What if Big doesn’t work?
- From: Vol 9, Issue 6 (June 2008)
- Category: Analysis
- Region: Americas
- Country: United States
- Related Companies: Dubai Water and Electricity Authority
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Christopher Gasson looks for the upside in the failure of big water projects to get off the ground.
Does Big still work in the water sector? A number of big projects from Arnold Schwarzenegger’s USD11.9 billion bond plan for California’s water (see story p26) to Dubai Electricity and Water Authority’s Hassyan P station (see Desalination Tracker p45) and Saudi Arabia’s Ras Azzour power and water plant (see Desalination Tracker p42) – seem to be struggling to make headway, despite escalating pressure to deliver additional water resources in the short term.
As time passes, the scale of the projects required seems to get bigger, but the ability to deliver them gets smaller. There are a number of factors at work. In the Gulf, large power and water projects seem to be running into difficulties because of the shortage of engineering, procurement and construction contractors prepared to work on them, and the ability of those contractors to fix prices with their suppliers sufficiently far ahead in order to make firm bids.
In the US, the problem with big projects is not a problem of delivery, it is a problem of commitment. Public finances are too weak to enable the state to commit the amounts needed for truly large projects, and the public consensus on projects which have an impact on the environment is not strong enough to enable politicians to act unimpeded. America’s great water projects were all built during an age when public finances were strong, and environmental concerns were considered cranky rather than mainstream.
No doubt in time the EPC market in the Gulf will settle down into some sort of equilibrium. Similarly, California may over time build a consensus behind a statewide solution to its water problems. However, water scarcity waits for no one. By the time the existing big projects are pushed through, demand will have grown to the extent that they may already have become obsolete.
One gets the feeling that the problem with large-scale water projects is that they are left over from a bygone age of central planning and social cohesion. A water network needs to be planned like a Soviet state. Someone works out what people need, then imposes it on them. Everyone pays the same and gets the same, and the alternative is nothing. It doesn’t fit well with the current world of consumer choice, tax cuts, and volatile markets.
If we take today’s trends to their logical conclusion, we reach a world in which water services are hardly planned at all. The existing infrastructure would creak on until there is a crisis, and then a solution would need to be found very quickly. It is not ideal, but there are some upsides.
If a service is never allowed to fail, then customers are insulated from the challenges facing utilities. They need never engage with the hard choices facing utilities, nor alter their behavior accordingly. One could say that what is really happening as big projects fail to get off the ground is that we are moving towards a new era of risk-sharing between utilities and their customers. It may lead to greater efforts towards conservation, and changing attitudes towards potable water reuse, which might in the long term be more productive for places like Dubai and California than big projects.
From an industry point of view, the learning point is that the market for smaller, decentralized solutions and fast-moving emergency solutions is likely to be where most of the growth is. Growing communities will look to serve themselves rather than rely on large centrally planned projects to work their way through the political and financing process (we are already seeing this in the Gulf region). Established communities will find themselves pushed further towards the crisis point before they act, and then open their wallets very wide (we saw an indication of this in Barcelona last month). Over the past decade, on-site generation, temporary plants and containerized solutions have been some of the fastest growing niches in the power sector. The same thing could happen in water.