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South Africa an Arduous but Necessary Journey to Ease the Energy Crisis by EOS Intelligence
by EOS Intelligence EOS Intelligence No Comments

South Africa: an Arduous but Necessary Journey to Ease the Energy Crisis

South Africa is struggling with an unprecedented energy crisis resulting in daily load shedding for prolonged hours. Corruption, mismanagement of resources, and political conflicts are the root causes of the energy crisis. Lack of investment in energy infrastructure development, regulatory challenges, and outdated integrated resource plans further exacerbate the situation. Load shedding has been hampering business operations across sectors, increasing operational costs and negatively impacting GDP growth. While renewable energy can help combat the energy crisis, political resistance, and insufficient government support hinder the transition from fossil fuels to renewable energy sources. However, recent government initiatives are likely to expedite a shift towards renewable sources.

South Africa’s power supply marred by a range of deep-rooted issues

South Africa has been grappling with a significant energy crisis for the past several years, since 2007, leading to daily load shedding to prevent the collapse of the electric grid. Corruption, inability to cope with growing demand, political infighting, poor maintenance practices, limited investment in the energy sector for developing new infrastructure and maintaining running plants, and inefficient operations at Eskom (government-owned national power utility) have driven the energy crisis in the country.

Corruption is considered the major cause of this energy crisis. It is alleged that Eskom executives, through bribery and theft, made Eskom lose about US$55 million per month for the past several years. Also, the supply of low-grade coal to Eskom by a coalition in control of the coal supply has led to the regular collapse of Eskom’s power plants.

Additionally, the absence of an updated Integrated Resource Plan (IRP) further exacerbates the energy crisis. IRP (first launched in 2011) aims to project and address the electricity demand in the country. The government last updated its IRP in 2019, when it outlined annual auction and decommissioning plans until 2030. IRP must be updated regularly to include new advancements in the development of power generation technologies to align with the most effective scenarios for generating electricity.

Setbacks in renewable energy construction projects due to escalating costs have further spiked the energy crisis in South Africa. Around half of the projects awarded under the re-launch of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in 2021 failed due to increasing energy costs. REIPPPP is a government initiative to increase electricity capacity through private sector investment in renewable energy projects by allowing independent power producers (IPPs) to bid for and develop renewable energy capacity. Some projects have also been sidelined due to a lack of connections to the national grid.

South Africa an Arduous but Necessary Journey to Ease the Energy Crisis by EOS Intelligence

South Africa an Arduous but Necessary Journey to Ease the Energy Crisis by EOS Intelligence

GDP growth and sectors’ outputs affected by the ongoing electricity shortage

Rolling power cuts have negatively impacted the country’s economic growth, businesses, and households. It significantly affected the day-to-day operations across sectors. The economic costs associated with load shedding have negatively impacted the country’s GDP growth since 2007. It decelerated from 4.7% in 2021 to 1.9% in 2022 due to various factors, including power cuts and volatile commodity prices, among others. It further declined to 0.9% in the first half of 2023, mainly due to the energy crisis. Lowering GDP growth is likely to limit tax revenue and, thus, limit government spending.

Energy-intensive industries, particularly mining, have been severely impacted by power outages. Mining production fell by 3.7% in Q4 2022 compared to Q3 2022. Overall, the mining sector contracted by over 7% in 2022, in contrast to 2021. In 2023, mining production contracted by a further 1.5% in Q3 compared to Q2.

Other industries also continue to be affected. Agricultural output declined by 3.3% in Q4 2022 compared to Q3 2022. Manufacturing production fell by 1.2% in Q3 2023 in contrast to Q2 2023. The trade sector saw a decline of 2.1% in trading activities in Q4 2022 compared to Q3 2022. The food and beverage industry has also faced the consequences of power outages. Although the food and beverages industry is less electricity-intensive than other manufacturing industries, daily power outages have still led to increased operational costs and reduced output. Extensive load shedding also caused disruptions across retail operations and supply chains, negatively impacting food and beverage manufacturers’ pricing and profit margins.

The financial toll on businesses increased significantly, especially regarding the expenses associated with diesel purchases to run generators in the absence of power from the grid.

