[00:00:00] Speaker A: You know, the name of the game is always trying to build rather than, you know, just an upfront one off capex spend. How do you access that longer term recurring revenue? And that's where you get these as a service models. We obviously hear about them a lot with software and things like that. But offering a service that is providing some of those consumables along with the hardware, that's where the big money can flow.
[00:00:32] Speaker B: I am Reese Tisle and this is Future Water which we talk about all the ways which companies and utilities addressing the challenges and opportunities in water.
This is episode 107 and I know it's going to be a good one. No, it's going to be a good one because I've messed this recording up at least three or four times and practice makes perfect. So today I'm going to be joined by Keith Hayes, vice president of Bluefield Research. It's one of my partners at Bluefield, but we've also worked together in past lives, including in the energy sector, analyzing renewables both in Europe and the US but as well as globally. So I thought there was some news that was interesting over the past week or two. Our team has done some research on it, but also because Keith's breadth of knowledge and understanding of what companies are looking for, not only through research but also through his consulting experiences. I know you've heard him come on before to talk about business strategies and where things may be happening in the world. So I thought this is a good time. So what's caught our attention this past week? Georg Fisher is exclusively moving to water and flow solutions. It's spinning off some of its non core non water businesses, whether it be machinery and casting. And so it's going to become a water pier place. Keith and I are going to talk about what that means and why they might be doing it and what's driving that decision. We're also talking a little bit about Ecolab's acquisition of Barclay Water Management. Ecolab is a $15 billion company. They're not small, they are well entrenched. But it's interesting to see or maybe anticipate what we're going to see from Ecolab and its use of Barclays water solutions and technologies, particularly as it looks more closely at data centers and semiconductors. I think Ecolab calls it global high tech. And so to understand what they're doing will be interesting, particularly when it comes to water management, including things like Legionella disease and preventing that for data centers. And Then lastly, Vralto's $15 million investment in Axine Water Technologies. Axene is a provider of electrochemical oxidation technology, among other things. We've looked at them when we've looked at things like mobile treatment and what their positioning is. But it's interesting to see viralto now as a pure place since its divestment or spin out is a better way to put it from Danaher. It's interesting to see what's happening at viralto more importantly or more broadly, these moves highlight a trend that we've been tracking in Bluefield. Companies are aligning their portfolios, continuing to do so with changes in the demand for water centric solutions. Like I mentioned, data centers, semiconductors, but also things like food and beverage and other sectors, whether it be in the US or in Europe and the rest of the world, so globally. And also I think what's interesting is my colleague Amber Walsh, who I've had on the Future Water podcast before. She and the team have just released our US and Canada industrial water forecasts. And why it's important is because that analysis really does shed light on where the growth sectors are. What's happening with industrial water management. It's hard enough as it is when you're looking at 15 or 16 different industrial verticals, but when you kind of start shaking it up is Amber and her team have done, you start to see why companies like Ecolab are rushing to data centers and semiconductors. Because for them, that's where the money is and that's where they're showing growth and that's where the opportunities are emerging. And as I think I'll hopefully talk with Keith, is what are the collateral impacts of all those things, whether it be data centers and AI, and not only their water demand, but what does that mean for the power sector and what does it mean for utilities and what should they be thinking about? So for that reason I do want to bring on Keith. But before we do that, you're going to have to bear with me just a little bit. Let me talk about what's caught my attention recently. So I've been in Barcelona this past week and a lot of the discussion that does happen in Europe, when you're stuck in in the US you think a lot less about it. But as of November 21st, so this week, European natural gas futures, they've begun trading at about €46 per megawatt hour, which is nearing the highest levels the continent has seen since November 2023.
Basically, persistent supply disruptions and the obvious geopolitical tensions are driving this volatility. There's some things happening behind the scenes that are having an impact, but the impact is also influencing what's happening at the energy dependent water and wastewater utilities. These utilities across the continent, and it does depend on where they are and what their sources of energy are. But they face higher operational costs due to their reliance on energy intensive processes like pumping, treatment, distribution and whether natural gas is used in heating for certain processes, but also just in energy uses as a whole. So I just want to put in perspective if you don't really think about it, but following Russia's invasion of Ukraine in February 2022, European natural gas prices surged dramatically. They reached levels of €300 per megawatt hour. So no, we're a long way from that. But prior to the 2022 crisis, European natural gas prices typically range from about €15 to €25 per megawatt hour. So definitely lower than where we are today. And there's a lot happening because the Trump administration is coming in. It'll be interesting to see how they handle the Ukraine Russia crisis. The Austrians have just been cut off, at least this week it seems, from the Russians.
