Droughts: when desserts make deserts, water tech is needed

Spanish strawberries are a spring treat for northern Europeans. They are also a flashpoint in a broader scramble for access to dwindling water resources. German campaigners are calling for a boycott of “drought strawberries”. The illegal extraction of water for this crop has drained a once-thriving Andalucían wetland.

Water scarcity will be a defining characteristic of the next few decades, Lex believes. This will create new opportunities and new risks for investors.

Demand for fresh water is rising in tandem with population and prosperity. Climate change is cutting rainfall. While water stress in Europe as a whole has declined, Spain has been particularly hard hit: this April was the hottest and driest on record, extending a persistent drought. 

By 2030, water demand will be 40 per cent higher than supply, according to a study by consultancy McKinsey. Bridging this gap will require investment into three main water technologies.

Water conservation is the lowest on the cost curve. It is particularly important in agriculture, which accounts for 70 per cent of water consumed globally. Some companies, like Israel’s Netafim, focus on drip irrigation. Others are developing drought-tolerant crops. State subsidies may be required to fund adaptation by poorer farmers.

Next up are technologies to treat and re-use water. Water scarcity poses an existential threat to businesses such as mines that are heavy users. Unless they can create closed-loop water systems, they risk losing their licenses to operate. This creates opportunities for “water-tech” entrepreneurs. The first water-tech unicorn, Gradiant, has devised new ways of purifying industrial waste water. 

Furthest up the water-tech cost curve is desalination. This uses similar technologies to purification plants but sifts out smaller molecules. Over the last 15 years, the cost of making fresh water from seawater has declined from $1.50 to $0.50 per cubic meter. It will fall further as renewables become even cheaper. This will make desalination a genuine option for water-stressed coastal areas.

Saudi Arabia’s ACWA Power has built the world’s largest plant in Abu Dhabi. Jefferies, a broker, says a number of companies offer exposure to the sector including Sweden’s Azelio AB and Japan’s Hitachi Zosen Corporation.

Big data projects and machine learning can help optimise all three technology types. US-based Xylem, for instance, sells sensor technologies, smart metering and data analytics for underground infrastructure.

In the past, water-tech adoption has proceeded at a glacial pace. The recent round of droughts may — finally — encourage investment to flow.