[00:00:00] Speaker A: The water sector and the challenges ahead deserve a sustained discussion, and we need to be disciplined about staying on it.
[00:00:13] Speaker B: I am Reese Tisdall, and this is the future of water, which we talk about all the ways which companies, utilities, and people are addressing the challenges and opportunities in water. Welcome to episode 100 of the Future of Water podcast, and I know this is going to be a good one because I've got my colleague Keith Hayes jumping on with me today. It's incredible that we've won rhesus milestone. Who would have thought that we would have recorded approximately 3300 minutes or 55 hours of discussions about the water sector when we started this in 2020?
When we started the podcast, the aim was to create a platform to discuss critical issues, innovations, trends in the water industry. But looking back, I'm actually proud of the conversations we've had with all of our colleagues at Bluefield Research and built this up into something that is sustainable and hopefully useful to the listeners. But even crazier is the fact that just over eleven years ago, July 23, to be exact, Bluefield itself was launched. No clients, no research, just an idea. Having worked in and seen the growth of the renewable energy sector shaped by policies, new business models, and wide sweeping interests, we saw an opportunity for change in the water sector that feels to be, quite honestly, gaining momentum by the day. Now we have colleagues in Boston, Barcelona, Paris, San Francisco, Chicago, New York, and lots of other places in between. As I mentioned, I'm going to be joined today by Keith Hayes, and together we're going to examine the current state of the water industry compared to other industries, hopefully, and discuss what the future of water looks like. So let's dive into it.
All right, so I'm joined here by Keith Hayes. Keith, how's it going?
[00:01:57] Speaker A: Hey, Reese. Going good. In the thick of summer, trying to find that balance between scorching heat and freezing and air conditioning.
[00:02:06] Speaker B: Well, the nice thing is in a couple of days, you're headed to Southern California for a little while, so I think you'll be better off than you are in southern Europe right now, where it seems to be boiling.
[00:02:17] Speaker A: Let's hope so.
[00:02:18] Speaker B: So one of the things we were talking about, the hundredth episode. So welcome to the hundredth. I don't quite honestly, I should remember. I don't remember who was even on the first. Probably multiple people, maybe Aaron, Bonnie, Casey, I don't remember. I have to look. But one of the things we talked about was like, well, we started this in 2020, the podcast. And a lot's happened since then, right? I mean, I think even before the pandemic even sort of cranked up in March 2020. Earlier in that year, you and I and a couple others, we had met in Lisbon, and we talked about other strategies, sort of channels to the market. How do we touch not only clients, but also just people interested in what's happening in water? And there are a couple of things that came out of that. We said, hey, let's focus on webcasts. And then we said, hey, let's really focus on podcasts. And the podcast discussion came to be really once we got going in the middle of the summer. We haven't stopped since. But as you know, we've also had a number of events that's happened since then. So for fun, thought I'd throw some things out there just to remind everybody what's changed over the past hundred episodes and or four plus years since we started this.
[00:03:32] Speaker A: Well, Reese, also, I want to say it is huge kudos to you and takes, it's very meritorious to have stuck with this as long as you have, as we have. Because I think you and I both know that when we first got on here, we started putting these episodes up on Spotify. There were a bunch of podcasts. A lot of people wanted to talk about water. Then there was clearly some kind of stall that happened after, like episode six or seven, a lot of others started to kind of drop away and we stuck with it. So I think, I think that's great that we've been able to build this up because the water sector and the challenges ahead deserve a sustained discussion and we need to be disciplined about staying on it.
[00:04:19] Speaker B: Yeah, I mean, it's basically come down every two weeks. We sit down, or I sit down with someone. For the most part, I think there are only a couple that I haven't hosted, and we're basically showcasing our content and some of the things we're seeing in the market as a whole. Episode 99 with Greg Goodwin was about the upcoming elections and the potential impacts on the water wastewater sectors. The world's already gone crazy since we even recorded that with Joe Biden stepping down. But hey, we already responded quickly, one, and not only addressing the white paper, but also addressing the podcast as well, with a bit of an intro to the beginning on that. But all right, let's, let's get back to the fun. Thanks for the kudos, but thanks to everybody else, including you, but all the other analysts, as well as the marketing team with Steph and Ryan, as well as Kelly. There's a lot goes in, like I've said, before to all of this. So, all right, everybody's forgotten about this, but we're going to start with number one. I've got eleven things. Eleven plus things.
[00:05:20] Speaker A: Why not around ten or a dozen or acres?
[00:05:23] Speaker B: Well, it was ten until when you and I were talking last week, you threw out one more. You said, all right, I see these ten things you got. But what about this? Im not going to tell anybody what it is. Maybe they could guess.
So in 2021, of the things weve all forgotten about, these are all related to the water sector and potential impacts of the water sector. But one thing that happened was toilet paper shortage and the fatbergs that were sort of exacerbated or came out of that. At the beginning of Covid-19 it was early 2020, toilet paper became really scarce. There was obvious hoarding, but also, even people that we work with were also buying up boxes and boxes of wet wipes to use instead of toilet paper. And as you learn when you go to wastewater treatment facilities and you talk to the operators, it's become a total and utter nightmare in dealing with wet wipes and all the other stuff that comes down through the collection networks. And it's resulted even since then in class action lawsuits against companies like Costco and CV's, Procter and Gamble. They've all, you know, they've been sued, or at least had reached settlements in one place close to my heart, Charleston, South Carolina, which is where I'm from, is where one of the settlements took place. And there have been sort of now labeling changes that have come out of that.
[00:06:45] Speaker A: Yeah, no, I mean, you know, phones, fat, oil, grease, that stuff was a concern before, but I think it definitely came to a head. No pun intended, or pun intended there with the toilet paper. And everybody seems to remember, like, having to bleach your groceries and spraying everything, but they kind of forget the toilet paper. It was bad.