And so there is definitely a spike in natural gas prices. And truth be told, and not to be overlooked, EU countries have been lucky for the past two winters. We're heading into the winter seasons and temperatures have been relatively mild across Europe. So if it's another mild winter, good on, good on the Europeans, good on the Germans. Hopefully the wind is blowing. And then China's demand for natural gas imports has also been moderated because of that country's economic slowdown.
And then also keep in mind, like I said, the Austrians have just been cut off for various reasons. But Russian gas continues to flow into Europe. It's not like it's stopped altogether. I think it's ranging at around 14% of natural gas supplies going into Europe still come from Russia. The US provides about 20% at this point. But why do we care? With this perspective, energy related costs for utilities in Europe, energy share of OPEX free utilities has been about 12 to 21%, which kind of highlights the overarching risk for utility operators and what these climbing prices may mean for utility OPEX budgets. It is very disruptive or could be, and that could be a problem. What does it mean? It means there's likely going to be a continued or a bigger push for energy efficient equipment. So increased demand for high efficiency pumps, for example, and other operating assets. It's going to benefit companies like Grundfos, Wheelo, Sulzer and Xylem. Their systems, their equipment's Getting smarter and across Europe, when you compare Europe to the us, that is one big difference. There's more. When you start thinking about digital water, there's more of a OPEX push than there is a CAPEX push particularly, you know, but if there is a CAPEX push, it's how do we make the system smarter, how do we make it more energy efficient? Part of that is just to manage energy supplies and energy costs, but also it's for carbon emissions as well. So there's sort of a multi layered approach. And then lastly, as I just mentioned, digital optimization, adoption of more real time monitoring, AI driven tools, potentially for operational efficiency will likely be rolled out at a greater pace in the next year or two just because it's going to happen anyways. But there's an underlying driver in that, in this case, energy prices are playing a role in that.
As I was thinking this through though, it's kind of interesting and I think we'll get in a conversation hopefully with Keith about that is with a rollout of more AI driven tools means greater power demand, which means greater water usage. So it's a bit of a spiral of sorts that needs to be managed. But that being said, why don't we get to Keith Hayes and talk about business strategies and what's happening in the world of water when it comes to recent company decisions.
All right, so I'm joined here by Keith Hayes. Keith, what's going on?
[00:10:05] Speaker A: Grinding away Reese. It's a busy end of the year in a good way. So glad we're able to carve out some time for this.
[00:10:13] Speaker B: Well, oddly enough is, you know, what people don't know. We're in different rooms but we're both in Barcelona.
[00:10:19] Speaker A: We are. Good to have you over on this side of the pond trying a little.
[00:10:23] Speaker B: Experiment here, which kind of gets my point. We're going to freelance a little bit today, partly just through the discussions during the week, but really more importantly because the news, what's happening? So we've got some research coming out on this, but thought while I was here I would grab you and talk about some events in the news, but also talk about some of the questions and issues, you know, crossing the transom, so to speak, and talk about what it means for the water industry and where things might be heading. So the news which is sort of been out there and maybe some of the listeners have heard about it, but Georg Fisher, the Swiss pipe company, has decided to spin off or sell off its non water business units. So that's a big piece of news that going to impact the competitive environment, but also signal some other things we'll get into. Another piece of news which I've actually brought up on the last Future Water podcast was that Ecolab recently closed on acquisition of Barclay Water Management. And we've done some analysis on that even since the last recording in Future Water.
And there's some implications there, what it means for data centers, what does it mean for opportunities in the market going forward? And another piece of information that just came up this week was Viral to has recently made a $15 million investment into water treatment provider Axene. So Viralto, formerly Danaher's water business has done that and they're now a standalone water pure play. So these are three pieces of news that are pretty significant, particularly given the size of the companies involved. So while these moves in some ways they really highlight their respective strategies, they in other ways align with some of the research and consulting that we've been doing at Bluefield. So I thought I'd grab you and dive into some of the details to understand what's happening. So I'm going to throw some questions your way and we can go back and forth about what we think. But let's just start with the Galeric Fisher news and what that what prompted Galeric Fisher to really pivot towards water exclusively and flow solutions as opposed to casting and other businesses that they hold.
[00:12:49] Speaker A: Yeah, so it is an interesting, I would say continuation of a trend we've seen of companies like Pentair and Viralto that have carved out and created water centric units.
And you know, they, so they've disposed of their machining solutions division for about $722 million.
