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  • Drought and increasing demand for fresh water are straining water resources in many areas.
  • Certain water intensive energy activities will increasingly face upward pricing pressure because of water constraints.
  • Opportunity for water investment, both commodity and technology, is ripening.

California is in the midst of an epic drought. It is one of 11 western states (Texas, Colorado, Oklahoma, New Mexico, Nevada, Utah, Arkansas, Hawaii, Idaho, and Kansas are the others) that the U.S. government declared to be "primary natural disaster areas" due to drought. The historical approach to water use - if you had rights to it, use it - is being revised as absolute limits on available freshwater supplies are becoming severe.

As governments rethink usage priorities and consider limits on uses, it has become clear that freshwater is an undervalued commodity. It is a limited, but vital, commodity without a price. In nearly every region, the price of water is the cost of water access rights, treatment costs, and transportation costs. There is no price or market for the water itself.



Initially, reduction in use will focus on eliminating waste and high-use-low-value activities (like watering a lawn), but as the limitations become more acute, some uses will simply cease to be provided for, or the cost of use will increase, forcing a rebalancing of the ways water gets used.

Currently, agriculture is the single largest use for freshwater - globally roughly 70% of freshwater use is for agriculture. Upward pressure on food costs has already been pointed to as a significant source of political destabilization, so in water limited areas, adding to food costs will not have political appeal.


The impact of water prices on energy activities will, of course, depend on how high the cost. Historically, the prices paid for water are so low as to be of little concern to most energy businesses - even if they were to double. However, given the high cost of disruption from shortages, real, significant increases in prices are a possibility in the future. Pricing cuts both ways - it will add to the cost of energy, but it would also provide certainty as to availability. There are already markets in which doubts about the absolute availability of water has undermined financing for new power generation projects.


Energy projects built around desalination - both seawater and brackish ground water - will increase, and already several groups are looking at desalination as synthetic energy storage for intermittent renewable power.

Another area to pay attention to are technologies and processes that can reduce or eliminate water use from the energy process - these types of technologies have been underfunded to date because of limited market value. We are seeing increased interest by investors in building positions because with a clear view on the economic value associated with water savings, these companies can become extremely valuable. For example, historically active players in the water technology and infrastructure market like GE (NYSE:GE), 3M (NYSE:MMM) and Violia are well positioned in this market, and there are countless other companies that are carving out positions that could add value as these trends continue to evolve.

This article is cross-posted from the Energy Collective and an earlier version of this article ran in the Christian Science Monitor.

Source: Water And The Future Of Energy Economics