Transition to renewable energy hindered by political resistance and policy gaps

South Africa is blessed with abundant sunshine and wind, but the transition to renewable energy from coal power plants is not going to be a quick fix for the energy crisis in the near future. This is mainly due to political resistance by people with a vested interest in the fossil fuel industry and a lack of clear policies/regulations to promote renewable energy deployment.

Inconsistencies and a lack of coordination between energy companies and the government hinder existing policies aimed at encouraging the deployment of renewable energy. Additionally, the dominance of Eskom managing R&D investments related to power generation and market control hampers the deployment of renewable energy.

Despite the establishment of REIPPPP, renewable energy generation has not increased sufficiently to address the crisis. According to the Council for Scientific and Industrial Research (CSIR), only 7.3% of energy was generated from renewable sources in 2022. Concerns about job loss and insufficient grid infrastructure further hamper the transition to a more sustainable energy landscape.

Renewable energy growth driven by international collaborations

However, the government has begun to understand the importance of renewable energy in tackling energy shortages and has been promoting the sector. This has resulted in increasing foreign investment in renewable energy projects in South Africa. The increase in renewable projects due to retiring coal power plants is also likely to help combat the ongoing energy crisis.

For instance, in mid-2022, Scatec, a Norway-based renewable energy company, signed a 20-year contract with Eskom to supply 150MW to the national grid through various projects with a capacity of 50MW each.

Similar to this, in April 2023, Lions Head Global Partners (a UK-based investment banking and asset management firm), Power Africa (a US government-led presidential partnership initiative aimed at increasing access to electricity in Africa) in collaboration with the US Agency for International Development, Flyt Property Investment (a South Africa-based property development company), and Anuva Investments (a South Africa-based real estate and renewable energy investment firm) announced investment of US$12.1 million in Decentral Energy Managers, an independent power producer that focuses on renewable energy in South Africa.

Also, in September 2023, the USA proposed to invest US$4.8 million in partnership with the US African Development Foundation and the US Departments of Energy, Commerce, and State through Power Africa to support initiatives aligned with South Africa’s ‘Just Energy Transition Partnership’ (JETP) investment plan. JETP is an agreement forged among the governments of South Africa, the USA, France, the UK, Germany, and the EU, aimed at expediting the phased shutdown of South Africa’s coal-fired power plants and speeding up the transition from fossil fuels to renewable energy. The USA has been the largest source of foreign direct investment (FDI) in the renewables space in tenders issued by the South African Department of Energy under REIPPPP.

In addition, in August 2023, South Africa signed several agreements with China to strengthen energy security and transition. China, being the leading installer of hydro, wind, and solar power and having close diplomatic and economic relations with South Africa, is expected to help the country with solar equipment while providing technical expertise.

Moreover, the REIPPPP launched the sixth round of the bid window in April 2022 to incorporate an additional capacity of 5.2GW into the energy mix. Still, only five bidders were chosen in Q4 2022 and are expected to generate around 17% of the total anticipated capacity.

Power crunch partially eased by soaring rooftop solar installations

An increase in the installation of rooftop solar systems by individuals and businesses to prevent disruptions to their operations caused by prolonged load shedding is also likely to help tackle the energy crisis. South Africa’s installed rooftop solar PV capacity increased by about 349% from 983MW in March 2022 to 4,412MW in June 2023.

The introduction of tax rebates for households and businesses for rooftop solar system installation is anticipated to stimulate increased adoption of rooftop solar systems across the country. For instance, in March 2023, the government proposed a tax rebate of 25% of the rooftop solar installation cost, up to a maximum of US$817.74 from March 2023, and a tax rebate of 125% of the businesses’ cost of investment in renewable energy sources such as solar, wind, hydropower, and biomass. This is expected to expand electricity generation and help ease the ongoing energy supply crisis.

Hope for improved power management brought by government activities 

The government is slowly doubling up its efforts to encourage more participation of IPPs in renewable energy generation. This is expected to help boost power generation and, thus, play a crucial role in addressing the energy crisis in the near future. The National Energy Regulator of South Africa (NERSA) approved over 15 IPPs between May 2022 and June 2022. As of June 2023, the country has an extensive pipeline of wind and solar projects, amounting to 66GW of capacity. Projects amounting to a capacity of over 5.5GW are expected to be operational by 2026.