[00:07:10] Speaker B: It's kind of insane if you think about it, but humans are a strange, strange thing. All right, let's get to number two. So we'll work through our extended Letterman list. And that would be wastewater based epidemiology.
[00:07:27] Speaker A: This is not an order of importance and or this is just a chronological walk down memory lane, right?
[00:07:33] Speaker B: This is more or less chronological walking down the lane. Yeah. It's not exact. I was going honestly by memory as I sort of penciled this out, but number two on my list was wastewater based epidemiology, also related, although different than the toilet paper. But this came to light, or really came into the public eye at greater scale after Covid that was using technology and wastewater sensors and tracking to better understand what's happening within the wastewater network to figure out where are outbreaks happening, whether it be across the city or within a specific part of cities. This is something you worked on, both in consulting, but also in research.
[00:08:16] Speaker A: Yeah, right. When Chloe came on board, we did a fascinating project evaluating the different potential market segments for wastewater based epidemiology solutions. I mean, we were looking at everything from Amazon logistics warehouses to county jails, retirement homes, schools, everywhere. And, yeah, I think the upshot of that was this is fascinating, very useful, but who's going to pay for it?
[00:08:47] Speaker B: Yeah. And it still comes up, and there's some still. There are real legitimate companies that are active in that space. My feeling is that there's a real long term play here, that actually, as we talk about data as a whole, just in our everyday lives, I think there's a treasure trove of data held within wastewater itself. Everything from what are people eating within certain communities, what are their health habits? Are they using drugs? Are they not, are they infected with COVID or the flu or anything else? But that data in and of itself is not only. This is not going to sound great to some people, but the data is really valuable. It would be valuable to companies. It would be valuable to insurance companies. It would be valuable to a number of different entities that would likely or willingly pay for that. So cities do have their finger on something. Now, when you start getting into personal lives, people will start freaking out. I'm certain of that. So, uh. But I think there's a real long term play. And as the Olympics come up, I mean, why aren't we testing the wastewater that comes out of the Olympic, out of the toilets within the Olympic village? Maybe we are. All right. Number three is probably the least happiest of all of these things, which I don't want to bring it up, but I'm going to bring it up because it's a reality of the situation. It kind of tells us where we are. January 6 and what is the capital insurrection. I don't care what anybody calls it. Complete and utter lunacy, with people charging the capital, smashing windows, people getting killed. But what it means for the water wastewater sector is the event has raised concerns about not only about the stability of government and leadership, but also just funding and regulatory guidance, which is critical to water and wastewater. So it highlights a need for some, not only sanity, but also some needs for long term planning and investment in infrastructure. And if anything, it just says that everything is so polarized that it's, when it comes to the federal government, we may be facing a significant uphill battle. And so then what are the alternatives? I mean, do cities, towns, they turn to the private sector because they can't lean on the federal government or expect anything? We've already seen the chevron doctrine be basically undercut or seemingly repealed.
[00:11:18] Speaker A: Yeah, that's what I was going to say.
I wasn't sure we were going with this January 6. How are you going to connect it directly with water? But obviously, it's sort of an embodiment of this fundamental fracture we're seeing in the US in terms of the hyper polarization of the country, the rule of law, how jurisdiction and authority is applied to the environment. So you could say this sowed the seeds for some of the stuff are saying no.
[00:11:51] Speaker B: Yeah, and I think people take it for granted. It all sounds great. The EPA is terrible and regulations are terrible. They just cost money. I get part of that. I mean, we do need to build. Things can be slowed down significantly by permitting and such, but we are dealing with safe drinking water and clean water. I want to go to the beach and not swim in the sewer. I want to go to the beach and let the dogs run in the water and nothing come out and die because there's an algae bloom that's on us. And sometimes we do need someone to protect us from ourselves. So. All right, number four, infrastructure Investment Jobs act. That's pretty obvious. We've talked ad nauseam about that. On the future of water. Enacted in 2021, it's allocated 55 billion plus of new funding for water infrastructure projects. Specifically, you could argue, if you account for transportation, of which there's also needs for hardware and equipment related to water, the number goes well beyond that. But it does focus on things like lead service lines, which we've known about lead for late, since the late seventies. It's not as if, you know, this is a surprise, but it's taken us this long to get to a point where we're actually going to hopefully address it. Then weve got PFAS, which is really the topic du jour. People cant get enough of that.
[00:13:15] Speaker A: Yeah, I mean, I think its crazy. That one chart that weve looked at several times that shows, I think, since the 1960s from the Congressional Budget Office, the capex spend from the federal government on the water and wastewater sector, and its pretty much flatlined for like the last 2030 years. So which means that we're dealing with a lot of infrastructure that was put in place in the sixties and desperate need of replacement. And this is a huge injection of funding, which I think probably a decade or so from now, we're going to look back and see how that chart look significantly different.
[00:14:04] Speaker B: Yeah. And I think it points to, and this is not unique to the US. I mean, it's the same in Europe as well. You get comfortable with existing assets and what's happening, and you sort of forget that, hey, a lot of this has to be maintained. It costs money, and it is one of the challenges that we do face. Number five, Jackson, Mississippi. Water crisis. Everybody seems to have forgotten about that. Jackson, the state capital of Mississippi. This took hold when it basically came to light that actually the utility was unable to actually deliver water and services to, I don't know, was it a hundred plus thousand people in the state capitol? Maybe more than that. I don't have it written down here. But it just brings to light, you know, whether it be Jackson, Mississippi, whether it be Flint, Michigan, whether it be Washington, DC, Baltimore, Newark, there are all these cities and areas that are facing significant water quality issues or even just reliable service issues. And that's a big problem that I don't want to say people forgotten about it, but people quickly move on because of all the other problems falling back on. The IIJ gives an example of sort of, to your point, aging infrastructure. All right, this is next to number six. This is really in your wheelhouse because of where you are geographically. But that is, Russia has invaded Ukraine, not the other way around. And the invasion which took place in February 22, Brent crude prices surged from $90 a barrel, which already fell high, to over $120 a barrel by March 2022. Electricity prices in Europe, which is a bigger issue, which definitely affects water, wastewater utilities surged from €80 a megawatt hour to €240 a megawatt hour. So electricity prices surged on the backs of natural gas spikes. And now we're still in that same boat, and it's creating all kinds of problems for european utilities, but also industry as well.