The water division generated about 286 million in operating profit in 2023. So did a lot better than the other divisions, castings and other infrastructure. So New York Fisher, what seems that's going on here is they're, they're, I'd say disposing of some lower growth units but then they're also trying to tap into what is attractive about water. And I think water there's, there's two aspects of it. One is it is super stable in that it is a obviously essential services. It's connected to ongoing build out of all parts of the economy. So you know you're going to need water, you're going to need pipes and for them that was probably stabler than some of the ebbs and flows of their machinery division.
And you know, it tends to hold up well to some of the shocks that we see around interest rates or energy Prices putting in that capex is usually planned several years in advance, but that's probably the stable, lower growth aspect of their water business. What is more interesting is do they think water is kind of the next big thing, which companies like Pentair and viralto maybe are considering that as well. And what I mean by that is the next big thing in terms of will it see growth like renewable energy or the sustainability drivers around water that are driving demand for new technology that are making, you know, a lot of different industries way more sensitive to their water sourcing and it's becoming more strategic. And that's not just about laying pipes. Right. So moves that Georg Fisher makes after this deal are going to be interesting. Do they go into some adjacent segments that would complement piping systems? Right. Because then it becomes more about optimizing processes around the pipe infrastructure, asset management and there could potentially be a lot of value to unlock there.
[00:15:37] Speaker B: Yeah, I think that's what's interesting is. And that was the expectation when Dan Hurst spun off viralto and I think some of our analysis noted that it unlocked them from the overarching pressures of the other business units. Right. There's always a balance in any strategic plan about what about this business unit. What about that in the case of Danaher was things like Life Sciences where they had other water related business units like OC and Trojan and Chemtree and so on. And so now they're out on their own and they can make their own acquisitions and that are really strategically focused, which kind of maybe that's a good segue to the question I have for you when it comes to Georg Fisher and that is it recently acquired upon ORE to strengthen its commercial market position and that was seemingly a big deal for them, opening it to other opportunities not only in the water sector but also other markets as well.
[00:16:37] Speaker A: For sure that that deal I think really opened their eyes to the potential for a greater focused just on water and wastewater. So that was a $2.3 billion deal. We don't see a ton of those happening in water. There's a lot of smaller roll up deals acquiring maybe distributors for manufacturers. So this was huge deal for them and it got them into North America. It also provided access to higher value verticals like semiconductors and other industries.
And they boosted their revenue target recently from $4.9 billion to 6.2. So that's, that's almost a, there's a 26% increase in their target. So they clearly think there's a lot in the pipeline. They've got some Tailwinds in terms of demand. They can leverage their existing position complemented by what upon our gives them. And obviously they are going head to head with companies like Alyaxis out of Belgium Wavin, which is owned by Orbia, that are also focused on water. But these companies I'd say are further along in terms of investing in complementary solutions, more digital solutions manipulating data on the water that's moving through those pipes. Right. So you know, I think there's a couple interesting things at play here. One is just how they pick off those industrial water vertical verticals that they can specialize in, which is really I think where a lot of the growth is. You know, at Bluefield we've covered several different segments of the industrial water industry. It's such a different business whether you're talking about food and Bev or you're talking about semiconductors and these big players that can gain a channel into huge semiconductor fabs or pharmaceutical or chemical producing factories. I mean that's, that is huge for them. Those types of contracts, especially if they get corporate accounts where you know, they're getting a steady flow of orders, they're better customers to have in some ways than, than municipal in the sense that even though the contracts are smaller, the bidding process and the procurement is a lot more fluid, let's say.
[00:19:07] Speaker B: Yeah, I think that's a nice pun there with mentioning fluid. But yeah, I think that what is also interesting is that all access, I mean they went head to head in the bid for upon or Aliaxis went in and then Georg Fisher ultimately won out. And what could be argued it was a contested acquisition. Alyaxis had built up its own equity position in Eupanorp to I think got as high as almost 20% and then ultimately they bowed out. So there's clearly competition there. Your point about industrial verticals and this is a good shift, we can sort of shift over towards Ecolab because seemingly one of the key factors or driving factors of the acquisition has to do with like global high tech or as they call it, global high tech industries that would be semiconductors and data centers. So Ecolab recently acquired Barclay Water Management which is kind of partly signals that strategy or where Ecolab thinks there are market opportunities.
Barclay Water Management is known for its, I think it has a Legionella disinfection technology and solution. It's actually based out of Newton, Mass. It's not a new company either. What was interesting is Thorn, it was in fact founded in 1932 so it reported about $50 million in revenues in 2023, so that's last year. So it'll be interesting to see what Ecolab does with its acquisition. But I don't know if you have any thoughts on that and what we're thinking, at least internally at Bluefield.