The state has taken various initiatives to improve energy security, ease renewable energy project licensing requirements, and encourage participation from the private sector to generate renewable energy in the country. In October 2023, the World Bank approved a US$1 billion Development Policy Loan (DPL) to support the government’s initiatives to enhance long-term energy security and facilitate a low-carbon transition.

In July 2023, the South African Department of Trade, Industry, and Competition (DTIC) launched an initiative called ‘Energy One-Stop Shop’ (EOSS), aimed at accelerating the issuance of regulatory approvals and permits required before initiating the development of a project. As a result of this initiative, over 100 projects amounting to a capacity of over 10GW worth US$11 billion are being developed.

Along with this, in July 2023, the National Energy Regulator of South Africa (NERSA) finally decided to proceed with splitting Eskom into three different identities: generation, transmission, and distribution. NERSA authorized the National Transmission Company of South Africa to operate independently of Eskom, for which the Independent System and Market Operator (ISMO) Bill was passed in 2012 and implemented in 2013. The company will have non-discriminatory access to the transmission system, authority to buy and sell power, and will be responsible for grid stability. This is expected to improve electricity supply security, stabilize Eskom’s finances, and establish a foundation for long-term sustainability.

Moreover, in May 2023, two new ministers were appointed: a Minister in the Presidency responsible for Electricity to focus specifically on addressing the power outages, and a Minister in the Presidency responsible for Planning, Monitoring, and Evaluation, with the specific responsibility of overseeing the government’s performance.

Furthermore, South Africa’s JETP initiative implemented in 2021, supported by funding worth US$8.5 billion, is expected to integrate efficient energy production methods, reduce the adverse impact of power generation on the external environment, and improve energy security.

EOS Perspective

Endemic corruption within the government-owned national power utility and primary power generator, Eskom, has exacerbated the load shedding in South Africa. A deteriorating grid also significantly threatens the country’s economic stability. There is a great need for energy storage initiatives to optimize grid efficiency, improve power transmission across regions, and combat load shedding. With the split of Eskom, grid efficiency is expected to improve, and it is also anticipated to foster involvement from IPPs.

Alongside promoting the increased participation of IPPs, the newly appointed Minister for Electricity also stresses extending the life of coal-fired powered stations. Coal continues to be the predominant source of energy mix, constituting 80% of the total system load. While this approach might help the country with the immediate pressures of power supply requirements, more emphasis should be placed on reducing South Africa’s dependency on coal and the transition to green energy to stabilize energy distribution as well.

While various initiatives and programs have been implemented to encourage participation from IPPs to generate energy, it all comes down to execution, which the government currently lacks. Not enough funding support is being offered by the government to the participants. For instance, of the total power generation capacity anticipated from the participants in the fifth bidding round of REIPPPP, only half of the anticipated capacity, amounting to 2.58GW, is expected to come online. Most projects did not reach a financial close, or for many projects, legal agreements were not signed due to high interest rates, slow production of equipment post-pandemic, and increased cost of energy and other commodities. These issues led to increased construction costs beyond the budget initially set for the projects by the bidding companies. With soaring costs, the projects require greater financial support from the government to reach financial closure.

Also, the endless blame game between Eskom and the Department of Mineral Resources and Energy makes it difficult for IPPs to enter the market and provide clean energy to the country. Eskom’s dominance in the electricity sector is likely to continue to influence initiatives implemented to encourage participation from IPPs.

However, with increasing government efforts to encourage IPPs to generate energy in the long run, the private sector is expected to play a crucial role in pioneering the shift from fossil fuel to renewable energy sources and tackling the energy crisis.

Pumped Hydro Energy Storage Plants
by EOS Intelligence EOS Intelligence No Comments

Australia Puts Its Power behind Pumped Hydro Energy Storage Plants

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Australia, as most countries across the globe, is increasing its focus towards renewable energy for future sustainability. These initiatives are faced with the inherent challenge in the renewable energy development – intermittency of supply, i.e. the fact that the supply is not continuously available (e.g. sunlight or wind) and it cannot be modulated according to demand. To tackle this, power companies and the Australian government are making significant investments in pumped hydro energy storage (PHES) plants. These plants facilitate the storing of energy when supply is high but demand is low, so that it can be used when demand supersedes supply levels. Currently, several PHES projects are under assessment and development in Australia.

