Water Is Life
Investors and technologists tend to focus on the most precious or technically useful natural resources and commodities, such as gold, rare earth, or lithium. However, a much simpler resource is needed in massive amounts daily to sustain our civilization: fresh water.
While it literally falls from the sky in most of the world, its availability is still under severe pressure in modern civilization, as we consume much of it for industry, agriculture, and human needs.
Only 3% of the world’s water is usable fresh water, with 97% being saline (saline groundwater and seawater). Of this freshwater, 69% is held in glacier and polar ice caps, 30% is groundwater, and only 1% is surface water.
Source: USGS
As a result, in many places, the only available water source is saline. Desalination is possible but requires a tremendous amount of energy. Until now, it has often been done with fossil fuels, as most desalination techniques are energy-intensive and require constant and stable energy inputs.
This could change, thanks to a new method developed by MIT engineers and published in Nature Water under the title “Direct-drive photovoltaic electrodialysis via flow-commanded current control.”
Solar Desalination
At first glance, solar power seems to be the most logical energy source for powering desalination operations. Not only is it provided for free by the Sun, but it is also generally abundant in dry regions like deserts, which often need desalination the most.
With solar power becoming cheaper by the day, it will likely continue to grow as an energy source, as we covered in our article “The Solar Age—A Bright Future To Mankind.”
There is still one problem – solar energy is only produced when the sun shines. This means that to operate efficiently, most solar-power-only desalination operations would need to be coupled to a battery system, increasing costs.
This is especially problematic for current desalination techniques, like reverse osmosis, which needs stable conditions and a stable energy supply to be efficient. This is because it requires constant pressure on the osmosis membranes.
This precludes any small-scale desalination and any low-cost methods, at least as long as energy storage is still expensive. This might change, as we discussed in “The Future Of Energy Storage—Utility-Scale Batteries Tech“; still, it could be better to also adapt to the natural fluctuation of solar power, including very short-term ones like clouds passing by.
Flexible Batch Electrodialysis
The MIT researchers favored this approach. They studied electrodialysis, an alternative method to reverse osmosis for desalination. Electrodialysis uses an electric field to draw out salt ions as water is pumped through a stack of ion-exchange membranes.
Source: Nature Water
For their new design, they created a model-based control system connected to sensors in all parts of the system. It predicted the optimal rate at which to pump water and the voltage that should be applied to maximize the amount of salt drawn out of the water.
By doing so, the desalination operation could fluctuate according to the solar power produced in real-time.
Source: Nature Water
On average, the system directly used 77 percent of the available electrical energy produced by the solar panels, which the team estimated was 91 percent more than traditionally designed solar-powered electrodialysis systems.
Further Improvement
The almost doubled rate of solar power utilization compared to previous electrodialysis systems could still be improved with more regular optimization & automation:
We could only calculate every three minutes, and in that time, a cloud could literally come by and block the sun.
The system could be saying, ‘I need to run at this high power.’ But some of that power has suddenly dropped because there’s now less sunlight. So, we had to make up that power with extra batteries.”
Amos Winter – Director of the K. Lisa Yang Global Engineering and Research (GEAR) Center at MIT
This was a proof-of-concept work and will be turned into a commercial design soon, as the team will be launching a company based on their technology in the coming months.
This research project was also supported in-kind (provided material for free) by Veolia Water Technologies and Solutions (VIE.PA) and Xylem Goulds (XYL -1.17%).
Not Just Seawater
The research team focused on the desalination of brackish groundwater found underground in New Mexico. As many dry area population centers are far from the sea, this can be an important water source currently unavailable due to its salt content.
“The majority of the population actually lives far enough from the coast, that seawater desalination could never reach them. They consequently rely heavily on groundwater, especially in remote, low-income regions. And unfortunately, this groundwater is becoming more and more saline due to climate change.”
Jonathan Bessette – MIT PhD student in mechanical engineering
The research model was already able to provide enough fresh water that it could supply 3,000 people. It was operated for 6-months at the Brackish Groundwater National Desalination Research Facility in Alamogordo, New Mexico.
Not Just Desert Areas
We tend to think of fresh water shortage and a dire need for desalination occurring only in dry places like New Mexico or Saudi Arabia. However, “wet” regions can also be affected. For example, the UK is considering importing fresh water from Norway during drought.
Similarly, Canada has been affected by a crisis regarding fresh and clean water supply, leading to a $1.1B lawsuit against the Canadian government by more than 50 First Nations after a recent settlement worth $8B.
Meanwhile, Taiwan’s water shortages threaten the crucial semiconductor industry, which is the core of the island’s economy.
And climate change could make each of these separate crises worse over time.
Many regions and low-income countries could also benefit from using more water than they currently do, for example for boosting agriculture yields, with seawater an obvious candidate for unlimited supply, as long as desalination is cheap enough and energy is provided by the summer Sun.
Alternatively to desalination, pulling water out of thin air could also be possible thanks to quickly improving atmospheric water harvesters.
Investing In Water
Access to clean fresh water has since 2010 been recognized by the UN as a human right. It is a big industry, valued at $323 billion in 2023, and expected to grow at 7.5% CAGR until 2032, reaching $617B.
It is also a sector that has been constrained by resource availability and energy costs, something that might be less critical as solar power is getting cheaper, and new techniques to produce more water are emerging. That is if climate change does not cause critical shortages.
If you are not interested in specific water companies, you can also look into water ETFs like the Global X Clean Water ETF (AQWA), the iShares Global Water UCITS ETF (IH2O), or the Amundi MSCI Water ESG Screened ETF (WAT), which will provide more diversified exposure to capitalize on the growing water sector.
Companies Solving Water Shortages
Xylem Inc.
Together with the European Veolia, Xylem is a global leader in water purification, wastewater treatment, and desalination. It employs 23,000+ (of which 6,000+ engineers) people and operates in 150 countries, with a focus on the USA, with 35,000+ direct industrial customers.
Its main market is municipal drinking and wastewater, but it also provides dedicated solutions to other sectors like healthcare, power, food & beverages, oil & gas, microelectronics, etc.
Source: Xylem
Xylem can provide the critical patented pieces of equipment to clean or produce water like ozone generators, UV lamps, desalination membranes, ultra-pure water generators, etc. But it also provides “simpler” equipment equally critical to water-related operations like turbines, pumps, piping, injection, software, etc. as well as maintenance, repair, and installation services.
Source: Xylem
The water market is still a very fragmented one, with Xylem one of the largest companies in the sector but still holding “only” a 10% market share out of its $80B served addressable market.
The company spends around 4% of its sales on R&D. It should benefit from new regulations regarding PFAS (Per- and polyfluoroalkyl substances, or forever chemicals), with 6,000+ utility facilities needing such PFAS treatment.
Xylem has been growing steadily, with net income growing from $297M in 2012 to $609M in 2023 while keeping a stable 17-219% EBITDA margin.
Overall, this makes the company’s investing profile less like that of an industrial company (often cyclical) and more like that of a utility company growing with the overall economy or a little bit above that rate, like most of its consumers.