[00:20:48] Speaker A: Yeah, I mean that is obviously a very different deal than say a $2.3 billion deal for Uponor. Right. I mean it's more, I would say tactical in adding features, adding capabilities onto their ongoing core business, let's say. And you know, they I think have realized that, you know, when you're expanding the portfolio, you're looking for the, you're looking for edge in terms of what you're able to offer to some of these high tech industries like data centers, which do have many miles of pipe, in some cases they have chemical issues around just maintaining how clean those pipes are and avoiding things like Legionella forming inside them considering the temperature that the, that the water is running through there at. And so you know, I think what they've, they've found is, you know, this can be a, what we're calling a razor blade strategy where you know, they can make money off of the consumables in running the, this Iclor monochloramine system that Barclay has into facilities like data centers, could also be hospitals, retirement homes, stadiums and these, these big installations have a lot of pipe. The temperature is at a point where Legionella biofilm can form and it's an issue and it's something that requires ongoing monitoring. So what Ecolab can do, you know, as a, as a, as a laboratory service company, they can not only offer, you know, the system but then the almost water quality as a service type model where they're monitoring it, they can have alerts, they can provide the, the disinfectants to ensure you don't get built up there. So it's solving a very concrete, tangible problem that happens in a very large, large sector in terms of the, the amount of potential buildings that it could apply to. So I think, you know, that's a deal that adds on to, to what they've already been doing in, in a pretty smart way that I think others are trying to replicate. You know, we see, you know, the name of the game is always trying to build rather than, you know, just an upfront one off capex spend. How do you access that longer term recurring revenue? And that's where you get these as a service models. We obviously hear about them a lot with software and things like that, but offering a service that is providing some of those consumables along with the hardware. That's where the big money can flow.
[00:23:35] Speaker B: Yeah, it's interesting to look at Ecolab. They, you know, you see them if in whatever hotel you're in, you, if you look at the cleaning carts or you look back in the closets, oftentimes there are Ecolab products and you're exactly right. They, they provide this, you know, their strategy is really sort of a lower cost piece of equipment or reservoir of sorts, whatever the medium might be. And then it's really all about sort of ongoing consumables and, or services as they go. I mean Ecolab is not a small company. They're a 15 and a half billion dollar a year company based out of Minnesota. They about 45 to 50% of that is water related when they look at it. So they are bringing all sorts of benefits. This Legionella, which according to the CDC continues to increase year over year when it comes to health risks. Right. And so the data centers are, you can't shut these things down. I don't think there's any, you know, business strategy where whether it be Amazon or Microsoft or any of their clients or customers are going to be happy with shutting it down because they have a Legionella outbreak and it's given everybody the flu. I think fatality rates are not particularly low for Legionella. So it is a real risk and so they're willing to pay real dollars to operate and maintain these cooling systems. So data centers, it's not just about water supply and the volumes they may or may not be using for liquid air cooling. It's also the ongoing water quality treatment as part of the process, which I think is super interesting. So I mean, do you, do we have a sense or what's Bluefield's position on the competitive market and what that might mean when it comes to other players who they might be competing against and what the outlook might be?
[00:25:31] Speaker A: Right, right. So they're looking to scale up in, scale up in the sense of, you know, forming partnerships with some of these players that offer that long term growth at multiple facilities. Right. So Microsoft and SAP, they're looking to partner with, to be able to offer some sort of sustainability measurement for how those companies are operating.
They are looking at water reuse systems and when you're reusing water, particularly in some sensitive industries and facilities, you really need to stay on top of real time water, of the water quality. So real time monitoring is really is really important for that as well. And so, you know, real time monitoring it obviously generally it's a lot of data, you're only going to do it if it's a mission critical part of your operations. And I think that a lot of these huge corporate water users are realizing more and more both for risk mitigation of stuff like biofilm that hosts Legionella virus or, or just ensuring that their equipment isn't failing or what have you through the water quality. Having that real time monitoring functionality is huge and it can save a lot of money and also reduce a lot of health risks. So no doubt about it, I mean it sounds like kind of a no brainer. It's not always easy to maintain those sensors or those quality analyzers either. So it is a relatively important investment if you're putting dozens of these things all over a factory let's say. But it's a growing market. They are competing with companies like Solenis and Viralto who are also aiming to develop a similar position in terms of landing big corporate clients with long term service contracts. And you know, for what we're seeing, this is kind of what the state of play is probably going to be. Both, all three of these companies, Echolab, Solinas, Viralto, they're going to be looking for acquisitions like this. They're looking for add ons to a lot of the solutions that they're already providing to clients. And it's not just the upfront sale of the kit, but ensuring that kit is running properly and looking at the adjacencies in terms of other processes that are being impacted by water quality inside of a facility.