In 2015, the Australian government set renewable energy targets of 33,000 GWh in large-scale generation, equaling to about 23.5% of Australia’s total electricity generation by 2020. The ongoing pace of new and upcoming solar and wind power projects during 2017, 2018, and 2019 has ensured that the targets set under the Renewable Energy Targets (RET) scheme are met. Moreover, if the current rate of renewable installations continues, Australia is on track to achieve 50% renewable electricity by 2025 and 100% by early 2030’s.

To make renewable energy more sustainable, the government is looking at storage options for solar and wind energy. Solar and wind energy are inherently intermittent in nature. This means that energy can be harnessed based on availability of these resources and not based on the demand at a certain time. This makes renewable energy supply less predictable and dependable in comparison with fossil fuel-based energy.

This is where pumped hydro energy storage can prove useful. PHES plants can store renewable energy on a large scale within the electrical power grid. Fundamentally, PHES plants work in a similar way as regular hydro energy plants, wherein water flows from a higher reservoir to a lower reservoir, generating electricity by spinning the turbines. However, the key difference in case of a PHES plant is that in case when more energy is being produced than the current demand level, the plant uses the spare energy to pump the water back from the lower reservoir to the higher reservoir, thereby making it available again to generate power when the demand rises.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels. When wind and solar grids produce more energy than currently required, the excess energy can be used to push the water uphill in the integrated PHES plant, which can be used later when energy produced through renewables is lower than the demand levels. Thanks to this, these plants act as energy-storing batteries.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels.

PHES projects across Australia

Owing to these benefits, Australia is extensively exploring this technology. It is estimated that the country is looking to add about 363 GWh of new pumped hydro energy storage capacity, through nine projects that are under consideration and development. In addition to this, there are several other projects that are at initial stages of assessment and do not have a specified capacity yet. As per experts, Australia needs about 450 GWh of storage to support a 100% renewable electricity grid. Some of the most prominent PHES projects in Australia include Snowy 2.0, Marinus Link Project (Battery of the Nation), and Kidston project.

Snowy 2.0

Snowy 2.0 (an expansion of the 70-year-old Snowy Hydro scheme) is the largest energy storage project in Australia, with capacity of 2,000 MW. The plant will offer 350 GWh of pumped storage. The project, which is to be developed and operated by Snowy Hydro (an Australia-based electricity generation and retailing company), is estimated to cost US$2.8-4.2 billion (AU$4-6 billion) and is expected to commence operations by 2024. It has received US$1 billion (AU$1.38 billion) in federal funding.

Moreover, it has partnered with large global technology companies, such as Germany-based Voith Group, which has been contracted to supply the electrical and mechanical components such as the reversible pump turbines and variable-speed pump turbines to be used in the storage hydro power plant.

Marinus Link Project (Battery of the Nation Project)

The Marinus Link Project is a part of Tasmania’s Battery of the Nation program, under which a second interconnector will be built across the Bass Strait. This high voltage interconnector will ensure smooth supply of hydro power to Australia’s mainland. Tasmania has huge potential for wind and hydro electricity generation and an initial assessment by state-owned Hydro Tasmania (Tasmania’s largest electricity generator) indicates that the state has 14 potential sites for PHES plants, with a cumulative capacity of 4,800 MW.

The project is expected to cost US$0.9-1.2 billion (AU$1.3-1.7 billion) for the 600 MW capacity interconnector link or US$1.3-2.2 billion (AU$1.9-3.2 billion) for the 1,200 MW capacity link. The Australian government has provided US$39 million (AU$56 million) in federal funding to help fast-track the interconnector, while the Tasmanian government has committed about US$21 million (AU$30 million) to support the feasibility assessment of three shortlisted pumped hydro energy storage sites in north-western Tasmania.

The interconnector, which is expected to deliver 2,500 MW of renewable hydro power along with 16 GWh of storage to Tasmania and Victoria is expected to be completed by 2025 and reach economic feasibility by early 2030s.