[00:16:18] Speaker A: Yeah. No, I mean, it's obviously been a wake up call, obviously, for western Europe in general regarding a lot of national security issues.
It has wreaked havoc on several industries seeing that surge in power prices. No, we were already entering a hyper inflationary period coming out of COVID You had other things that were choked in the supply chain, like microchips coming from Taiwan. You later had shipping blockades happening with Houthis attacking ships going through Hormuz. I think it was. And on top of that, you had this going on in Europe, and I think we're at a, a bit of a stalemate now as we have been probably for about the past year and there's no real end in sight to it and I think it's made everybody even more conscious of the need to diversify sources of power whether it be renewables or in the long, long term maybe green hydrogen but then also, you know, you need energy to have water to pump water. It's a critical input for opex, for industry and for municipalities to run their water network. So I think that's trying to turn a battleship to get off of russian gas right away as we know. And Europe is still working through that both from a political point of view but just from a economic point of view as well. What are going to be the other sources and whats the long term plan to essentially safeguard power supply which is needed for everything just as water is.
[00:18:11] Speaker B: Needed for everything Casey yeah I think on the flip side of that I mean one mans pain is another mans pleasure in the sense that as a result of this sort of back to the US when it comes to natural gas and oil to some extent but really a natural gas, we've become a net exporter of natural gas to Europe because of this. So people in hydraulic fracturing sector whether it be in the Marcellus or appalachian basin up around Pennsylvania, West Virginia, Ohio, it's boom times but also we're seeing more gas out of Texas permian basin. So with that means more midstream water management for the oil and gas sector as well.
[00:18:53] Speaker A: Yeah so Europe is essentially in a vice grip in terms of its energy supply between us, Russia. The other thing is that when there are conflicts everybody talks about water wars and you don't necessarily see explicitly a war get started over water but it is used as an instrument of war. If you think about russian forces blowing up dams I think that was near Kharkiv and drowning essentially several cities and towns and causing hundreds of millions of dollars worth of damage. The other thing is why controlling that corridor of land that feeds into Crimea is because Crimea gets all of its water from the ukrainian mainland. So being able to supply Crimea it's vital that Russia holds onto that piece of land and over the coming months water infrastructure, control over water sources are part of the negotiation that's going to happen. If at some point they do reach.
[00:19:57] Speaker B: A diplomatic solution well it'll be interesting to see how things unfold over the next twelve months when it comes to Russia, Ukraine, there's a lot politically at stake that could have some impact on that as well, but you really wide and broad sweeping when it comes to water management, like you said. All right, number seven, increased demand from data centers. Everybody recalls, everybody sat on their couch over the last four or five years watching Netflix, Disney, Apple TV, whatever it is, everybody's watching. But on the back end of that was or has been the rise of AI or artificial intelligence applications, including chat, GPT, which is obviously significantly increased demand for data centers. And with that comes high temperatures. With that comes cooling. And the way to cool these data centers is water. Right? There's needed. They need to be kept cool with wet cooling methods. So by 2022, data centers were projected to consume about 17 gigawatts of power annually, with that expected to rise by 35 gigawatts by 2030. I think it's probably even gone beyond that. Those are the numbers from one of the reports we put out a year or so ago. And on average, just to kind of put in perspective, 1000 searches consume about 300 liters, or about 79 gallons of water. So what this does is really highlights how much water goes into data center cooling and management overall. That is sometimes overlooked.
[00:21:31] Speaker A: We decided to look at Microsoft, and Microsoft. Since it began reporting its water footprint back in 2020, it's nearly doubled, going from 4200 megaliters a year in 2020 to about 8000 now in 2024. And a huge reason for that is the use of AI. And they're starting to put more and more into these replenishment projects to try and offset how thirsty these installations are.
[00:21:59] Speaker B: Yeah, I mean, I think when you look at sort of global GDP, everybody gets excited about AI or data centers and how it's transforming the world, or the oil and gas sector or petrochem or all these things. In every case, water goes into them. So without the water, none of this is happening. And everybody sort of makes light when you go to these different conferences and you see people walking around with t shirts and hats that say, no water, no coffee, no water, no beer. But at the end of the day, none of this stuff exists in our offices right now without water of some kind or another. All right, here we go. Number eight, china plus one. Strategies come closer to reality. I thought you were going to head in this direction a minute ago, but the reality is the water industry supply chain has faced significant disruptions, face slowdowns, export restrictions on critical materials from China. But also, I think you alluded to the Suez Canal and its potential impacts there. It's created all kinds of issues, and what it's done is forced companies overall to rethink sort of. Where are they sourcing their materials in some cases? We have clients that have just left China altogether. It just wasn't even worth it for all the potential headaches for a number of different reasons. But this is something that is also, as Greg Goodwin and I talked a little bit about it last week or so on the, on this, on episode 99. And that is if there's one thing that both parties agree on when it comes to Democrats and Republicans in the US, that is re shoring to some extent. Now the question is what it is and how it's done and who pays for it. Exactly. So there's something to be said for, you know, national security and whether it be semiconductors or other types of, you know, material inputs which could potentially transform things like the mining sector when it comes to rare earths and things for things like wind turbines or for electric vehicle batteries.