[00:28:09] Speaker B: Yeah, it's really interesting. Just over the past couple days here in Barcelona we've been talking a lot about just data centers themselves and what that means. I think when you look through the financials, I know one of our colleagues, Mike Miroff, he's going through the financials of the top 50 companies and water as we call them, looking at trends. But also when you look at Ecolab they all kind of align. Everybody sees data centers, semiconductors as Ecolab calls it. Global high tech is a real opportunity for obvious reasons because of things like AI and demand on the power sector, whether it means more nuclear, big or small reactors being discussed, but also demand for natural gas to power know natural gas or fired generating plants. But you know, Ecolabis said explicitly that they're seeing double digit growth in this space. Right. And they can't. And so that's, I think their water business, which I said represents about just under 50% of their revenues that's growing at I think 7 or 8%. So if that high. So if, if data centers in this space is growing double digit, then it's outpacing a lot of their other water businesses and therefore they see the opportunity as does everybody else, including Bluefield Research. So for that reason we've been talking a lot about it. So let's talk about, you know, using these two deals in particular as stepping stones. You know, what broader trends are we seeing that are driving these transformations in the water sector? What are, what are we seeing from the consulting team, but also the research team in Europe or the US for that matter.
[00:29:54] Speaker A: Right. I mean there's the trends that we've been banging on about for, since we started this company. I mean there's, there's aging infrastructure, there's, there's tight resources, there's resilience in climate change, there's all that underlying stuff. Right. But I think getting more specific to, you know, how that's impacting corporate strategies, I think that on the one hand we've got these water carve outs and that's really about trying to unlock the value. So unlocking the value meaning realizing that these companies have, have a way to help a lot of industries frankly navigate a lot of these changes that they're going through in terms of how water has become more than just a sustainability issue, but it's becoming a strategic issue. Right. And so there is that underlying just fact of water becoming more important. And particularly, you know, you might not have thought about if we're going to drop a, a fab for semiconductors in let's say, Oregon maybe 20, 30 years ago. You say, okay, well the water's going to be there. I mean, you know, we'll engineer it and we'll make sure we have enough power supply and everything else and then, oh yeah, we'll connect up the water. Now you don't think about water as that far down the totem pole, let's say. And I think that's an important point that we're seeing again and again. Obviously we're talking about huge things like hyperscale data centers and semiconductor facilities, but it's also happening at the smaller facility level as well. So just this idea of the sensitivity to water risk is obviously driving a lot of the strategic moves that we're seeing among companies like this. Right.
Then you've got, I think the, the variance in industrial water in particular invites special specialization. And what I mean by that is, you know, when we talk about municipal water, okay, every city is different, but at the end of the day, you know, it doesn't be of a certain cleanliness. Let's say to be drinkable. And there are sets of parameters that are relatively universally agreed upon. But when you get to industrial water there, you're really having to understand, you know, what is this water being used for? Is it being used to make food products? Is it being used to cool a rack of servers? Is, is it being used to rinse wafers in semiconductor facilities? And all of those things imply very specific types of treatment, the way that that water is conveyed, how often it is checked for its quality. And so I think what we're seeing is just this proliferation of opportunity in some ways as industrial niches become more sensitized to water. And so broader trend here, I mean, I think even a few years ago when we were talking about, well, this is going back now several years when like Suez bought GE's industrial water division or when I think we've seen other companies like, you know, Xylem acquiring a VOCA vocal was a huge pivot for them. Well, not a pivot, but let's say a doubling down on industrial water. And the idea being here, though, that there are a lot of growth opportunities out there as industries become more sensitized to water risk. And it's exciting because, you know, we're just talking about producing biofilm that produces Legionella. I mean, that's just one little thing. If you can think about water quality for understanding if a membrane is breaking down inside of a diesel facility that's being used to make soft drinks or what have you. So there's all these opportunities that are that go way beyond, I think, sometimes how we think about the municipal opportunity. And that's exciting. It's also worrying in some ways when you see certain industries, strategic industries, let's say, are planning huge investments. But you wonder, have they thought through the water component of it? And I think what we are seeing right now with Microsoft recommissioning a nuclear plant to ensure that they've got enough power and they're going for air cooling in their data centers. But you know, the