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What Can the Water Industry Learn from the Success of the Renewable Power Industry?

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What Can the Water Industry Learn from the Success of the Renewable Power Industry?

What Can the Water Industry Learn from the Success of the Renewable Power Industry?

There is no doubt that the electric power and water sectors are intrinsically linked. From thermal power generation (e.g., natural gas, coal) to the emergence of a hydrogen economy, one sector cannot operate without the other. Yet, while they are so closely connected operationally, a clear divide exists between the amount of attention given to water and power and more specifically, between water and renewable power.

Many in the water industry are “over the moon” about new federal funds carved out in the Infrastructure and Investment Jobs Act (IIJA), and with good reason. The US$63 billion for Water Infrastructure and Western Water Infrastructure rivals the wave of federal money poured into water and wastewater utilities following the passage of the Clean and Safe Drinking Water Acts in the early 1970s.

In contrast, the clean energy sector received US$500 billion in funding in 2022, showcasing that renewables have experienced a “heyday” in a way that water has not. It’s worth, stepping back to look at the market developments that helped drive the success of the renewable power sector and understand how those could be applied to the water industry:

Tax incentives matter: The renewable energy sector has benefited significantly from long-term federal tax credits, capitalizing on the U.S. Production Tax Credit for wind and the Investment Tax Credit (ITC) for solar. In aggregate, these incentives have driven economies of scale through investment in manufacturing capacity, technology innovation, and jobs. In fact, the cost of solar and wind power is now competitive with more traditional sources of power, such as coal and natural gas.

This is not just a coincidence. The U.S. government has actively incentivized the solar photovoltaic (PV) industry since 2006, providing a 30% federal investment credit through the ITC. Most notably, the solar industry now employs over 260,000 in the U.S., according to the U.S. Department of Energy. These tax credits are wide sweeping, underpinning the growth of new business models (i.e., decentralized, onsite generation, solar service provider businesses). From large-scale solar farm developers in the Arizona desert to individual homeowners seeking to control their carbon footprints and electricity bills, they all benefit from federal tax credits.

Tax incentives have already been proposed for water but to no avail, thus far. The Water Reuse Association, for example, has promoted an Investment Tax Credit for Industrial Reuse calling for a dollar-for-dollar reduction in federal income taxes for investments in infrastructure, technology, or other projects or activities to create an incentive for companies to invest private capital in infrastructure projects that provide a benefit to the public and taxpayers. A water investment tax credit could play a pivotal role in attracting investments that serve the greater good of local communities and facilitate the development of a more resilient and sustainable water sector.

Cities and state policymakers are crucial to get the public on board. With tax incentives serving as the carrot, state Renewable Portfolio Standards (RPS) have served as a stick to drive utility adoption of renewable power. As of November 2022, 36 states and the District of Columbia had established a renewable energy goal (or RPS) to spur action at the local level. By design, a RPS does not pick the technology but instead encourages local selection to gain maximum benefit (e.g., wind resources, solar irradiation). The top-down RPS targets ensure that electric utilities—and by extension, the states themselves—make progress towards the adoption of clean energy.

Without question, the water sector is unique. It is more fragmented and public health is an ever-present risk. But this shouldn’t be an excuse for policymakers to avoid considering the longer-term economic and social benefits of top-down water policies. For water, these policies can be manifested in various forms, such as leakage management goals, water reuse targets, or biogas capture from anaerobic digesters. Some form of “water portfolio” targets would drive efficiency for both public and private stakeholders. These targets would also, most importantly, spur investments in water and wastewater infrastructure.

Water utilities—not all that different from their electric utility cousins—are volume-based businesses that stand to benefit from embracing more efficient water management. Most importantly, cities and ratepayers need to be more closely aligned with stakeholders. San Francisco stands out among its peers by requiring new commercial buildings larger than 100,000 square feet to include wastewater reuse. Policies such as this have sparked a new wave of companies like Epic Cleantec, Natural Systems Utilities, and Cambrian Innovation that are focusing on onsite commercial and industrial water management.

Corporations must play a key role in the rollout of decentralized reuse and wastewater treatment applications.

Corporates play a key role: Part of the success of the solar industry’s growth is due to a decentralized model (for both commercial and residential uses) offering an alternative to large-scale, centralized plants. Decentralized solar photovoltaic (PV) allowed renewable energy sources to be deployed locally and expanded access to clean energy services to remote communities.In 2022, the U.S. added 6.4 gigawatts (GW) of small-scale solar capacity (i.e., decentralized, rooftop solar), the most ever in a single year.

It’s worth noting that the arc of decentralized solar did not begin in the home. Rather, its path was paved by large-scale solar farms, followed by commercial buildings and warehouse companies. Across their widely accessible real-estate portfolios (e.g., rooftops), companies like ProLogis, Walmart, IKEA, and Costco benefitted from the aforementioned tax incentives to reduce their own electricity requirements and carbon footprints.

The water industry is no different. Corporations must play a key role in the rollout of decentralized reuse and wastewater treatment applications. Greater focus on corporate water management is gaining momentum, demonstrated by the 100+ multinational companies analyzed by Bluefield. Increasingly, these global companies are identifying water as a legitimate risk to operations and investing in more advanced, onsite water management that would only accelerate with incentives.

Look no further than Arizona where Nestle played a key role in the passage of Senate Bill 1660 which allows industrial facilities to treat wastewater onsite and receive credits for underground water storage (i.e., recharging the local aquifer). According to the Arizona Department of Water Resources, industrial sector demand in the state more than doubled between 1985 and 2017. From 2018 to 2022, the number of industrial facilities in Arizona increased by 28.4%, (compared to the national growth of 16.1%). This rapid growth is headlined by a 51.0% increase in water-intensive data-processing facilities which is placing added strain water supplies without reuse and more advanced water management practices. With more than US$61.2 billion of large-scale, industrial capital expenditures currently planned in Arizona (including US$675 million by Nestlé) competition for Arizona’s water resources continues to rise.

The reach and influence of corporations in water is going beyond the manufacturing facility. Water management within the home is coming into sharper focus with almost two-thirds of people, globally, living in areas of water stress by 2025, according to the United Nations. After comparing the volumes of all 18 priority basins, Procter & Gamble found that the Los Angeles and Mexico City basins account for over half of the water consumed from the use of P&G products, thereby compelling the firm to place greater emphasis on household water management. Similarly, home furnishing retailer IKEA has recently rounded out its set of home sensors with BADRING water leakage sensor, which alerts homeowners of leakage.

There is no energy transition without water.

While the renewable power sector has experienced a remarkable, two-decade surge in growth, propelled by robust tax incentives and innovative business models, the water sector is poised to follow suit. For starters, there is no energy transition without water. Furthermore, the combination of IIJA, advanced water technologies, new business models, and inclusion of water within “Climate Tech” will attract more financial resources and investors. By targeting corporate clients and emphasizing the bottom-line benefits, the water sector can begin to emulate the success of renewables going forward.

Originally Published by Bluefield Research

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