Payback time for the water industry
22 Jul 2015
Water utilities in Europe are tackling the problem of aging infrastructure by focusing on innovation, according to researcher Frost & Sullivan.
Faced with the challenge of infrastructure in urgent need of rehabilitation, the water industry has identified and adopted a new mechanism called Totex.
In simple terms, Totex is the cumulative consideration of both capital (Capex) and operational expenditure (Opex), and has proved a valuable tool in the investment decision-making process, according to the research firm. ?
The nexus of regulations for water, energy efficiency and climate change will force European utilities to revise their strategies and support the industry convergence process.
Frost & Sullivan’s R Ramkumar
“In the past, water utilities have largely used the Capex as the primary driver in deciding the fate of infrastructure upgrades, refurbishments or replacement projects,” said Frost & Sullivan vice president Fredrick Royan.
Now water utilities are using Totex, they can justify investments that would have been considered relatively expensive in terms of Capex.
“[These] appear to present tangible economic benefits and sometimes with attractive payback periods,”? said Royan.
Process Engineering reported this month that UK water industry regulator, Ofwat, was encouraging local water utilities to focus their efforts on Totex, and consider innovative technologies such as remote control to increase the efficiency and longevity of assets.
Water utilities across Europe have also been making investments to improve network, treatment and process control infrastructure, to become more customer centric, said Frost & Sullivan.
The researcher reports that the European Water Utilities market earned revenues of $104.27 billion (£66.7 billion) in 2014, and it predicts this will rise to $130.51 billion by 2020.
?One of the key trends identified in its report was the adoption of smart water and wastewater solutions, said R Ramkumar, energy and environmental research analyst at Frost & Sullivan.
“This is driving spending and spurring strategic partnerships between companies and utilities,”? ?he said.
However, the investment required for water and wastewater infrastructure was “staggering on many fronts” with economic conditions, regulations governing water quality and investment, and lower water and wastewater consumption, all working against the growth of services, he said.
“The nexus of regulations for water, energy efficiency and climate change will force European utilities to revise their strategies and support the industry convergence process,” said Ramkumar.
“New business models involving private players, build-own-operate- transfer or performance contracts as well as funding options will also benefit water utilities.”?
