Wa­ter wars may be closer than you think, warn ex­perts

The need to move ‘wet gold’ to fuel lo­cal economies is grow­ing and moves are afoot to bridge that gap, writes Rachel Mil­lard

The Daily Telegraph - Business - - Business -

In the nat­u­ral course of things, the River Sev­ern’s 220-mile jour­ney starts high in the Cam­brian Moun­tains of mid-Wales, snakes north-east past the for­mer in­dus­trial heart­land of Iron­bridge, down through bu­colic Glouces­ter­shire and its Berke­ley Cas­tle, and out into the Sev­ern Es­tu­ary.

Plans are be­ing ex­plored, how­ever, to pinch some of its wa­ter and move it over the Cotswolds and into the River Thames, where it can flow east to meet the needs of the rapidly grow­ing pop­u­la­tion and in­dus­try in the cap­i­tal and sur­round­ing ar­eas.

Shift­ing wa­ter be­tween re­gions is likely to be­come far more com­mon as ex­perts look for ways to meet grow­ing de­mand at the same time as sup­plies are be­ing cut by cli­mate change and the need to re­store bio­di­ver­sity.

Eng­land’s de­mand for wa­ter could out­strip sup­ply by up to 3.1bn litres per day by the 2050s, de­pend­ing on the ex­tent of cli­mate change and pop­u­la­tion growth, ex­perts be­lieve.

Such chal­lenges are mag­ni­fied around the world, with global wa­ter de­mand set to rise by up to 30pc by 2050 and more than 4bn peo­ple al­ready suf­fer­ing wa­ter short­ages for at least one month ev­ery year.

That stark sup­ply short­age is pro­vok­ing grow­ing in­ter­est in wa­ter among in­vestors, who are pour­ing cash into land as well as equip­ment and ser­vices to help man­age sup­plies.

Money man­aged just by pub­lic ve­hi­cles fo­cus­ing on wa­ter in the US and Europe has nearly dou­bled over the latest five years to $10bn. The in­ter­est raises hopes of fix­ing the sup­ply prob­lems, but also ques­tions over the ethics of prof­it­ing from and con­trol­ling nat­u­ral re­sources.

“The global op­por­tu­nity is pretty enor­mous,” says Justin Win­ter, port­fo­lio man­ager at Im­pax As­set Man­age­ment, one of sev­eral funds that have started fo­cus­ing on the sec­tor since the early 2000s. “Re­new­able en­ergy has been pop­u­lar and un­pop­u­lar – wa­ter is a bit less prone to that sort of phe­nom­e­non.”

Michael Burry, the hedge fund man­ager who pre­dicted the sub­prime crash of 2008, helped spur in­ter­est in wa­ter when he spoke in 2010 about snap­ping up agri­cul­tural land with good wa­ter sup­plies, ar­gu­ing it “will be very valu­able in the fu­ture”.

Yet aside from wa­ter rights, land and util­i­ties, in­vestors are in­creas­ingly fo­cused on the pipes, tanks and gad­gets that can store, clean, re­cy­cle and move wa­ter, and pre­vent leaks.

They have found a ready mar­ket not just with gov­ern­ments but also with pri­vate com­pa­nies such as min­ing or chem­i­cals com­pa­nies who are in­creas­ingly hav­ing to build their own wa­ter re­cy­cling or treat­ment plants to re­duce re­liance on wa­ter sup­plies needed by peo­ple liv­ing nearby.

Nick Wood, chief ex­ec­u­tive of Res­o­nance As­set Man­age­ment, in 2015 launched the Res­o­nance In­dus­trial Wa­ter In­fra­struc­ture Fund, which fi­nances wa­ter treat­ment sites for clients then earns a long-term in­come un­der man­age­ment out­sourc­ing agree­ments.

Fo­cus­ing on Europe, Aus­tralia, China and south-east Asia, the fund is backed by two Swedish state pen­sion funds as well as the BAE Sys­tems pen­sion fund. “Wa­ter scarcity is a prob­lem but it can be sorted out – it just needs cap­i­tal, reg­u­la­tion and en­ergy,” says Wood.

“There is plenty of wa­ter around – it is just in the wrong places. I think the sup­ply will come from long term in­fra­struc­ture in­vestors. They can see the op­por­tu­nity and many are com­mit­ted to in­vest­ing in a way that de­liv­ers en­vi­ron­men­tal ben­e­fit.”

