By: Gordon Davidson, Senior Advisor for Technology, Partnerships & Redevelopment, THG

September 2014

In 1973 the Organization of the Petroleum Exporting Countries (OPEC) stopped selling oil to the United States.  This energy embargo led to the common sight of gas station signs indicating that there was no gas to be sold today.  Americans, and western powers generally, had to develop new strategies regarding energy to ensure that a global geo-political crisis of this kind did not occur again.  Thus was ushered in the era of energy efficiency and a broadening of the societal mind-set of sustainability.

Although the parallels are not perfect, this energy crisis and the subsequent transformation of the way in which energy was produced, transmitted, measured, and consumed could be used as a foreshadowing of how we view water both globally and locally.  The great line from Shakespeare’s The Tempest, “What is past is prologue,” may have some applicability here.

Energy was cheap and its provision was taken for granted.  Electricity was generated and distributed through a heavily regulated system that had hardly changed in decades.  Resistance to change was strong, but change, nonetheless, was occurring, because of necessity, including concerns over air pollution, global warming, and dependency.

When it came to this world of energy, Lord Kelvin’s credo, “to measure is to know,” could be modified to mean, “to measure is to finance.”  Beginning with something as simple as a smart meter, worldwide investments in energy efficiency and renewable technologies grew dramatically, demand response became mainstream, cities became smarter, and domestically fresh eyes were put on the staid universe of electric utilities and the sources of energy.   Deregulation picked up steam, creative financial models were developed, and fracking transformed the energy landscape.  Innovation happened.

The water embargo is not a singular event like it was for energy, but a joint-venture between Mother Nature and human behavior.   Systemic shifts in weather patterns are leaving huge swaths of land parched and cracked, illogical water usage is causing shortages, and pollution is rendering enormous volumes of water unusable.  Billions of people are at risk as a result. Just as it was for energy, we are now beginning to understand the true value of water and that this “intrinsic” pricing based on better measurement and clearer social goals will drive innovation and investment, especially where water, energy, and agriculture intersect.

Venture capitalists and strategic investors will play a key role in the development and commercialization of technologies that foster the “circular economy” – that is the use, reuse, recovery, and restoration of water.  Information technology will be the platform that links these factors together and allows users and managers the ability to measure and price water at every step along this sustainable pathway.  More precision will change behavior and foster more investment.

The largest investment will be in infrastructure.  For the U.S. alone, the investment needed to upgrade water utilities is estimated to exceed $1 trillion.  To get an idea of how water utilities are going to address this challenge, one only needs to read “The Value of Water – A Compendium of Essays by Smart CEO’s” by Donna Vincent Roa and the Value of Water Coalition.  This remarkable book is a window into sustainable and innovative thinking that throws off the dust collected by years of a status quo mindset.   In other words, this isn’t your father’s water utility.

Water utility executives are drawing lessons from Singapore, Israel, and Western Australia, listening to corporate executives from Coca-Cola and the pharmaceutical industry, and exploring financing alternatives with Wall Street.  We will see more public-private partnerships such as the KKR/United Water deal with the Bayonne Municipal Utilities Authority in New Jersey, more use of “green” bonds such as the issuance of green century bonds by DC Water, and more innovation across the board.  New companies, like Aquees, which provides a software/smart metering and technology purchase platform, will emerge.  As infrastructure and technology investment grows, there will be a ripple effect all through the water supply-chain creating jobs and improving lives, including those who have limited access to clean water.

When the 1973 oil embargo slammed into the early stages of the sustainability movement, the way we as a society looked at energy changed forever.  We are at a similar inflection point for water.  We’ve always known, a priori, that water has value.  But now that we don’t have enough of it, or enough of it in the right places, or enough of it that is clean, the value we as a society place on water is changing.

Change, initially, will come slowly, as it did for energy.   But, like energy, a simple step forward signals the future.  So, when the installer of the smart water meter comes into your business, your office building, your apartment building, and your home, think of Lord Kelvin and let that person in.

Gordon Davidson is a serial entrepreneur and thought leader in the environmental, water, and energy arenas.  He is a former senior executive at US EPA and a Senior Advisor to The Horinko Group.