[00:24:03] Speaker A: Yeah, no, I think we're just the beginning of understanding the implications of the, you know, the Chips act and the buy and Build America act, how that is going to ripple through. And do those costs get passed on to the customer?
Yes. But how much and how fast?
[00:24:24] Speaker B: Yeah, I listened to something the other day where someone was talking about, actually it feels like it's expensive in the long run or in the short term, should I say, but in the long run it does provide jobs. Right. It really does. And I mean, Taiwan took advantage of something that was developed and I don't know, invented, I don't know another way to put it in the US. And then the us base said were not going to invest in that. Its just easier to let someone else do it. And now were in the spot. So thats not uncommon. Its happened in a number of different ways. But even automobiles, right. The Japanese were taking over the world, or at least the us automobile sector at one point. And what ended up happening is we started putting up tariffs and then now they all manufacture their cars in the US. So that's a goal. That's something that seemingly everybody agrees on. All right, next one. This is something we actually have some research coming out, indirectly related, I suppose. And that is the Tim's water financial crisis. This is in 2023. Tim's water serving 20 million people basically announced to the world that they were about to go belly up, so laden with debt that they weren't going to be able to get out of it. And this has done a couple different things when it comes to the broader global water sector, it raises questions about the viability of private ownership of utilities. It raises questions about the regulatory environment in which these private utilities are operating, whether it be in the UK, whether it be in Chile, to some extent in the US.
So we have a number of clients that are asking about this and they're interested, but also kind of puts a spotlight on the UK as a whole, not only just when it comes to private utility ownership, but also just post Brexit and the economic mess that they've gotten themselves into that's built up over the past decade or even two decades.
[00:26:25] Speaker A: Yeah, I mean, I think to some extent it's a shame because the UK has been a market that has fostered innovation.
A lot of companies like operating in the UK because of how transparent it is. There are relatively clear rules with their investment planning cycles, but the pressure is on the regulator to keep the financing strategies of these water service companies in check. And there's a lot of ill will, obviously, on part of the public to see that they've been jacking up rates, not doing all the investments they should have, not getting very good service, meanwhile paying out nice salaries and dividends to CEO's and investors. So, yeah, it's definitely the market's in a bit of a morass right now, but at the same time, they are setting some very compelling targets for things like reducing leakage, reducing sewer overflows. It looks like they're going to go from around 50 to over 80 billion pounds in spending. So that's a huge ramp up in investment. But now the, the rub is how do you pay for it? Do you pay for it by adding more onto the existing bills? And then how do you control the amount of debt that these utilities take on when the largest one already cant take anymore? So a lot to be worked through in the UK. But again, it is an innovative market. Those utilities tend to be, I would say, accelerators of bringing technology to market. So, you know, by no means can you throw the baby out with the bathwater, so to speak, here.
[00:28:20] Speaker B: Well, I look forward to seeing, I know that Chloe's analysis on that market, I think it's in production now. So I look forward to seeing that. And as I'm sure some of our clients are as well. So. All right, number ten, that would be day zero for Mexico City. Everybody talks about Cape Town, but not to be overshadowed is Mexico City, which it's home with 21 million people. It faces significant water shortages. Back to the earlier comments about aging infrastructure and leakage. They're seeing leakage rates in some areas of the city as high as 40%. So that's four tenths of a gallon go out the pipe into the ether, so to speak, because of crappy infrastructure. They've been overdrawing groundwater, which has caused the city itself to sink. That causes more problems when it comes to pipes and infrastructure. And the fear is the speed of which they can even address this. That's the bigger concern when you're dealing with so many people. Cape Town, it was real, and that was, I think, in 2018. But in this case, the number of people living in Mexico City is far greater by multiples. And it just puts a spotlight on large cities, water management and infrastructure management, not just in, obviously in the US, but other parts of the world.
[00:29:47] Speaker A: Yeah, no, I think it is another case study in how to not manage water scarcity, but now they have to try and dig themselves out of it. And I. I think one of the challenges with these day zeros in general is that it's a slow moving problem. So we set a project recently for a client that has a decision support system which can help cities set up mechanisms to provide warnings for floods. And when it's something flood, it hits you quick so you can set up the infrastructure, deal with it, pump it out. But droughts, on the other hand, are something that's relatively slow moving. You think, well, maybe it'll eventually rain will get out of it. So it's this kind of slow moving car wreck. And the problem is that a lot of urban planning that you need to get out of it.
It extends way beyond the four year term of a mayor. Right, or the four year term of a state governor. And so there are decisions that need to be made that don't align with those election cycles. And so the decisions don't get made, the investments don't get made. The crisis continues edging towards the precipice.
[00:31:06] Speaker B: Yeah, I think that's why what's happened in California over the past couple of weeks, they've got this new conservation mandate that's supposed to take place over, you know, by 2040. They basically said, hey, to have all the urban water providers, there are 405 of them. They basically said, look, we need to start conserving water. It's an ongoing issue. It's not as if you can respond reactively to it. They've estimated that it's going to cost as much as four plus billion dollars. The savings, however, will be 6.5 billion. Somewhere in that ballpark, I'm sure there's obviously numbers or estimates at this point, and it will vary where every, you know, the service providers are within the state. Some have you know, so there is an algorithm or a methodology to kind of weight their impacts. And I think the numbers show that 42% of the California population will not even be impacted. So a lot of those from places like northern California, where water usage is lower and less of an issue, where Southern California is a little bit different. But think to your point, you know, as much as people complain about it, no one's really thinking, hey, where do we want to be in 2040? 2050. It's hard to kind of even fathom, like, how bad the problem could be. But California's already been in this spot before. They already implemented a 25% mandate in 2015 under Jerry Brown. Gavin Newsom a couple of years ago said, hey, looking for, I think, a 15% conservation target, but that was voluntary. Now they've got this longer term plan, but I think we should be seeing more of that going forward in the future. I think it just has to be done. But, like, to your point, politicians don't want to be the bearer of bad news, but it's going to be necessary. Otherwise, your mayor is going to say, sorry, folks, we're out of water and you live in Barcelona. So you've seen this sort of headed your way, the train coming down the.