Kidston Pumped Hydro Project

Another project that is gaining significant traction is the Kidston pumped hydro energy project, which is a 250 MW project (2 GWh of pumped storage) in northern Queensland, and is proposed by Genex Power. It is estimated to be completed by 2022.

The Kidston project will also be integrated with an already built 50 MW solar farm. It will help store solar energy when it is in surplus and release it back to generate more electricity when solar energy cannot be harnessed.

Genex Power plans to build another 270 MW solar plant and 150 MW of wind energy capacity over a phased period. In June 2018, the company’s pumped hydro project secured about US$358 million (AU$516 million) in concessional loans from the federal government’s Northern Australia Infrastructure Facility (NAIF).

Moreover, in December 2018, Genex Power signed a deal with EnergyAustralia (Australia’s third-largest power company, owned by Hong Kong’s CLP Holdings), giving exclusive rights to the latter to negotiate an off-take agreement for Kidston’s (solar plus pumped hydro) output, encompassing an option to buy 50% stake in the PHES component. Under the term sheet of the agreement, EnergyAustralia will have exclusive rights to negotiate, finalize, and execute a long-term purchase agreement with Genex, however the contract currently is non-binding and is subject to a number of conditions.

In addition to these, there are several other projects that are currently in the feasibility or development stage. In May 2018, Delta Electricity, an Australian electricity generation company, received development approval from the South Australian government for a 230 MW Goat Hill pumped hydro project. Altura Group (Australia-based renewable energy project developer and advisor) has been hired as the project developer. The project is expected to cost about US$284 million (AU$410 million) and the South Australian government has committed about US$3.3 million (AU$4.7 million) to facilitate final project development. The project is expected to be completed by late 2020.

Another such project is EnergyAustralia’s Cultana Pumped Hydro Energy Project, which is the first sea water pumped hydro energy storage project in Australia. The project will have a capacity of 225 MW. In 2018, it received US$0.35 million (AU$0.5 million) funding from ARENA (Australian Renewable Energy Agency) to support the US$5.6 million (AU$8 million) feasibility study. The project is currently undergoing feasibility studies and concept development and, if approved, it is expected to be completed by 2023.

Similarly, in April 2019, Australian utility company, AGL Energy, unveiled plans to build a 250 MW pumped hydro energy storage facility in South Australia’s Adelaide Hills region. While the company has received the right to develop, own, and operate the plant, the project is currently under assessment. If approved, the project is expected to be completed by 2024.

PHES projects and their viability

Large sums of investment into PHES projects by private companies as well as the federal government indicate its criticality in the overall transition of Australia’s energy grid to include a larger share of renewable sources. Moreover, several coal-based energy plants are retiring in Australia in the near future, which will further create an opportunity for renewables with storage options to replace the current form of generation. As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

However, apart from PHES plants, there are other forms of storage as well. These primarily comprise of lithium-ion batteries. One example of such a battery is Tesla’s Hornsdale Power Reserve Battery. It is located in Narien Range (South Australia), was constructed in December 2017, and has a storage capacity of 129 MWh. However, these batteries are not a direct competitor/substitute for PHES plants, as they are usually smaller projects than pumped hydro energy storage plants and have a relatively shorter life as well. Moreover, pumped hydro energy storage is a more cost-effective way of storing energy, when compared with lithium-ion batteries.

Investments in PHES projects are significantly higher, when compared with lithium-ion batteries. This makes these projects long-term in nature, especially with regards to return on investments. These projects have a lifespan of about 90-100 years (and are highly capital intensive), whereas lithium-ion batteries have a lifespan of 10-15 years.

Therefore, the government is being fairly cautious about commissioning PHES projects at the moment. In fact, all of the current projects under review may not be commissioned considering their economic viability. PHES plants need a revenue of about US$139,000 (AU$200,000) per MW per year to be economically viable. While this can be achieved in the long run when there is higher electricity volatility owing to greater dependency on renewables (after the coal generators have retired), currently this cost cannot be justified as electricity volatility is lower with coal and natural gas generation. Moreover, different political parties have a different take on Australia’s energy mix. Thereby, the boost provided to the PHES sector with respect to cheap financing and subsidies will depend on the political party in power, which in turn will affect the economic viability and profitability of pumped hydro energy storage plants.

