The edge of a transformative journey
Are we heading towards the water utility of the future or are we just facing the future of the water utility? Gaëtane Suzenet, managing partner of International Impact Partners, explores what she believes is a valid question.
The digital revolution and the emergence of innovative technologies and services mean the water industry is, in theory, standing on the edge of a transformative journey that will lead it into the world of the “utilities of the future”.
At the same time, the role of water utilities has first been to protect the environment and public health, as well as providing water and wastewater services – and quite rightly so. Every day, a key challenge for utilities is to provide safe drinking water and ensure wastewater is treated.
Over the years, this fundamental requirement has been tied to infrastructure, and regulatory, environmental, economic and societal challenges that are ever more impacting the way water resources are managed, the way the service is operated as well as the business and revenue models framework.
The regulatory requirements arising from Europe, on priority substances and pharmaceuticals, have however extended beyond what we used to know. In addition to these, the water industry has now to do its share to increase energy efficiency and become carbon neutral or even energy positive. Regulations and requirements have gone way beyond just complying with water-related needs. It’s no longer just about keeping water safe.
From an economic point of view, the revenue model is increasingly impacted by the industry going off grid – the trend in Europe – and by the fact that promoting water efficiency will mean less cubic metres sold, causing impacts on the revenues generated.
These challenges have also created opportunities: regulatory requirements have given rise to the development of innovative technologies and services, creating new opportunities for the emergence of start-ups; while from a wider perspective there is an inevitable trend towards the absolute need to re-think the water industry’s business model.
Certainly, the water industry needs to move into the 4.0 era to face the challenges, not least the economic ones, and evolve and adapt to a world which itself is changing significantly.
Impact of direct licensing
For example, the industry is going off the network. This is an evolution, which may have consequences on infrastructure management and the water industry’s economic model. Could we imagine that in the future major businesses may evolve to become water and wastewater management companies, developing the competences in-house?
This is actually already happening in England. The regulator OFWAT has awarded to a major industrial user direct licensing to become a water retailer. Also, insurers and investors put pressure on the industry to address climate change to reduce the risks on the business. Therefore, for the industry this is not just about using water for their business upstream and treating wastewater downstream, this is about mitigating and adapting to the effects of climate change – and this will inevitably impact on the utility’s services to the industry.
Another example is personalised hydration – the way people consume water is changing and this is reflected in the investment trends we are seeing. In 2019, DANONE invested €11 million in a German start-up called MITTE, which commercialises a smart water system that “cleans and mineralises” tap water. Similarly, a US start-up BEVI raised $35.5m in their last round. They do smart water dispensers, which provide customised drinks with flavours, at the point of use.
However, I do not think these changes will mean revolution in the water industry: more the natural evolution of a sector, which needs to adapt to a very different context. So what might the “utility of the future” look like?
The future will be about resilience, efficiency and innovation as a “must have”. Innovation is instrumental in surfing along through the changes. It should indeed be an integral part of the business and not just a “nice to have”.
Five traits of the utility of the future
I think the utility of the future will…
…be a digital utility, particularly for asset management
Sophisticated platforms are being developed for specific issues. Solutions are being trialled. Although we talk a lot about digital water, we are still at an early stage in the water industry. I think digital water will be particularly important for asset management: asset management is the KEY challenge for the water industry.
…become a water and energy utility
Why not imagine that water utilities sell energy surplus or even renewable energy to the communities? In particular if we look at the trends in energy, which rather go towards decentralised systems, we could imagine that the water utility sells energy too, through these decentralised systems. This could become more significant in the future and the emergence of blockchain would allow peer-to-peer trading for energy.
…become a water resource recovery facility
Wastewater could become a greater source of new resources to be recovered. Technologies and services exist to do this and ensure a sustainable financial stream for the water utility. Excellent European innovation projects are also currently being carried out in this respect.
…put the consumers at the heart of its operations
This is something that the utilities claim to have done but what has been missing is the creation of a different, and more personalised relationship with customers. Digital tools will increasingly enable this, as these tools will allow for a better understanding of customers’ needs. In relation to personalised hydration, could we also imagine that the utility gets into more personalised services for tap water too?
…use FinTech to redefine payment for water and wastewater services
Strangely today, FinTech in the water industry is discussed in the context of improving access to water and wastewater in developing countries, notably in the context of the emergence of pay as you go systems. In the future, could we think about innovative financial solutions to pay for water that would reduce, for instance, non-revenue water? The challenge would be how to apply these to the different contexts you experience. Nonetheless, this aspect should be further explored.
Making water innovations attractive
Looking ahead, innovative technologies and services will inevitably transform the business model. The new generations of start-ups have understood that the innovations that are placed on the market need to embrace a shorter return on investment time and should be affordable. They should also be ensuring that the water industry would save on capital and operational expenditure.
There are early stage start-ups in Europe which will bring in disruptive technologies. There are also some innovations at the R&D level, including through the European R&D and innovations projects, which will be true disruptive technologies and concepts. However, one area we need to improve in Europe is how to spin off companies from research and innovation projects.
I should also mention a last topic, which is investment. The whole value chain to sustain the utility of the future must include investment in innovations that will then be used by utilities. Investment has been low because the water industry, among other end users, has not seen water innovations as attractive. This is changing because the start-ups have understood that the business model is as equally important as the technology or service, to attract investment and attract the market’s interest. There are also new ways of financing water innovations, which go beyond the traditional venture capital model. But this is for another article.
International Impact Partners