[00:33:01] Speaker A: Tracks of, yeah, we just dodged a bullet, basically in May with some rain.
[00:33:06] Speaker B: Yeah. Doing rain dances is not a solution. All right, lastly, make this quick. There's been some m and a, M and a deals worth noting that have happened over the past four years. Real quickly, Veolia acquired Suez. That was probably the most notable of the group, just because of the scale. Two peers, one buying, the other, both French. Lots of overlap. There have been some divestment since, but it's also created a different and competitive environment, not just among themselves, but everywhere else. Then there's Xylem acquiring Evoqua. I know that Patrick Decker at Xylem had reportedly really wanted this deal for a long time, so he finally landed Evoka and brought them in. It expands Xylem's industrial solutions footprint, but also pushes them into high growth industries in places like Asia. So I think that was the hope. If anything, their last big acquisition before then was, which was several years before, before we started the podcast, and that was census.
Then the other one is EQT finally got its hands on to innovise. At the time, Innovise was always held up as this sort of example of how digital technology companies wanted to be. It started within MWH, and then it became standtech, and then it became EQT, and then even since then it's been moved on to Autodesk. So.
But watching Innovy sort of make this, you know, go from one hand to another has been interesting as the world watched in envy for so long. And there are a number of reasons for that. And then lastly worth noting is new mountain acquired and for Mark, which was one of the leading O and M solutions providers in the US, but then they also soon thereafter acquired Aegon, which is now Azuria leading trenches company. So since then theyve made some smaller deals. But its interesting to see new mountain build up this water position which is actually now pretty significant given inframark and Aegion together. While unrelated as far as markets focus, itll be interesting to see what they do with their position going forward.
[00:35:23] Speaker A: There's definitely been an ebb and flow over the last four years on the m and a side of things. I think that digital and industrial have probably been the constants for every one of these macro deals that you're talking about now. There's been several smaller ones. You know, there's definitely a push, particularly with the private equity money coming into water at this point. You know, they, I think they got comfortable investing in climate tech and now looking at water is a new play for them and they definitely want to do roll ups. They want to find platforms that they can do both on. All those different, I would say acquisition strategy plays that we've seen in other industries are coming to water and it's definitely a trend that is making the competitive dynamic more interesting for us.
I think we're definitely, especially this year, being hit up by a lot of transaction advisors and a lot of interested parties to dig deeper into our analysis of companies doing due diligence.
[00:36:35] Speaker B: Yeah, I think my expectation is money is about to get cheaper. It's got to, at some point interest rates got to come down. Will that loosen things up? I think also theres been some high valuations out there that people have been sitting on with hopes and dreams, but the reality of it is the rebalancing both on the supply and demand side for transactions should come into greater equilibrium pretty soon. And also just lots of dry powder out there for acquisitions as well that needs to be used. Otherwise investors are going to, if theyre not already ansi, theyre going to get ANC pretty soon.
All right, to the matter at hand, man, that was a long rundown. So we had 1111 plus discussion points, starting with toilet paper, finishing up with m and a. So to the matter at hand, one of the things that's come up you know, the podcast is called the future of Water. And I feel like sometimes we're talking about events and recent, you know, recent research that we put out. But what I was hoping to do in the sort of short segment, sort of on the back end of this is talk a little bit about the future and where we think, you know, at least in a couple areas where we think things are going. So it's going to pose a couple questions to you. The first being, what do you predict will be the next significant or a significant shift in water management over the next ten to 20 years? I mean, where should people be looking for a activity?
[00:38:07] Speaker A: Yeah, no, this is the, this is the thought leader question. Where is everything going? There are, I think, several ways to look at this. And obviously we tend to sort of divide the world of water into industrial and municipal and then more on the drinking or processed water side, and then we're on the, on the wastewater side. Yeah. So with that in mind or those axes, there's clearly a lot of stuff to talk about, and I know we could probably mention several of them here. I think we can start out with, well, let's start out with some of the heavier stuff. I think we touched it briefly on before, this idea that our industries are going to have to become more water efficient, that it's just a critical input for many economies. And that is very evident with mining and mining as it pertains to the energy transition. So everybody's hopped up about transitioning to electric vehicles and buying Teslas, although we understand they've taken a hit now. And how are you going to sustain that supply chain with the critical minerals that you need, lithium, nickel, cobalt, graphite, etcetera. And that's going to require a much more responsible, sustainable way of delving into water supplies and sustaining production.
By that, I think we're talking about, first of all, probably having to diversify where those mines are and what kind of environmental impact regime they're able to operate. Apparently, if you look at clean energy tech and what it's going to demand through 2050, we're talking about probably $15 trillion worth of new mineral deposits need to be identified and developed, and that's new mineral deposits in general. But then you really need to find lithium, cobalt, copper and nickel. Those are key in terms of the battery technology that we're working with now.
And then I think it's finding those sources doing it in an environmentally responsible way, and then also, you know, efficiency around exploration. And by that, I mean, you know, we've got room's law of mining, which says that the efficiency for exploiting mining deposits has decreased over the past 40 years. So the cost for a successful discovery of a mineral deposit used to cost about 300 million. All the geology work, all the testing extraction, that would happen now that's up to about 3 billion for opening a significant new number of mines. And that's because we're depleting the planet of land that's easily accessible surface deposits, and that's going to require more efficient techniques. I mean, the numbers can't keep going up tenfold every 20 or 30 years. That's not going to be sustainable, particularly for the amount that we need for all of our devices and all of our demand for electric vehicles.