nuclear plants use tons of water. So when you look at the water on that side of it, but then you think of, you know, maybe other data center operators, they're going to have to deal more with liquid cooling and they're going to have to make sure that water is there and they're reus. Reusing it in the most efficient way possible and not taxing the municipal water supply in a way that's unsustainable. Right. So, yeah, long story short, industrial water is an exciting space. There's a lot of growth opportunities there. And we're going to see a lot of strategies aiming towards that. Then I think the other area just around these advanced water technologies, water centric solutions. So when we talk about water tech here, I think we've tried to be relatively careful about sounding like technology is always the solution because we know that there's been a lot of great tech out there for years, perhaps that just hasn't been adopted. Right. So I think I just say here that the broader trends are, you know, the industry is waking up to, okay, we got to worry about water. Then they're saying, okay, there's these technologies that can help with it, but then it's the, it's the business case that is really emerging and I think crystallizing for, for some of these technology providers that that makes them more compelling to buy. So, you know, we've just been talking about real time monitoring and real time monitoring. I mean, it is, it is a huge deal, particularly for water quality, as I was saying before, because the water quality, it's not, it's not just the chemical readouts from the analyzer. It's how you're able to interpret that information. And here's, you know, the link to big data and even now AI is that once you've optimized how to interpret the data around water quality, that information can be channeled to deliver huge cost savings. And that could be switching out a module in a reverse osmosis treatment plant. It can be used to, you know, negotiate with your water supplier and say, hey, you promised water at this turbidity level and it's not there. It could also be used to figure out, okay, maybe we need to ramp up or ramp down our pumps because we are not using electricity the most efficient way possible. So, you know, the advanced tech and its ability to deliver cost savings around things like advanced monitoring, I think those are, those are definitely underlying trends driving this.
[00:37:06] Speaker B: You're exactly right. There's a lot happening and I know a lot of companies, whether they be vendors, but also companies are trying to, as you would say, unlock value and figure out the business plan.
I think as we look going forward, I mean, we've talked a bit about data centers in particular, sort of cutting to the chase. And this happened. There was a big conversation today about what industry stakeholders should watch for next. It's not just data centers. The role of AI and data centers are kind of unleashing a whole host of other questions will roll through other industries and other industrial verticals. So if you don't mind like maybe we could revisit some of the conversations we had over coffee this morning with the team about some of that.
[00:37:55] Speaker A: Yeah, well, I think, you know, we've clearly been seeing the focus on industrial water. We talked a lot about data centers, obviously data centers driving the need for a lot more power supply. But one thing that's been tricky around industrial water is scaling up specific solutions. So we've looked at a bunch of different, like containerized solutions providers. Whether we were, you know, you mentioned Axene before Foliad, a mobile treatment unit. Evoka does this.
Companies like Cambrian Innovation as well has like a reuse solution. So there's, there's a lot of, let's say containers that you can drive onto a site that are supposed to sort out some water issues. But it's been, when we've looked at the commercial strategies of these water solutions providers to these industrial customers, it's been hard to go past a couple of sites. So how do you get to a point where its plug and play multi site where you're signing a deal not just for, you know, the one Coca Cola bottling plant in a parched part of Texas, but rather 30 different facilities around the country? Right. And unfortunately water is hyper local. The hydrochemistry at the site level can be very unique. But is there a way to sort of crack that code and create enough, let's say standardization with some of these solutions that they can be rolled out in higher volumes. Right. Whether it's for breweries or it's for data centers or for semiconductor fabs. Right. And so the scalability question is huge and we're definitely keeping our eye on that. Like what seems to be happening and scalability. I'm not just talking about can you take a, a module that can go from 500 cubic meters a day to 2,000? No, no, I'm talking about scaling in terms of replicating orders across multiple sites, which is pretty tricky. Everything requires some customization. But when you get a business where that's possible, then, you know, things really start to amp up in growth of those kinds of business lines. So scalability is a big question and a big opportunity.
The focus on responding to regulations I think is pretty important as well. So this is both in the municipal space and also in the industrial spaces. We're constantly hearing about more regulations around different contaminants in water. It takes a long time for those regulations to actually hit the market and have impact, sometimes decades if we think about like chromium 6 in California.
