The flow of venture investments in water tech companies is slowly increasing. The CEO of Pasteurization Technology Group (PTG) just closed a $1M seed round for a green double play. The investment was announced during the 3rd Water Tech Summit in Santa Clara, CA. Greg Ryan, PTG's CEO, was meeting with other entrepreneurs along with financial investors, industry professionals, and consultant engineers. Water is one of the cleantech sectors expected to grow in 2012.
An increasing number of water tech companies are positioning themselves at the intersection of water and other sectors to get more bang for the same buck: avoid costs to deal with contaminated water liabilities and create a new revenue stream. In the case of PTG, they generate renewable energy from biogas as they heat water to clean it. They use a capital-light model that VC investors like. However, they found their lead financial backer in Canada where the summit was held last year. The US is not necessarily the smartest country to deal with water and Silicon Valley is not the water innovation hub in America.
Sheeraz Haji started the conference by announcing a new wave of water innovation and investments. He dubbed it "water 2.0". While the smart water sector is slowly organizing itself to attract more investors (see map below - courtesy of the Cleantech Group), water is related to a series of alarming problems around the world: droughts and floodings, population growth, depletion of fresh water resources for agriculture, industrial processes and consumer use.
Water usage changes across the globe but typically breaks down to 70% for land use, 20% in factories amd 10% for drinking and recreational activities. Developped countries like the US typically use 1.5% of their GDP for infrastructure, including water, while fast growing countries like India and China are spending 7-9% of their GDP. But the most staggering difference is in daily water usage: the US tops the chart with 1,200 liters per day capita while the average among countries is about 300 liters and countries like Kenya less than 50 liters.
One of the area for innovation in the US is to recycle water from hydraulic fracturing that needs large amounts of fresh water. Drilling of Shale Gas is controversial but the energy stakes are too high to ignore. There are 19,000 drills happening in the US but States have different regulations because it is not clear whether fracking will contaminate water reserves, even if done properly. Recycling water used in fracking is particularly difficult because of the high salt content, various fracking fluid contents, and possible readioactive particles. One of the water companies leveraging the opportunity to expand from Food & Beverages industry is Hydration Technology Innovation.
Water scarcity, or the end of abundance, is becoming a major problem around the world. Drought conditions spur new desalination plants for example. Many innovations have been developped in Israel and Australia because those countries have experienced serious droughts and limited access to fresh water. While some Israeli companies like Emefcy have access to early-stage funding thanks to a vibrant local private VC market, Australian companies rely mostly on Government support and focus first on their home market. When they reach critical mass with $100M revenues or more, they can expand in other countries. The lack of VC financing has limited the export of water technologies outside Australia.
"Australia's focus is not the US, it is China" stated Hu Flemming, Global Managing Director of Hatch Water. Like the rest of Asia, China is experiencing a massive migration from rural areas to cities. "Twelve million Chinese move to cities every year. That is a new Beijing every year!" explained Fergal Whyte, Global Water Business Leader at Ove Arup & Partners located in Hong Kong. This creates significant opportunities, especially in network infrastructure. KPMG estimates that China will invest $60Bn in that area part of the twelth 5-year plan. Treatment plants are mostly in place and must be connected to water needs.
Australian regulations push the enveloppe of sustainable development with dessalination plants powered with renewable energies and water discharges that must be processed. Australia pays twice as much for a treatment plant than in other countries because more pipelines are needed and the population is more environment conscious. The new desalination plant in Adelaide (see reendering - courtesy of Hatch), now the biggest in the southern hemisphere with 150 mega liters per gay, is carbon neutral. It is partially powered with renewable energy. The future desalination plant near Melbourne will be powered 100% by renewable energies.
It represents a different approach water needs, integrating water and energy sustainable project. This is in start contrast with the desalination plant in Carlsbad for which Southern Californians are willing to pay in order to basically continue to water their lawns. The new Dean of School of Fresh Water Schiences at the University of Wisconsin in Milwaukee, David Garman originally from Australia, discussed how to make the economics work to reuse water. He pondered wheter economics is enough though. Political will is needed as well as education to the wider public. Wisconsin has been the hub of water innovation in the US because of a long history in brewing and paper-mill industries.
One of the debates at the Water Tech Summit is whether distributed water systems or the traditional centralized model with pipes will meet the growing needs of water around the world. While micro-breweries do well in the US, micro-water treatments plants powered by renewable energy could take off in emerging countries, even around golf courses in America.
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