Another aspect of that, which ties into some of the stuff we were mentioning before around data centers is the role of AI and machine learning. So I think we've started out thinking about AI as chat, GPT, and some of the more consumer facing applications of AI. But applying that in an industrial context is going to be super important as well, helping to achieve some greater efficiencies. One example is cobalt metals. They're using AI and machine learning to improve their exploration success rates. So trying to decrease that timeline from, you know, initial identification to be able to extract those minerals.
[00:42:36] Speaker B: Yeah, I was going to say cobalt is really interesting. So shout out to my friend Kurt House, who runs cobalt, but they're a unicorn. I mean, it's amazing what they've done. In fact, I think they just bought a copper mine because of AI and their solutions in southern Africa. And do I want to say Zambia? I can't remember. But in the conversations with him, you were. You were referencing that $15 trillion worth of new mineral deposits needed to be identified.
If I recall in conversation with him, we were having coffee and he was saying that that needed to happen with no recycling. Right? We're not recycling. These batteries are doing, you know, we're not even there yet. It's still early stages. So the amount of money that's going to have to go into this, and I think maybe this is where you're headed. But also is like the water demand for these things, whether it be just water supply, water security, as we talked about in another meeting this morning, for mining, but also just wastewater management, the regulatory environment, particularly as it shifts to places like the US, is going to be massive.
[00:43:41] Speaker A: Yeah. So hit us with another future trend, Reese.
[00:43:46] Speaker B: So ill make this quick because I already mentioned that we talked a little bit about Mexico City, but one of the things in my notes really is more day zeroes. Were going to see this more and more. So weve seen day zero in Cape Town. We've seen it, like I said, in Mexico City, they didn't call it day zero in Sao Paulo, but it was legitimate. In 2015, London actually faces potential water shortages over the next decade, maybe more serious by 2040. 2050, Taiwan, which is, we talked a little bit about semiconductors, but it faces droughts. And then was it last year, a year and a half ago, they were trucking in water. Yet it's also the most, you know, it's the center epicenter of semiconductor production. So. And semiconductor fabs use a lot of water. And then lastly, places like Miami, these coastal towns and cities, which everybody thinks immediately of drought, but one of the places like Miami, they face saltwater intrusion, where there's the population demand or the stress on the, on the groundwater aquifers is so high, it's drawing in the salt, and that's creating all kinds of other problems. So between population shift and climate, there's this real imbalance that's taking place, and I expect to see a lot more of it. And so, in many respects, we're going to have to start dealing one with leakage management. Like I said, Mexico City at 40%, we might as well be efficient with the water that we have. But also we should start seeing more things, more things like desalination or reuse, because that really is efficiency and security all in one. So that's something that's going to be driven because of this. All right, so the next one's on you. I'll push it back at you.
[00:45:38] Speaker A: Yeah. So we talked a bit before about AI.
We've been talking about digital transformation, to some extent happening in water, and that's all exciting, but it's also risky. So my next point here is on cybersecurity. So as we start deploying instrumentation, we start generating more and more data off of our water infrastructure that starts to proliferate. The attack surfaces, as it were, for cybersecurity threats. And so as the Internet of things continues to grow, I think I've seen figures that we're going to have billions and billions of devices connected within the next few years.
You have to think about, what does that all really mean in terms of being able to access or meddle with the flow of that data, the use of the data, and any, God forbid, control decisions that are made through those digital connections that have been set up. And it is risky. We just had this Microsoft Azure cloud blackout due to a CrowdStrike virus software update that just happened, which collapsed airports and has caused global chaos. That's from one big tech cloud services backbone provider with just a mere anti virus software update. So I think we're all becoming more and more conscious of the fact that we are vulnerable. And several events have driven home the point. I mean, just looking primarily in the US, you had a. This was almost ten years ago, there was a hack into Bowman dam in New York state. They opened up sluice gates, where they were trying to open up some sluice gates. And being able to actually control how infrastructure operational decisions are made in that sense is very disconcerting. And that breach was mitigated and it wasn't a problem. There was no risk to the public. But just the notion that a hacker who was traced back to Iran could access infrastructure and control it in that fashion is pretty scary. Fast forward ten years later, there are a few different attacks, whether we're talking about Aliquipa, Pennsylvania. There was a pack on there municipal water authority in this town in Pennsylvania where they put some anti Israel messages on control panels. This was an iranian hacking group. There were some other hacks that were suspected on some us water infrastructure that had israeli technology.
This was reported by the federal government several months ago, San Francisco Bay Area.
These are attacks where you're actually trying to control the operational decisions. But then that's aside from all the ransomware, that it can collapse building systems. And there's a huge headache for cities that are trying to get their systems back online and build customers and finance their day to day operations. So, you know, I think we're on this path, which seems no going back towards greater digitalization.
And I think we're going to see more focus on cybersecurity.
We have several clients like Tetra Tech, that have been acquiring cybersecurity firms that do pay attention to water infrastructure.
Amazon, Amazon Web Services and the cloud. They have their own certification system, which is trying to ensure that a lot of water system operators putting their data into the Amazon cloud have greater security. Because let's not forget that one of the huge selling points of digital transformation is doing all the data analytics. A lot of that can be facilitated through moving your data onto the cloud. But to move the data on the cloud, you have to get comfortable with your cybersecurity.
This is a long winded way of saying that unless we have cybersecurity, we can't have all the upside of the functionality of the cloud and AI.