Moreover, new technologies are being developed at lightning speed, which may further affect the uptake for PHES plants. One such emerging technology is concentrating solar power, in which solar energy is stored in molten salt. This technology can provide several hours of storage and can also act as a baseload power plant. However, currently, this technology is much more expensive when compared with pumped hydro energy storage technology. At the same time, with growing focus on renewables globally, there are always possibilities of new technologies that solve the energy volatility problem in a most cost-effective and efficient manner.

EOS Perspective

Pumped hydro energy storage plants seem to surely have a secure place for themselves in Australia’s energy grid in the long run. With coal and natural gas generators retiring, there will be an increasing push for renewables to fill in their shoes. Renewable energy needs storage options that are stable and effective. PHES plants developed today will be operating for the next century providing a good base for Australia to move to a 100% renewable energy when it is ready. While investments in these projects run high, several large energy players in the Australian market are looking for investment opportunities in this form of storage as they believe it will play a critical role in Australia’s energy grid in the coming years.

However, most of the works regarding PHES plants is currently on paper, with majority of the projects still at the stage of seeking financing. The project closest to completion currently is the Kidston Project, which also failed to secure a confirmed off-take agreement (i.e., pre-contracted purchase agreement) with EnergyAustralia and had to settle for an agreement to negotiate an off-take based on the fulfillment of a few conditions. This hints towards a cautious approach adopted by large utility players when it comes to investing in pumped hydro energy storage projects. With utility players, such as EnergyAustralia, claiming that before committing to huge investments in this space, they would like clarity and stability in the national energy policy (that includes an emission trajectory), a lot falls into the government’s keenness to support renewable energy in the future. While it may seem like things are moving in that direction, a stronger emission policy or a higher renewable target is likely needed for matters to gain momentum.

by EOS Intelligence EOS Intelligence No Comments

US Smart Water Meters Roll-out – Do Utility Companies Stand a Chance amid User Resistance and Funding Shortage?

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The global smart water management market is expected to grow at a CAGR of 18.9% during 2016-2021, reaching US$20.1 billion by 2021, with USA expected to be one of the leading markets. Water utility companies across the country are focusing on installing smart water meters and replacing the old ones. Swapping the meters is a step towards deploying the infrastructure that manages water usage smartly, however, monetary, administrative, technological, and user acceptance challenges associated with adoption of this technology tend to overwhelm the public utility companies.

In the USA, just as in several other markets globally, the growth of the smart water metering industry can be attributed to the increased concern about water scarcity, reduction of water leakage, and upgrading the aging water infrastructure. Also with drought conditions becoming a common scenario in major parts of the country, the need for smart water meters to monitor both the usage and wastage of water has escalated.

Several water utilities across the USA have pursued automated metering infrastructure to monitor water usage. However, the cost of implementing smart technology is a concern for these utility companies, and acts as a major barrier to country-wide adoption. Some areas in the USA have succeeded in adopting and implementing advanced water metering solutions with the help of government funds. One such initiative was taken in 2016, when the New York Department of Environmental Protection awarded a US$68.3 million contract to ESCO’s Aclara RF Systems, a supplier of utility solutions, to provide advanced metering infrastructure solution for the city’s water service territory with 875,000 meters serving nearly eight million customers.

While such initiatives are helpful, the extent and availability of the government funds is limited, and it seems that support in the form of public funds to deploy smart water meters is crucial in driving the change on a nationwide scale. Indeed, the last period, in which US utilities saw an upsurge in spending on smart metering infrastructure, was around 2010, when US smart water meter investment reached US$395 million, coinciding with stimulus funding programs from public agencies, such as Department of Energy and Environmental Protection Agency.

As such funding flow from public programs slows down, so does the infrastructure investment, clearly indicating the inability by the utility companies to carry out such major upgradations by themselves. And they are not to be blamed, as there is a major resistance from their customers (especially residential users) to accept higher prices for such basic necessities as water, in the event the utility companies would want to generate funds through such a route. Many customers, in general, throw roadblocks at utilities’ smart metering roll out plans. Frequently, they simply do not want such meters, following reports of water bills doubling after smart meters installation for some residential users. Moreover, many residents raise questions with regards to health, privacy, overbilling issues, with resistance resulting in the rise of organizations such as StopSmartMeters.org, an advocacy group originating from California. With such a sentiment in some communities, it is virtually impossible to convince the users to accept higher prices to generate funds needed by utility companies for smart infrastructure investments.

