By Peter Yolles
For decades, water utilities have confronted rising costs and increasingly variable supplies with slow adoption of new technologies, practices, and behaviour. While the water utility industry is famously conservative, this assumption deserves a closer look as to why and what can be done to drive innovation and improve management choices. The four kinds of constraints that inhibit water innovation are Financial, Evaluation, Adoption and Risk (FEAR).
Financial barriers are both structural and self-reinforcing.
US technology companies spend upwards of 5-15% on R&D. By comparison, water utilities set aside less than 1%, starving entrepreneurs of crucial funds to trial, test, and evaluate new ideas that could improve sustainability and lower long-term costs.
Why are we so reluctant to invest? Water has become almost too inexpensive. Utilities can rarely generate enough surplus to reinvest in supply, treatment or efficiency.
What’s more, water rates, based on cost of service, create a built-in disincentive to provide a safe and reliable supply. Projects delayed for lack of funds put public health at risk.
A related obstacle, deserving (but often denied) 5-10% of the total innovation budget, is programme evaluation, measurement and verification, used to validate utility investment decisions.
Under 20th century stochastic modeling, utilities would design and build infrastructure for a world we think we know, based on historical patterns. Today, the dynamic flux in technology, climate and social networks cry out for flexible water systems that can quickly adapt.
We will still plan for infrastructure. But we really need more flexible systems in order to test new approaches, learn adaptively, and share best practices with a network of peers.
These “soft” systems can bend to evolving and unpredictable needs faster than “hard” concrete and steel can be built, installed, or retrofitted.
Even when innovations are financed and validated, utilities struggle to speed and scale adoption.
Scaling improves cost efficiency and ensures availability of proven, valuable technologies. Yet ‘adoption at scale’ faces widespread industry fragmentation. That balkanization inhibits collective decision making and the implementation of solutions.
In the automobile industry, inventors of an improved windscreen wiper or seatbelt need only sell to the largest 10 automotive companies.
Now consider water utilities. How can any innovative idea or technology be widely and efficiently adopted by over 50,000 water systems – in the US alone?
The water industry needs a framework for consolidation and fast. Multiple utilities could adopt best-of-breed technologies as a group and more rapidly achieve economies of scale if they:
Coordinate procurement. A simplified master services agreement between associations — a regional wholesalers group or among management districts — and a technology provider would achieve technology deployment at scale.
Create a platform that enables utilities to opt-in to choose pre- validated technologies.
Incentivise or require thousands of small utilities (serving fewer than 10,000 people) to band together to enable greater sophistication, purchasing power, and operational efficiency.
Consolidate the industry. In the UK, 1,000 local drinking water systems were reorganised into just 10 regional authorities serving 65 million people under the Water Act of 1973.
Fragmentation problems are compounded by competing regulations. Too often, unfunded federal mandates are passed to states, cities and public agencies to implement. Yes, local control is important, but may result in partial or complete non-compliance, leading to costly consent decrees.
The final key barrier is aversion to risk. Utilities are rightly known for conservatism, given their challenging task of providing a clean, reliable supply of water while avoiding public health risks. But now that culture is obstructing innovation. “To break down this barrier utilities must foster a safe environment for investment, development and adoption of new ideas,” argues Arcadis,
Let’s unpack the sources of risk. Clean water provision is just one utility function. Others include billing and collecting revenue, issuing bonds and paying bond holders, communicating with customers, and managing watersheds. While interconnected, these fall into different buckets.
The High-Risk bucket includes water supply and treatment, and financial management including rate setting. The Low-Risk bucket would include billing and collections (very predictable), and customer communications.
Arguably, technologies that improve performance in the Low- Risk bucket could be a safe space where utilities can experiment with new forms of innovation, and where risk to elected representatives can be managed effectively, leading to a faster pace of adoption. The realm of ‘digital water’ – software, analytics, cloud-computing, big data, sensors, metering, and other information technology — could all fit into this Low-Risk bucket and be managed on a different, streamlined, and rapid adoption track.
By inhibiting the adoption of new technologies, utilities signal to innovators and investors that they should avoid the water sector – exactly when in a rapidly changing climate these services are so urgently needed. So while the clean energy industry is booming, creating over 1 million new jobs in the last 5 years, the water industry is stuck with circa 1980s computing and 1920s pipes.
There’s still time. The water industry may yet be able to modernise. But to do so we must overcome our water industry FEARs — financing, evaluation, adoption and risk — to truly transform the market for the benefit of everyone.
Peter Yolles is the founder of WaterSmart Software Inc.