[00:50:12] Speaker B: Yeah, I think the toothpaste of that is out of the tube, like you said, I think we're kind of stuck with it. So either we get on the cybersecurity bus and deal with it or things are just going to be uncomfortable. And that's not just for when we try to take flights and they get delayed because of Microsoft, as they have over the past couple weeks for people. But also, you know, when it comes to reliable water quality in treatment, I think it's a real issue. And you start to realize how important water is, water security supply is when someone hacks into your water system. All right, maybe that's a good segue to the next question I had for you. And that is what's the role of big tech? How do you see big tech companies like Amazon, Google, Microsoft once again, how do you see them impacting or influencing the water sector over the next couple of decades? We've had lots of conversations about this where they can take on different roles, they can provide different solutions. Are we where we are now? And is that the way it's going to be going forward? Or do you see some sort of different approaches that they may be taking over the next decade or two?
[00:51:21] Speaker A: Yeah, I think there's three key roles to think about with big tech.
So it's first as a consumer, so they're data centers essentially. The second is as a infrastructure supplier of the cloud, basically, and what that means for the world as a whole in the water sector and where that data gets stored. And then the third is as an enabling, because these companies are investing really heavily in AI and those AI tools can be applied to developing ways to analyze water data and optimize water system operations. Yeah. So you think about those three roles, consumer infrastructure provider or enabler. They are calibrating their strategies in different ways, I think along those three lines. And the thing I was mentioning before, for instance, Microsoft, Microsoft has announced since 2000 that since 2020 that they've almost doubled their water footprint. So it's clearly on their mind. Their sustainability department is at pains to show that we're doing something about our water footprint. And particularly that means setting ESG targets and then investing in replenishment projects, which the idea being that they are offsetting some of that heavy consumption that may be taxing some municipal water systems where they have their data centers located. Microsoft's doing that. Google, Amazon, they're all trying to show that, look, we know that these things can use a lot of water. Can we convert to air cooling and use less water cooling? That would be better. I've heard talking with cooling engineers that the optimum mix is probably 70% air, 30% water. When you start building out these hyperscale data centers, it really starts to put pressure on water systems, obviously doing reuse and becoming more efficient. So that I think big tech has a role to play in showing how to be responsible with building out that piece of their water footprint. The second thing around that, as an infrastructure supplier, as a cloud player, you mentioned, I think Amazon partnering with Subeca metering company, providing more real time connected assets via their sidewalk network. So, yeah, I mean, these big tech companies, they are ubiquitous in different ways. One of them is having the network infrastructure in place to act as facilitators of the Internet of Things. Right? And that may be both with those data centers themselves, but also through all the cloud services that they can provide through those. So they're creating this space that is going to facilitate managing these massive troves of data that water and wastewater utilities and industries are generating as they deploy more connected devices. So consumer infrastructure supplier, that's a big, big role for them. And then the third thing is as an enabler. I think this is where it starts to get interesting, because there is concern about what's going to happen with AI. We just have been working on a white paper, actually with Arcadis about how AI may impact the workforce, water utilities. And it's been an interesting look into how these tools are evolving. And particularly right now, we talk about all this data that's being captured. A lot of it is so called dark data. It's not being used for anything. It's sitting there, or maybe a fraction of it is used to emit bills, but you could get a lot more value out of it. The reason a lot of data is not being put to better use is because you don't have the capacity to process it, to structure it, to train it on making operational decisions, or I would say tuning out a lot of noise to just focus on what matters. So what these big tech providers are offering is a platform and a series of tools, whether it's running scripts like Microsoft functions or Amazon has a similar product in which you can start developing these AI tools. So one example we looked at recently was Vapor, which is an australian AI company that is helping utilities to evaluate their CCTV camera images inside sewer pipes and going through millions of images to just focus on the potential broken sewer pipes in different networks. So if you think about it, all of these tech providers are in a great place to enable some of these startups to say, ok, we've got this idea of data that we can probably optimize. Let's build the algorithm and we can use these big tech companies to leverage their tools to deploy our solutions.
I'm pretty excited about big tech playing a positive role in getting more value out of this whole digital transformation trend that we've seen. And I think we've said that we're expecting a market of about 55 billion in spend by 2030 in digital solutions. So that's a pretty big chunk. And it's definitely growing a lot faster than replacing pipes or building treatment plants or installing storage tanks. So it's a big dynamic part of the market.
The big text paying more attention to it is a sign that it's worth, there's money in it, but there's also emission statement in there to be better water stewards for the long term in terms of sustainability.
[00:57:32] Speaker B: Yeah, I think it's a big question that everybody's asking about because everybody knows, everybody hears big tech, they see Amazon, they see Google. I mean, they, they're basically oligopoly. It's an oligopoly of data companies that sort of understand. And back to the wastewater based epidemiology. Right. Is there a role for them? Like, this is where people start getting queasy once again when they start thinking about it, but there's real information there once again. And if anybody's going to do it, it's going to be companies like this, or maybe it's a startup who does it and then one of these companies comes in and buys them to leverage it. All right, shifting gears a little bit, what do you see over the next 20 years? What's the biggest challenge or a couple of challenges that the water sector faces?
[00:58:20] Speaker A: Yeah, I think there's obviously, I'm going off, hopefully not too much of a tangent here, but there is that balance between a lot of the challenges that we mentioned before around aging infrastructure.
But I think it's not only aging infrastructure, but it's aging workforce. And I'm throwing that one in here. I know it gets talked about a lot, but a lot of this stuff doesn't matter unless you have people at the end of the day, you have people that are running water utilities, you have people who are making the procurement decisions to deploy a digital solution or nothing. You have people who are deciding, okay, what the AI is telling me, do I follow that or do I say, no, this doesn't make any sense. I'm going to proceed manually. So I think one of the big challenges we have here is evolving the workforce I mentioned before. Obviously, this is on my mind because of the white people we've been working on. But how do you find that balance between new technology and aging workforce, recruiting new people and getting them to get the most out of the technology, but also facing the operational challenges they have ahead? So I think people is a huge issue. And it's not just like, is there a body that will show up in the office? But it's like, is it the right type of people? And are these people going to act as, you know, are they going to catalyze some of these positive changes? We can see the industry, or are they going to perpetuate an old school way of thinking? Siloed.org charts that have, I think, held back certain innovations in the past. So I'm going to throw that out as one of the key significant challenges. What's on your mind, Reese?
