Droughts: The Impact of Arid Regions on Water Resources and the Necessity of Water Technology

While Spanish strawberries may be a delightful springtime treat for many, they’re also at the center of a struggle for access to dwindling water resources. German activists are calling to boycott “drought strawberries” due to illegal water extraction that has depleted a once-thriving Andalucían wetland. Water scarcity is quickly becoming a defining characteristic of our world, with consequences that require investment and risk mitigation from businesses, particularly in the face of demographic growth and climate change.

According to a recent study by McKinsey, by 2030 water demand will be 40% higher than supply. In order to bridge this gap, investment into three main water technologies is essential. The lowest-cost of these is water conservation, which is particularly critical in agriculture, as it accounts for 70% of water consumption globally. Some companies, such as Israel’s Netafim, specialize in drip irrigation, while others are innovating drought-tolerant crops. State subsidies may be necessary to implement these innovations in poorer communities.

The next technology focus area is on treating and reusing water. Water scarcity poses an existential threat to industries such as mining which are heavy users. Unless they can establish closed-loop water systems, they risk losing their licenses to operate. This creates opportunities for “water-tech” entrepreneurs. For instance, Gradiant, the first water-tech unicorn, has developed new methods for purifying industrial wastewater.

At the top of the water-tech cost curve is desalination, which uses similar technology to purification plants but separates out smaller molecules. The cost of producing freshwater from seawater has dropped from $1.50 to $0.50 per cubic meter over the last 15 years. These costs will continue to fall due to the decreasing cost of renewable energy, making desalination a viable option for water-stressed coastal areas. For example, Saudi Arabia’s ACWA Power has built the world’s largest desalination plant in Abu Dhabi. Other companies that offer exposure to the sector include Sweden’s Azelio AB and Japan’s Hitachi Zosen Corporation.

Optimizing all three technology types can benefit from big data projects and machine learning. Xylem, based in the US, sells sensor technology, smart metering, and data analytics for underground infrastructure. In the past, adoption of water-tech has been slow. However, the current round of droughts may be the breakthrough needed to spur greater investment.

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Water scarcity is gradually emerging as a vital issue amidst the changing climate and relentless population growth. However, smart investment in water conservation, reuse, desalination, and adoption of innovative technologies can pave the way for a brighter, more sustainable future.

Climate Capital

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