The needs for funding are vast and frequently the availability of funds at public utilities does not match the requirement to roll out and integrate an extensive network of smart meters with the existing infrastructure. Such roll outs can only be done in phases, to accommodate for both availability of funds and network integration. For instance, Memphis Light, Gas and Water (MLGW), a three service municipal public utility company, first started rolling out the smart meter program in 2013, when about 60,000 customers in Memphis area had the new meters installed. The initiative moved to the next phase only in 2016, when Honeywell, a technology conglomerate, was selected to deploy smart meters over next five years for MLGW. The US$200 million contract included deploying one million meters (across three utilities) in MLGW’s service territory and providing the customers with access to their consumption data in order for them to manage the utilities usage in real time rather than seeing it after receiving the bill.

The MLGW service area is not fully covered with smart meters yet, as many layers of infrastructure must be developed simultaneously or ahead of time of the roll out. The smart grid project is still under way at MLGW, and includes development of fiber optic communications system required before even a single smart meter is operational in a particular area. MLGW received public funding for this section of the project, however it is only partially covered by a federal grant. The rest of the funds to develop these complex systems that require broader IT environment, including fiber optic or wireless connections, repeaters and gateways, analytical software, hydraulic modelling and network monitoring, must be typically generated by the utility companies.

Smart Water Meters

EOS Perspective

Many US water utility companies are switching from traditional mechanical meters for water reading to smart meters that capture real-time or near-real-time data about water usage and leakage. However, the transition has unquestionably been slower than desired, mainly because of the high cost of installing smart meters and related infrastructure, a major issue that continues to delay the deployment of smart meters across the country. The cost difference is indeed considerable – according to DC Water, a water services company based in Washington, DC, it costs an average of US$180 to install a smart meter in the capital as against a regular analog meter that costs around US$25. Replacing the old water lines with the new automated metering infrastructure also calls for a huge investment. As per a survey conducted in 2016 by West Monroe Partners, a US-based consulting firm, only 20% of the water utilities in the country adopted the automated water meters citing cost as a barrier to implementing smart meter technology.

Implementation of automated water meters is a complex task not only from the point of view of finances required but also with regards to the technological advancement, which is an ongoing process. Current generation of smart water devices have in-built capabilities that easily track water usage and detect leaks, but the technology continues to develop. As technological advancements intensify, it will not take long till the existing so-called smart meters will not support the features required in the future, making the present-day water meters obsolete. This is a considerable challenge for water companies when engaging in costly infrastructure projects. No utility provider will spend huge amount of money on smart meter today, only to replace them in a couple of years.

The limited government funding further complicates the situation for public utilities, putting a break on the smart meters systems truly taking off. With no clear funding policies, the road ahead is bumpy to achieve the goal of installing automated water metering systems throughout the country. US administration’s limited commitment to support installations, makes it difficult to anticipate by when the US water systems will be benefiting from smart technology. This uncertainty about the political will, clear resistance by some users, paired with high costs and the installations being outpaced by changing technology, make it hard to arrive with reasonable expectations of the timeframe in which consistent and widespread installations will be completed across the country. Till then, despite the fact that smart water metering can help reduce water loss and generate significant savings, a system that is only partially run with smart meters will not offer savings and smart management to its full potential.

by EOS Intelligence EOS Intelligence No Comments

China’s Water Crises Set to Boost Private Investment

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The past two decades of a rapid industrialization in China have heavily impacted the country’s water supply and quality, resulting in almost two thirds of groundwater and close to one third of main rivers being classified as not suitable for direct human contact. The country is in a water crisis and wastewater treatment continues to be a key concern. The government is making efforts to strengthen the wastewater treatment industry, leading to an increase in investment and the number of joint ventures in the development of wastewater treatment plants.