[01:00:21] Speaker B: I mean, it feels a little obvious, but I would say decarbonization, which is also the water sector, plays a unique role in that is one I say this time and time again, if climate is a shark, water is the teeth, right? And so if climate change is real, which I believe it is, that the water sector, whether it be municipal utilities, water security, water supplies are at risk because of it, like drought, but also stormwater, flooding, things like that. The water sector feels the pain, municipal and industrial users. The flip side of that is it's also a contributor to carbon emissions. And Eric Bindler and I have talked a number of different times. Everybody talks about, oh, the aviation, everybody gets upset about all these planes flying around the world, which we've all been on, and how much emissions are putting them up, but it's the equivalent is the water and wastewater sector. They're not all that different. No one talks about water and wastewater. One, because I don't think people see it. Two, they don't understand it as much. But I also think unlike the aviation sector, there's an opportunity within water and wastewater to kind of seize on that. One, not only reduce emissions, but also maybe even leverage it for things like renewable natural gas and sort of just being more efficient overall. Because one of the challenges that we do, which is related to this, is there's only so much money to go around. And water and wastewater utilities within the cities and towns themselves, they're fighting for every dollar to pay for operations, to rehabilitate the systems, make capital investments. And so if there's money to be made on the back end through alternative strategies or approaches to their management, then just being more efficient, then absolutely. I think the other part of that is, we see cities, weve done analysis looking at cities in the US at least like New York, Boston, Seattle, Chicago, and compared sustainability plans among major cities. I know a lot of clients have really liked that because it gives our clients an idea of which cities are actually focused on the water aspect of it. And sometimes its just as simple as what are their fleet of vehicles? Are they electric, are they using gas, are they using diesel? So how do they become more efficient there? Part of it is branding, but I think there are operational benefits as well.
[01:02:56] Speaker A: Yeah. I had a good conversation this morning with an australian utility and they were mentioning that 40 50% of their scope, three emissions, their indirect emissions accounted for the largest percentage and it's all conveyance. So it's the power that they're sourcing to pump the water because they have a big extensive network across Queensland. So having to pump all that water where you're getting power from is a clean power and solving that is a big deal. I mean it's one of the main opex items that they're grappling with every year.
[01:03:30] Speaker B: Yeah. So I think, you know, I think those are two good ones. I mean one last thing I would throw in there and then we'll set the, set the listeners free. But that is the role between the water stakeholders, for lack of a better way to put it. You've got ag, you've got municipalities, you've got industry and at the end of the day I'll use industry as an example. They're going to do what they need to do right. They've got bottom lines, they have operational risks and so if it makes sense for them, they're going to do it right. And so by that I mean they're going to do on site reuse or they need desal and they have in their near brackish water, even saltwater, they'll pay for that as long as it makes financial sense and keeps them going. But they're also likely going to do that or could do that independently of the other stakeholders. Let's use the municipalities themselves. And so not only are they may be solving that problem, but they also may be creating a whole nother problem for the city or town or, or local utility. And so I think there's an opportunity for more cross collaboration. I think the cities and utilities are going to have to start really thinking more broadly and holistically than they are. They're no longer out of sight, out of mind. And so as industrial needs change and they start doing things themselves, then sort of the dynamic shifts as well. And at the end of the day, we said it before, technology exists. It's not like the technology doesn't exist to do things like this. So it's just a matter of will, right, whether the corporate or industrial facility wants to do it. And the same could be said for the utility themselves.
All right, well, that's 100. This might be our longest episode, too, as it merited. Exactly. I'm not going to complain. And if people want to complain, they can pause it and come back to us later in the day on their commute back home, so. Well, Keith, thanks a million for, for jumping on. Really, really appreciate it. And that I'll set you free.
[01:05:44] Speaker A: Alrighty. Talk soon.
[01:05:46] Speaker B: All right, thanks a million. We'll talk again soon.
All right, that's a wrap for our hundredth episode. So thank you for being part of the journey. We're excited about the future of water. We're excited about the water industry and the innovations that lie ahead. So stay tuned for more, hopefully insightful discussions and interviews with our team of water experts here at Bluefield Research. Here's to the next hundred episodes.
Never thought I'd say that. But lastly, just to shout out, I'm shooting from the hip here, but I want to thank Steph Aldoc, Ryan Sullivan, Kelly Talbot, Mike Gaylord. I'll thank Keith Hayes. Obviously, John Berryman threw an oldie but a goodie. Aaron Bonnie Casey out there, Christine Au, Eric Bindler, Charlie Seuss, Ethan Edwards, Louie Meyer, Greg Goodwin.
Who else am I missing? I don't know if I've had Maria Cardinal on, I've had Zineb Momin on out of our Barcelona office.
So lots of people to thank. And I lastly, you know, is number 100 and he's the one who pushed me to do this. And I would say shout out to Dave McGimpsey who's on the Water Values podcast and we partner with him. So thanks to everybody who has been part of this and look forward to talking to you again soon. But before we do that, and before we sign off, if you're in Boston or Barcelona, let us know. And because we'd enjoy the opportunity for a meeting, we also have a lot of events coming up, so be on the lookout for us. Those please subscribe to the Future Water, give us review. Send us a note to water expertsluefieldresearch.com with any topic ideas you'd like us to discuss. Like I always say, we're doing this for you. And lastly, tell a friend about it. This podcast and these water industry insights have been brought to you by the one and only Bluefield research. To learn more about us, visit
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