This post is the second in our series on the challenges posed by the “water/energy nexus” and how water and wastewater utilities are responding to those challenges. As discussed in more detail in our prior post, the term “water/energy nexus” refers generally to the interdependence between the water/wastewater and energy sectors of the economy. Discussed in this post is the impact of emerging energy recovery and energy efficiency technologies on new infrastructure development by water and wastewater utilities.

The Water Infrastructure Deficit

It is widely acknowledged that the lack of adequate investment in America’s infrastructure has reached a crisis point, triggering a massive effort to identify alternative funding sources and approaches. The deficit in infrastructure investment is most notable in the water and wastewater (including inland waterways and levees), transportation, and public education sectors. Traditionally, municipalities, most of which have limited investment budgets, have relied on increasingly scarce grants from federal and state governments, together with municipal bonds, to pay for such improvements.

The water sector has long suffered from a lack of private investment in water infrastructure assets. The provision of water-related services is a very capital-intensive business, and the return on investment historically has been quite low. The rates that water and wastewater utilities can charge for their services tend to be highly regulated, and often are inadequate to cover the cost of providing those services, let alone generate a rate of return sufficient to attract the investment of private capital.

Energy Requirements of the Water Business; Efficiency Trends

The economics of the water business also are negatively impacted by the highly energy-intensive nature of the centralized model under which most utilities provide water and wastewater services. As currently structured, water delivery systems in many areas of the country require large amounts of electricity to move water often long distances from its source of origin or aggregation to the location of the ultimate user/consumer. Conventional wastewater treatment systems also have enormous energy requirements.

Some utilities have begun to invest in smaller, more localized water treatment, reuse and recycling systems that likely will have the ancillary benefit of reducing their energy costs by limiting the distance that treated water needs to be pumped. Similarly, there is an increasing trend toward co-locating water utilities and water-intensive industries, which among other things reduces the energy costs associated with transporting the water. However, neither trend appears likely to fundamentally alter the energy demands of the water sector.

Although concerns about the increasing scarcity of water supplies have resulted in the development of new technologies and innovation on the water conservation and usage side of the business, the opportunity for real change in the financial performance of the water sector lies in the expanding use of energy recovery “add-ons” to offset high energy costs and, in some instances, generate additional revenues for water and wastewater systems. Some in the industry now speak of the water sector achieving “energy neutrality” within a generation or less.

Of particular interest to private investors are a range of new technologies which hold the promise of vastly increasing our ability to recover energy from wastewater biosolids. Industry studies suggest that wastewater typically contains two to four times the amount of energy that is required to treat it. If the excess energy contained in wastewater biosolids could be captured, that alone could fundamentally alter the economics of the water business. The Water Environment Research Foundation, an independent scientific research organization dedicated to wastewater and stormwater issues, recently concluded that the potential energy recovery from wastewater biosolids could be enough to satisfy 12% of domestic electricity demand. The new generation of energy recovery and energy efficiency technologies appears to be the next wave of innovation in the renewable energy space. Case studies involving some of these new technologies will be the topic of discussion in future postings regarding the nexus between water and energy.