground infrastructure and the need to rehabilitate their pipelines with the least amount of disruption to area residents and businesses. AWWA estimates that it will cost up to $300 billion in the next 20-30 years just to replace pipes in the ground.

Pumping Systems

Energy management is a growing problem in both developed and developing nations. U.S. wastewater pumps, alone, use 3% of our nation’s electricity. Energy-efficient pumps and aeration systems will continue to gain in popularity.

More recently, with the tragedies associated with the Indian Ocean Tsunami and the hurricanes that have wrecked havoc on our nation’s gulf coast, there is an apparent need for mobile, diesel-powered water supply and wastewater treatment units that are simple to operate and maintain. These units also have enormous potential in developing nations.

Chemicals

Even though the issue of disinfection by-products has suppressed the use of certain chemicals, the worldwide market for water and wastewater treatment chemicals is growing, fueled in large part by the expanding industrial base in developing nations, particularly China and other Asian countries. According to McIlvaine Co., the water treatment chemical market will reach $18 billion this year. Interestingly, the advance of desalination and use of membrane systems is actually stimulating chemical sales to clean these systems, with double-digit growth rates expected. WW

About the author:

Dawn Kristof is president of the Water and Wastewater Equipment Manufacturers Association. WWEMA has operated for 97 years as a Washington, D.C.-based, non-profit trade organization representing the interests of companies that serve the water and wastewater industry.

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