The country’s 13th Five Year Plan provides ample opportunities for the private sector and foreign companies to bring in advanced technologies to support the country’s environmental targets, as under the Plan, the government plans to increase investment in wastewater treatment plants by 35% between 2016 and 2020. These plans have made China a great prospect for foreign investors, who can leverage on their experience and high-end technology to enter the local market, now receiving great governmental support, as wastewater treatment has become an integral part of the country’s environmental goals, following decades of neglect and a slow pace of pollutants reduction.

Opportunities appear vast, especially that many needed technologies are not available from local providers. For instance, ultrapure water treatment in pharmaceutical and microelectronics industries require advanced technical know-how which domestic companies are currently unable to offer. This provides opportunities for international players who can provide the necessary technology for the requirement of high quality water in semiconductor and pharmaceutical industries, both of which are witnessing a double-digit growth in China. Other needed but locally unavailable technologies include zero liquid discharge (ZLD) solutions that are compulsory in the coal-to-chemical wastewater treatment plants. Further, advanced wastewater treatment applications such as nanofiltration, reverse osmosis, and membrane bioreactor systems, which allow users to treat wastewater to a high standard, are required to comply with the new Chinese wastewater discharge standards. Such high-end applications can be offered by foreign companies who can thus gain a major foothold in the market.

What has greatly contributed to making the industry increasingly lucrative for suppliers of wastewater treatment technologies and equipment, are the legislative changes aimed at dealing with environmental issues. With a desperate need to improve environmental protection, the government introduced numerous policies regarding wastewater discharge and emission standards. Prior to the introduction of the new policies in 2015, state-owned enterprises were able to disregard the existing regulations, typically without any legal consequences. However, the new water pollution action plan has led to an increase in water and wastewater tariffs and higher wastewater discharge standards. The government has also tightened the facility inspections to ensure that the rules are being followed, and non-compliance to these regulations could now lead to a shutdown of the facility.

These stricter regulations offer significant opportunity for international players who can offer sound technologies which domestic companies are not capable of providing. For instance, less than a half of the 3,300 industrial parks in China have installed a centralized treatment plant. As per the new regulation, all industrial parks are required to install such plants by the end of 2017. The administration departments of these parks are now looking for appropriate solutions providers to meet this requirement. Fine chemical and petrochemical industrial parks, in particular, provide the greatest opportunities for foreign players as their wastewater treatment needs require high-end technology that is not available in the country.


EOS Perspective

China’s problem of efficiently managing its water resources has provided a boost to the country’s wastewater industry. The government’s willingness to support environmental protection even at the cost of industrial profits has made the country one of the largest markets for wastewater treatment in the world. With the use of various wastewater technologies, the country continues to grow its sewage processing capacity (around 3,717 wastewater treatment plants as of 2014, including Shanghai’s Bailonggang plant, world’s second largest wastewater treatment plant with capacity of 528 million gallons per day as of 2013). Ecologically progressive 13th Five Year Plan and the Water Pollution Prevention and Control Action Plan (also called Water Ten Plan) could lead to a flourishing wastewater treatment market with significant growth potential of annual investment of over US$ 6 billion.

Increase in investment and change in regulatory requirements have created ample opportunities for international players, primarily in terms of the much needed technical know-how and experience that domestic players are incapable of offering. International players such as Aquatech and Oasys Water have already leveraged on this and started gaining traction in the market. The entrance of international players could lead to increased competition in the market. Even though domestic players, supported by the state, will continue to have a strong foothold in the market, the rising demand for technical expertise is likely to make foreign players grab market share in the near future.

These prospects for international players are likely to be materialized as the Chinese government has introduced effective enforcement mechanisms to ensure that new regulations are being followed by wastewater treatment plants. It is promising that there are reported cases of heavy fines being levied on these plants. For instance, Hebei province in China spent around US$ 153,000 for the installation of automatic inspection systems at 210 wastewater treatment plants. Further, six wastewater treatment plants in the province were fined a total of US$ 3.3 million in 2015 for discharging excessive pollutants, post the introduction of the new regulations. If the government continues with its efforts for stricter enforcement, polluting plants will be forced to implement the required technologies, a step that will be welcomed by international wastewater treatment solution providers capable of offering such technologies.

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