But what's unique now, and I Know, we've been talking about this a lot is just pfas. And PFAS regulation is generating a lot of interest from a lot of water treatment players, both on the drinking water, but also on the, on the wastewater side. And regulations like that which target specific contaminants, which said maximum concentration levels, which are vetting specific technologies that are best available, cost efficient, that is, that's obviously a huge, huge issue. So just the, the pace of specific regulations around certain kinds of contaminants, specifically pfas. Over here in Europe, it's micro pollutants. So we're starting to see more treatment plants that are targeting like pharmaceutical micro pollutants in wastewater. So definitely, you know, emerging contaminants. How that's driving demand is, is a key trend that different stakeholders, both regulators and industry players are looking at. The other thing that we kind of touched on before is just the, the energy industry. And I know, Reece, you've been looking at this a lot lately with our colleague Ethan Edwards in the States, which is how the demand for power and how power is water hungry in many cases or you know, it can be made more efficient or you're just going to need to add more capacity no matter what, for growing industries or data centers or what have you. That is bringing up a lot of questions. I think we're all sort of looking at these many shifts happening and you can probably talk more about that, Rhys, but just this convergence of, okay, there's new technologies, whether we're talking about green hydrogen, there's new sources of demand like AI, and then there's new regulations as well about how sustainable it needs to be. And from our days working in renewable energy, we know it's a complex question, but it also invited us to get more involved in it. With water.
[00:42:55] Speaker B: Yeah, I think the energy, if you want to call it energy transition, it's a bit of a daisy chain of sorts. All these things are so interconnected. Some people call it water, energy nexus, whatever you want it to be.
The fact of the matter is that electricity demand in the US has for all intents and purposes, been flat for about 20 years. And so what's interesting is now with the advent of data centers and really AI, the growth rate for power demand is likely going to double by 2030. So we're talking a sudden ramp up. And so, yeah, what exactly does that mean? Because there are a lot of questions. One, we need to build new power capacity. That's step one.
When you add more power capacity, you know, if you're building natural Gas, we're not going to be building any coal anytime soon. But as I mentioned earlier, nuclear. Then you start dealing with more water management issues. Where is that water going to come from? How is it going to be treated?
If you take advantage of the, or the U.S. depending on what happens going forward. But with things like hydrogen as a, I mean it's really just an energy storage medium and it can be used in a number of different ways. But if, if hydrogen in that market comes to fruition, then its raw input is in fact water. So someone's got to manage that water, not only the supplies, the processed water and treating it, but also any effluents that come out of it. So then you start getting into, oh, we'll add batteries for the power sector because we're going to be using more solar and wind. Well, then you start thinking back to the daisy chain. You go further down. Well, all these metals have to be mined, whether it be nickel, copper, lithium for batteries and in that supply chain itself. So it's this really complex portfolio of problems or challenges is a better way to put it that need to be addressed just to solve AI. And as someone said earlier today, well, AI can make the system more efficient but then with every AI query it demands more water and it just goes on and on. It's like a cycle of sorts that keeps feeding itself. And water plays a role in all of these industries. And that's why I think we get interested, we get excited about it. And it's, you know, it's, it's not just supply and it's not just whether you're in a water scarce region or not. It's also managing processed water. And depending on the energy and how it's used and what's happening, there needs to be ongoing operations and maintenance of the system, but also the effluent as well.
[00:45:53] Speaker A: I mean, Reece, do you think that message is already reaching end users about the water intensity of AI or is that just us industry wonks that are compelled to be thinking about it?
[00:46:06] Speaker B: I mean, I think it's in the news every day. But I don't think, I think one of the challenges I also have is, you know, silicon chips or sim, you know, Nvidia, right. They're manufacturing this, it requires water. But you know, I think at the end of the day, if you're building, and I'm going to be a cynic here for a second, but if you're building a semiconductor facility, it uses a lot of water whether it's reused or not. Right? I mean There is a solution of some sort for water management or the water demand. They're being built in places like Arizona and Texas. Right. So these are not, you know, we're not talking Ireland here or Seattle where it rains often. And so I don't know if the companies, you know, when you think about who's developing a project, are they thinking beyond the life cycle of that investment in a semiconductor fab? So let's say a semiconductor fab has a life cycle. I don't know what it is. 20 years, year 21. Do they care whether there's water available or not? No, I don't think so. I don't think that's in their planning. That's where policymakers and regulators and to some extent the public need to come into play. So to your question, are they educated?
Somewhat. I think we are more so than others.
