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23/06/2012

Smart Water, an answer to the challenges of water resources in the world.

While in 2011 almost a billion people still had no access to water, 25% of the water injected into the European water distribution system went lost due to leakages. Since 1900, water consumption increased tenfold and many countries are facing water supply constraints.
Public policy makers are demanding more transparency in the management of water resources, which might lead to the control of operations to the detriment of current providers.

Water, or smart metering, is a technological innovation allowing for better control of the drinking water distribution system and its purification. In response to the requirements stated by policy makers, Smart Water could be a major opportunity for current operators.

How to strengthen the value proposition relying on this technological innovation? Which changes in the competitive landscape will the emergence of Smart Water entail? What should water distributors do with this innovation to transform it into an opportunity?

Water, a scarce resource with big stakes

With a likely increase of the world population by 30% within 30 years and fresh water flow of only 10%, scarcity seems to become a crucial point in the water market. Particularly in industrializing countries like China, Brazil and India, where water consumption is expected to increase by 30%. In developing countries on the other hand, it is the water quality which is at stake. Moreover, the World Health Organization (WHO) estimates that 80% of the diseases worldwide are due to poor water quality or bad sanitary conditions. For local authorities of these countries access to clean water for everyone is an absolute priority.

The water quality issue is less present in the developed countries; here public authorities' attention is more focused on optimizing the costs of the water distribution system. In France, 25% of the water injected into the distribution network goes lost due to leaks or fraud, because water suppliers set their invoices based on the injection into the distribution system instead of using the exact water consumption. These water losses account to almost 2.4 billion euros annually. Non transparent invoices, poor monitoring of invoices and water consumption have led to a too little awareness of the precious value of water. During crisis times, governments are seeking to cut these costs through the reduction of operating costs of the distribution system and the control of losses, mainly by reducing fraud.

Smart Water as an effective lever to optimize the water distribution system in line with public policy goals

The Smart Water system is based on the use of smart meters which allows to make a clear break-down of the use of water: from an annual to a daily consumption oversight. It covers the concepts of "Smart Metering" (the new metering communication infrastructure) and "Smart Pipe", a similar concept but applied to the water network distribution system. By covering every point of delivery in the distribution network, Smart Water allows to prevent and trace leaks and to manage and control the network. It also allows monitoring the quality of water through measuring systems at delivery points, interconnections and provides a good view on the quality of ground water.


Functioning of the Smart Water System (Click to enlarge)

The benefits of Smart Water are significant. In France for example, the water market is worth more than EUR 15 billion. In 2009, Chantal Jouanno - back then Secretary of State in charge of Ecology- announced that "this waste must stop", by setting a target to reduce total water losses to 15% instead of 25%. This target would be reached by improving water distribution networks and its management. In addition, the environment law Grenelle II - which foresees an action plan to reduce the losses in the distribution network- will accelerate the introduction of the Smart Water system in France.

Smart Water disrupting the competitive landscape of water distribution

The introduction of Smart Water will change the role of water distributors profoundly in terms of business model, necessary expertise and offered services. The three major market players in France - Suez Environment, Veolia Eau and Saur- have already initiated Smart Water projects and are offering new services.

Since the early 2000s, GDF SUEZ is involved in Smart Water technology. After their first experiments, the group has developed innovative solutions and introduced new services like the Zen Box - operated by water distributor Lyonnaise des Eaux - in many French cities. Its subsidiary Ondeo Systems has come up with a very effective smart metering solution for water and gas intended for the European grid.

With the acquisition of Agbar, a Spanish water company active in the field of Smart Water (having 12 million customers with the AquaCIS service), the position of GDF Suez in this domain has strengthened. Meanwhile, other water distributing companies are not standing still: Veolia Eau has around 200,000 smart meters in France and offers leak insurances based on remote reading. Saur is currently developing a service for remote reading, applied to 20,000 customers.

Energy providers, equipment manufacturer and integrators : new competitors to classic water distributors

The pooling of energy and water activities is particularly interesting for the management of smart meters. For example, many energy and gas companies would be able to offer 'multi-utilities' services that could manage the energy consumption of individuals, including their water consumption.

OEMs and integrators monetize their knowledge on smart meters by acting as recognized operators in this domain. The tender offer issued by Malta illustrates well the emergence of these new entrants in the water market. This 5-year project consists of the installation of 250, 000 Smart meters which should allow consumers to monitor and pay their own consumption through the internet. IBM won this tender in February 2009, despite their limited experience in the water market. To complement their expertise, IBM relies on the skills of Ondeo Systems - a subsidiary of Suez Environment - and Enel's Telegestore Smart meter.

Schneider Electric and a dozen of other companies have launched mid-May 2011 a global alliance for the development of a smart water system called 'Swan' (Smart Water Networks). Swan intends to manage both the distribution of drinking water as the purification of used water.

In order to remain market leaders, the classic water distributing companies will have to acquire new competences. This can be done either by mastering the technology themselves, either through acquisitions or through the creation of partnerships. Veolia Eau for example, created a joint-venture with M2O City in 2011, while Suez Environment partnered with GE.

Regulators are regaining control over the water distribution by imposing better defined KPI's and by monitoring the water circulation and purification processes. The Smart Water system is an innovative solution that can meet these expectations. By creating new competences in the water distribution industry, Smart Water redefines the competitive landscape and increases the value proposition towards end consumers. At the same time, classic water distribution companies will face new competition with the arrival of newcomers who have built up significant knowhow like energy companies, OEM's, integrators and telecom providers. Classic water companies will thus need to follow this trend by altering their current business model. The question whether classic companies will be able to differentiate themselves from newcomers, will depend on their ability to meet government expectations, to satisfy consumers with adapted services and to increase operational efficiency.

Sia Conseil

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