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Despite declining capital expenditure, long-term growth will result from necessary repair and environmental protection projects, according to new report
The credit crunch cuts 13% from U.S. water infrastructure spending, but long-term growth is guaranteed, according to Water Market USA, the new market intelligence report from the publishers of Global Water Intelligence.
America’s failing water and wastewater sector looks set to decline further in 2009, as capital expenditure on crucial infrastructure projects is cut back by 12.9%, according to the report. Restraints on borrowing, shrinking tax bases and a drop in capital contributions from property developers have derailed investment plans, the report suggests.
But in the longer term, much stronger growth is in store, as scarcity, the need for environmental protection and repair for decaying networks force the pace of investment. Water Market USA suggests capital expenditure will grow from $25.2 billion in 2009 to $49.7 billion in 2016.
The biggest area of expenditure will be rehabilitating the sewer network—attracting a total of $46 billion of expenditure between 2009 and 2016. Upgrading wastewater treatment plants is also a priority, attracting $41.1 billion over the same period. The fastest growing market will be seawater desalination, which is currently not much more than a cottage industry in the U.S., attracting total capital expenditure of around $130 million in 2008. This will grow to more than $1 billion by 2015.
Other findings from the report include:
• Water tariffs will need to rise steeply: currently U.S. consumers pay between a third and a half the amount that European consumers pay for water, but they use two to three times the amount of water.
• The challenge of recruiting skilled staff will drive investment in automation among larger utilities and as well as encourage outsourcing among smaller utilities.
• The fastest growing water technology markets between 2008 and 2016 will be ultrafiltration and microfiltration membranes (+280%), UV disinfection (+227%), ozone disinfection systems (+233%) and membrane bioreactors (+180%), and reverse osmosis membrane systems (+165%).
• Capital expenditure on water reuse will top $10 billion between 2009 and 2016; whereas seawater desalination will attract investment of $5.5 billion over the same period.
The main beneficiaries of long-term growth in the sector will be engineering firms such as Black & Veatch, CH2M Hill, AECOM Technologies and Jacobs Engineering; solutions providers such as General Electric, Siemens, Veolia Environnement; and equipment suppliers such as ITT, Dow Chemical Co. and Energy Recovery, Inc. The growth rate of investor-owned utilities is expected to be more modest, although they are expected to provide a safe haven for investors during the crunch period.
Christopher Gasson, co-author of the report, commented: “The cost of the cutbacks during 2009 will be borne by the environment. We will see more pollution in rivers and lakes and further degradation of freshwater resources.
“From 2010 onwards the outlook looks much better. With Obama’s big infrastructure spend feeding through, and utilities catching up with the projects that they were forced to delay in 2008 and 2009 because of the financial crisis.
If you are defensive investor, water is a great market because ultimately you can’t avoid paying for it."
Water Market USA is the largest independent assessment of the U.S. municipal water market undertaken in the past decade. It is based on a survey of the spending plans of 1,000 major water and sewer utilities. It includes detailed market forecasts for pipeline and treatment technologies as well as the most extensive list of current project opportunities available anywhere. It is published in the form of 10 data sets and a DVD business documentary featuring leading figures from the industry.
You can find more information on Water Market USA at: www.globalwaterintel.com/GWM2008/usa/index.html.