As countries step up their search for ways to act on the global climate change commitments made in Paris last year, Keith Hayward spoke with Al Cho, Xylem’s VP Strategy and Business Development, about how investment in wastewater treatment efficiency can make an important contribution to the reduction in greenhouse gas emissions, and the potential for efficiency contracts to inject the capital needed for these investments to be made.
Most water sector infrastruture is far less energy efficient than it could be, especially when it comes to sewage treatment. This is not some theoretical gap – it is a gap between what is done generally and what could be done with readily available technology, and it is this gap that is the focus of a report released recently by global technology company Xylem.
‘The report highlights and summarises what most wastewater utilities and stakeholders already know,’ comments Al Cho, the company’s VP Strategy and Business Development. ‘There is received wisdom in the industry that existing infrastructure is not highly efficient, and that renewal of existing infrastructure can lead to significant changes in energy consumption. What we wanted to do was provide a synthesis of the opportunity at a regional and global scale, to put some facts and numbers around the scale of the opportunity,’ he says, adding: ‘We just hope that it is one contribution that will help translate those intuitions into action in a way that generates positive outcomes for everyone.’
Importantly, the opportunity Cho is referring to is not just that energy efficiency can pay for itself by cutting bills, but that at the same time it cuts the greenhouse gas emissions associated with wastewater treatment. He explains that the research suggests the emissions associated with electricity use in wastewater treatment could be cut by around half by using readily available high efficiency technologies, and that 95% of these reductions could be achieved at zero or even negative costs. ‘When you add it all up globally, the analysis we did suggests that capturing that opportunity with negative or zero cost energy efficiency projects can yield up to $40 billion in net present value,’ says Cho.
'I think the water sector is well-positioned to be a net winner in the transition toward a lower carbon economy.’
Al Cho, Xylem
The $40 billion question then is why do utilities not just invest in high efficiency technology? ‘Whenever you see opportunities like that in the market, with effectively money being left on the table, it really points to some kind of market barrier that is preventing smart people from capturing those opportunities,’ comments Cho.
One of the main barriers is financing. ‘Both in developed and emerging markets, capital is difficult to come by for water infrastructure, and so often operators make the choice to buy lower up-front cost equipment, even if it is going to cost them more money in the long run,’ says Cho. This is exacerbated by the fact that often decisions on capital and operating budgets are taken separately. ‘Many times, in order to minimise capital cost, decisions are made that lead to higher life cycle costs for equipment and infrastructure,’ he adds.
On top of this, there can be a general reluctance to take change existing approaches. ‘Everyone is appropriately concerned about meeting their regulatory requirements, and sometimes that leads to a decision not to disrupt processes that seem to be working,’ says Cho, but he challenges that outlook: ‘I think it is important for operators and for utilities to balance the objective of operational continuity by making smart, low-risk investments in things that also create economic benefit for the ratepayers, and environmental benefits with respect to greenhouse gas emissions.’
Overcoming financial barriers
‘One opportunity to resolve that barrier is in financing, to enable utilities and operators to access financial services which enable them to capture the longer term reduction in cost by helping them buy more efficient equipment upfront,’ says Cho. What he has in mind by this is, for example, the type of energy savings performance contracts that are seen increasingly in the USA, with energy service companies investing in the new infrastructure and making returns from the savings in energy costs.
‘The whole concept of energy efficiency finance is not a new one,’ says Cho, but adds: ‘It is not well developed in the water sector.’ He points to the way such approaches are used to upgrade heating, ventilation and air conditioning systems in commercial buildings as an indication of the type of route the water sector could take. ‘The ESCO (energy service company) uses the gap between the new energy performance and the existing energy payment to finance the upfront capital upgrade,’ he explains. ‘End users end up with new equipment, and potentially some significant savings as well. The ESCO makes money from part of the spread between existing energy spending and future energy performance, and everybody is better off.’
How might Xylem fit into such a market? ‘Our objective as a company is to provide the best, lowest life cycle cost equipment on the market, and to make it as easy as possible for our customers to buy through partnerships with other stakeholders.’
The water sector opportunity
‘In Paris in December 2015, countries declared a set of objectives to cut greenhouse gas emissions, and that was very positive,’ says Cho. ‘They did not however leave with a plan to deliver the emissions reductions that are needed, which means that pretty much every country in the world is going to need to leave no stone unturned in looking for cost-effective ways to cut greenhouse gas emissions.’
Alongside this, certain utilities are also leading the way on energy reform, and Cho mentions Singapore’s PUB as a case in point. ‘You see some utilities beginning to make commitments around reducing energy consumption and greenhouse gases, and we think it will drive increasing interest in capturing these energy efficiency benefits,’ he says.
In the long term, the world will need to make far greater use of low carbon energy sources. This will take time, and Cho notes the situation in countries such as China and India. These have yet to build much of their water and wastewater infrastruture, presenting the with opportunity to invest in efficient technologies during the first build, rather than to retrofit them. ‘Coal and carbon-intensive fuel will remain an important part of these countries’ economic development plans, and so the opportunity to reduce overall energy consumption in infrastructure as it is being built is increasingly attractive,’ says Cho. ‘This represents some of the most attractive opportunities that we looked at in the report.’
The appeal of the wastewater efficiency investments highlighted by Xylem is that they are able to deliver a contribution to emissions reduction both in a short period of time and in a financially attractive manner.
‘When you look at the payback periods for many of the investments that we have been looking at, the payback periods are often as short as four to eight years,’ says Cho. ‘I think these are no-regrets moves, where it will be possible to reduce emissions and achieve attractive economic returns to fund those investments in a period in which it’s frankly very important to capture these emissions reductions.’
The emissions reduction landscape will evolve over the coming years as countries work with various policy measures to control carbon. Energy efficiency can only grow in importance, says Cho. ‘While today carbon and greenhouse gas emissions probably isn’t at the top of the minds of most utility executives, increasingly energy performance and greenhouse gas emissions will become something that no utility can afford to ignore,’ he adds.
‘The water sector a big potential source of savings, and one where frankly looking for those savings could create a way for people to finance equipment and infrastructure upgrades that help boost resilience to climate change as well,’ he adds. ‘At a macro level, I think the water sector is well-positioned to be a net winner in the transition toward a lower carbon economy.’
To download the report, Powering the wastewater renaissance: energy efficiency and emissions reduction in wastewater treatment, visit: http://poweringwastewater.xyleminc.com/
- Xylem, water and energy, municipal wastewater, sewage, energy efficiency