I've been thinking a bit about water lately. So much media attention and investor and entrepreneurial interest are expended on looming energy shortages, but water shortages are perhaps even more acute. A recent article in Fortune gave a good brief overview of water from a global standpoint. If you're looking for water statistics and updates, the website of XPV Capital (a water tech specialist) has some good info.
There are clear looming issues with water use in the U.S. And there are lots of uncoordinated actions going on in various parts of the country, and some hand-waving in general, but I haven't seen anyone really start to play out what's going to happen.
But it's clear to me that water is going to get more expensive over time. It likely won't be because of any proactive water price increases by the governing bodies. Indeed, local governing bodies appear to be just as allergic as ever to doing any kind of forward strategic planning around water. And historically, in the U.S. people view water (for drinking, agriculture, or industrial purposes) as some kind of god-given right that shouldn't really need to be paid for. So I think water pricing will only be affected by local and regional shortages and crises, not by any overarching strategic approach.
But such local and regional shortages and crises are happening. In parts of the American southeast and southwest water shortages are already acute. Here where I am this week in Texas, The Aransas Project has sued the governing state bodies for failing to manage water properly and thus endangering the whooping crane. Take a step back and think about this one -- this is a group of Texans from all political persuasions, filing a lawsuit under the Endangered Species Act. Water issues break across political lines, in other words, but they're also very local. It's a really good illustration of what's likely to start happening lots of other places around the country where water withdrawals are starting to exceed water supplies. (And an effort I've supported, btw)
And what will happen in the Southwest when the upstream states on the Colorado River start demanding access to their existing water rights? In fact, California, Arizona, Nevada, etc. are all only able to access the water they need, thanks to upstream states like Wyoming and Colorado not fully using their own rights. But that can't happen for long. And even if it could, the water usage is already at unsustainable levels as it is. We've built out some pretty major population centers in the Southwest that are dependent upon unsustainable levels of water demand.
So I don't expect to see any forward-looking strategic policy shift at the national level that would result in any significant shift in the pricing of water. But I do expect local water shortages (and the resulting legal, economic, etc. challenges) to rise up over the next couple of decades, and thus de facto raise the cost of water where they occur.
What does this all mean?
1. Water will be a sub-regional issue. Which means that future water price rises will happen in isolated fashion, on a watershed basis in many cases, but certainly by region. It will be a lot cheaper to access water in some places (like New England, for instance) than in other places (like the Southwest, for instance).
2. As such price disparities arise, it will start to affect the location of manufacturing operations. Water-intensive manufacturers will have to trade off locating close to cheap water and energy supplies (mostly: far away from cities) with transportation costs to deliver to demand (generally: cities). Easily transportable end products that are water-intensive, like pharmaceuticals, will relocate where water remains cheap.
3. As water gets to be more of a strategic issue, corporations will lead the way in terms of adoption of new water treatment technology and water "microgrids" with significant re-use of water. It'll be easier for corporations to adopt to the "new normal" in such situations than the local politically-driven processes affecting municipal drinking water, etc. So selling new water tech to corporations will continue to be a key entry point for innovations.
4. Water efficiency will be increasingly important for agricultural use. Water efficiency will be increasingly important for energy generation. Both are very large consumers of water, but startups that can address either or both issues in a scalable and low-cost way will see entry points.
5. During the NEXT economic downturn, water infrastructure may be given the same government subsidies as energy infrastructure saw during this economic downturn. Ditch-digging and pipe repair are good jobs creators, they just didn't get the necessary attention this time, but when people in swing states start being told they can't water their lawns because of infrastructure issues...
6. Local water districts will be pressured to encourage more intelligence at the end of the pipe -- the water analogy of demand response in energy. So far the local government response has been necessarily binary: When there's a shortage, no one gets to water their lawn, etc. But faced with more such instances, I expect we'll see more startups start focusing on "smart use" of water, and then they'll start pressuring local cities to grant exceptions for consumers who implement such solutions.
These are just some shallow thoughts around water, but it's interesting to think about how water shortages will specifically play out. And that will affect entrepreneurs and investors in the water space as well.