We're trying to help companies identify the opportunities to better manage it. But I think, you know, and lastly, I would say I think one of the challenges back to data centers, when they're announced in certain locations, it quickly gets around that there's a potential draw on their water sources, real or unreal. I think people do understand data centers queries equals water usage and will it drain the local aquifer or draw down too much of the existing water supply for the community. And I think it is a risk if it's not managed properly. And I think policymakers need to understand that. And public does push back the role of AI. And I know people tire of it, are overwhelmed by it. I think what to do with it, what does it mean for society, not only just our kids and what they're learning. We've talked a lot about that. But there are environmental impacts that are cascading in their impact across multiple industries and localities. And there are questions about how many jobs do the facilities themselves provide for data centers like just in the construction and build out, but also the long term benefits for good or bad. And that's a philosophical discussion that we could probably save for another day. But the water impacts are real. So I do like it. And I think, you know, I think to round this out, I think in the reason I want to talk to you about all of this is we do a lot of consulting helping companies like figuring out what are adjacencies. I think one of the favorites that we've talked about is wastewater based epidemiology looking at opportunities, how to, you know, is there an opportunity to monitor wastewater from prisons or meat packing plants or schools to better understand what's happening in the, within those facilities, in addition to things like Covid, which is where I think part of the discussions originated. So there are, you know, adjacencies, who's doing real time monitoring, helping companies understand and do due diligence on targets for acquisition, but also where those markets may be heading. So I think there's, there's a lot to unpack. So I think it's super interesting.
[00:49:48] Speaker A: Yeah, and I think, you know, it's obviously in the perpetual quest for growth, you know, business strategy planners are trying to figure out, you know, how do you even define an adjacency? Is it something that we've already been kind of doing and we're just going to invest a whole lot more into it, or are we really going out on the limb because we think it's going to push the company in a different direction?
Or you know, is it just something kind of smaller and tactical like adding another geography to what we already have? Right. So the question of adjacencies is obviously it's a question of finding growth where you have something, some kind of capability usually that you can leverage or you know, there's a few options at your disposable, at your disposal, whether it's an acquisition, which we've done a lot of due diligence work on, or you know, trying to partner with companies. So we've also looked to support different channel strategies for how companies, particularly advanced water treatment companies, let's say, are trying to find their way into new markets and find the right partners with the local relationships that understand their product and can do more solution selling than just selling hardware, let's say. And then there's, you know, obviously the direct sale approach as well and how we've supported that by doing a lot of demand analysis of whether you're looking at utilities or different industrials. I mean, you mentioned the case of the wastewater based epidemiology project. That's a bit of a blast from the past now. But you know, projects like that where you have technologies that can be applied to very diverse niches of demand, it's not easy to get your head around. Right. And hopefully, you know, we've gotten the word out that we're, we think we're good at that in the sense that we're able to frame those types of problems and bring some numbers and some clarity to support decisions around, you know, what do you prioritize? Right. I mean, we've done, I'd say a bunch of projects looking at like decentralized treatment, whether it's ro or atmospheric water generators or containerized wastewater treatment. Right. And it's like, okay, do we go to Caribbean islands? Do we try and sell this to supermarkets? Do we want to sell it to schools? Do we want to sell at the hospitals? Like, you know, there's so many different options, so many different types of users of different types of water. So trying to, you know, break down those problems, provide some way of prioritizing. We've. We've done quite a bit of that. And it's, you know, it's. It's interesting, particularly when you see the clients follow through on those recommendations and go all in to try and get into a specific market or acquire a company. So that's one of the exciting things about the consulting work we do that builds on that really solid research platform that we have.
[00:52:59] Speaker B: Yeah, nice. That's a good way maybe to wrap it up. So, you know, for anybody out there who has any questions about how we help companies, you can always dig around on our website. I think there's some case studies that we provide, but I think Keith is your guy, if you're. If anybody's interested, to reach out and we can explain to you what we. What we've done, but also how we've done it. You know, we're pretty transparent with our methodology.
We're not making things up. We try to be clear about, you know, you know, part A goes into part B equals, you know, C, and that's kind of how it works. And we've been pretty successful at it. And, you know, it's. I know it's Q4 already, and it's been a good year when it comes to that. So part of that's the market, but I think it's part of. It's the consulting team, both in the US as well as Europe, and what's happening. So. All right, Keith, I'll let you go because we also have a team dinner tonight, so there's no sense in holding back. And, well, we can report on what actually happened later on in another episode of maybe an episode 108, since this is 107.
All right, I'll let you go, and we'll catch up later.
[00:54:15] Speaker A: Great. Good chatting.
[00:54:17] Speaker B: Thanks again. Cheers.
All right, there you go. That's a wrap for the 107th episode of the Future Water podcast. So thank. Thanks for being part of the journey, excited to learn about what the future holds and all the innovations that lie ahead. So stay tuned for more insightful discussions and expert interviews. Here's to what would that mean? Another 93 episodes to 200. So if you're in Boston or Barcelona, I'm headed out tomorrow, so I won't even be here. But you'll miss me. But if you want to meet anybody there, or in places like New York, Paris, Chicago, San Francisco, we've got mates and colleagues there, and they'd love to meet you in person. Please subscribe to the Future Water Give us a review.
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