‘There is plenty of wa­ter – it is just in the wrong places’

Kansas-based in­fra­struc­ture in­vestors Tor­toise Cap­i­tal Ad­vi­sors has ex­panded fo­cus from the pipes that fed the US frack­ing boom into wa­ter in­fra­struc­ture and tech­nol­ogy, such as the New York-listed wa­ter fil­ter, treat­ment and smart me­ter­ing com­pany Xylem.

“We think we are at an in­flec­tion point in terms of tech­nol­ogy in the wa­ter space,” says Nick Holmes, port­fo­lio man­ager for sus­tain­able wa­ter strate­gies at Tor­toise. “And Covid-19 is ex­pected to speed up the adop­tion of tech­nol­ogy, such as sen­sors and re­mote con­trols, in the mu­nic­i­pal and in­dus­trial mar­kets.”

He be­lieves this will lead to cheaper wa­ter at the end of the tap – rather than just be­ing an­other route to ex­tract cash from house­holds. “If you can im­prove ef­fi­ciency and max­imise sup­ply, it should mean bet­ter prices for con­sumers,” he says. In the UK,

‘There is a sig­nif­i­cant need for more wa­ter re­sources’

in­vestors may end up find­ing that di­rect in­vest­ment into smart me­ters and other tech­nol­ogy is a can­nier bet than the util­i­ties who are be­ing squeezed by the reg­u­la­tor Ofwat.

Hav­ing just fended off the threat of na­tion­al­i­sa­tion un­der Jeremy Cor­byn’s Labour Party, UK wa­ter sup­pli­ers now face caps on re­turns at lev­els hark­ing back to pre-pri­vati­sa­tion days, and are also un­der pres­sure to cut leaks by 16pc by 2025, and slash bills.

A hand­ful of wa­ter com­pa­nies, in­clud­ing Bris­tol Wa­ter and Northum­brian Wa­ter, are ap­peal­ing to be al­lowed more financial flex­i­bil­ity, ar­gu­ing that such strin­gent rules will harm in­vest­ment in much-needed new in­fra­struc­ture.

The tougher stance from Ofwat fol­lows years of frus­tra­tion at the in­dus­try over leaks, which cur­rently waste about 20pc of wa­ter – equal to about 3bn litres per day. Bills rose sharply post- pri­vati­sa­tion, al­though are now ex­pected to come down.

Lon­don’s mo­nop­oly sup­plier Thames Wa­ter and its for­mer owner Mac­quarie, the Aus­tralian bank, had be­come a light­ning rod for crit­i­cism af­ter Mac­quarie and other share­hold­ers took out £1.2bn in div­i­dends dur­ing a decade of own­er­ship up to 2016, even as the firm re­ceived heavy fines for pol­lu­tion.

Thames Wa­ter now has 50,000 smart me­ters around Lon­don, and says they are help­ing to re­duce leaks from its 20,000-mile net­work of pipes. The Na­tional Au­dit Of­fice spend­ing watch­dog be­lieves smart me­ters could help peo­ple cut their wa­ter con­sump­tion, which rose by 3pc be­tween 2014 and 2019 to 143 litres per per­son per day.

Gas and elec­tric­ity smart me­ters are al­ready a money-spin­ner for Mac­quarie, which owns about 20pc of the UK en­ergy smart me­ter mar­ket. But the rel­a­tively higher im­pact of wa­ter smart me­ters on wa­ter bills could com­pli­cate wider use.

Re­gard­less of cuts to leaks and con­sump­tion, how­ever, other steps will be needed to sort out Eng­land’s loom­ing wa­ter sup­ply prob­lems. May 2020 was the dri­est month on record for Eng­land, as well as the sun­ni­est for the UK – al­though it’s not yet clear whether cli­mate change was a fac­tor. Ofwat has set up a £469m fund to help wa­ter com­pa­nies meet de­mand.

“There is a sig­nif­i­cant need for more wa­ter re­sources,” says Dr Chris Lambert, at Thames. “Due to in­ten­sity of use at the mo­ment, we are not cur­rently at the re­quired re­silience po­si­tion.” Thames built the coun­try’s first de­sali­na­tion plant in Beck­ton, east Lon­don, in 2010, while a new reser­voir in Abing­don is also planned.

There are also wa­ter trans­fers be­ing pro­posed be­tween the Sev­ern and the Thames. Wa­ter trans­fers al­ready take place to a small ex­tent, but in­creas­ing that sup­ply is far from straight­for­ward.

“We need to make sure we are not caus­ing en­vi­ron­men­tal dam­age,” says Lambert. “Some of the wa­ter comes from within Wales. That would need the Welsh assem­bly’s ap­proval.” Wa­ter wars may be likely in the fu­ture.

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