Do we need disposable desal to open up the market?
Published 9th August 2012
We are closing off the data collection for the 25th GWI/IDA Worldwide Desalting Plant Inventory this week. It does not look pretty. The second half of 2011 and the first half of 2012 have probably been tougher than any 12-month period since 2005, which is not good news because there are so many more mouths to feed in the desalination industry than there were seven years ago.
Fewer big projects have been coming up for bid as demand in the Middle East has levelled off, and outside the region, there are no major national desalination programmes like those in Spain and Australia which underpinned the strength of the market until 2009.
At the moment, the main market trend is the switch from municipal to industrial demand as the main driver of growth in the sector (hence our Industrial Desalination and Water Reuse report). This reflects the weakness of the real estate sector – which is a significant driver of municipal demand – and the current high levels of investment going into the energy and mining sectors in those parts of the world with limited access to water resources.
Most businesses are cyclical, with an upswing followed by a downswing, but when one reaches the bottom of the downswing, it is difficult to avoid the question “what if the market isn’t going to come back?”
My feeling is that although the municipal market will come back (there is still plenty of action in our Desalination Tracker), there is a significant issue that the industry needs to address if it is to reach new markets effectively: flexibility.
The municipal desal market essentially divides into two different types of customer: those like Saudi Arabia, which need additional renewable freshwater resources 24/7, and those like Australia, which might need an additional renewable water resource for six weeks in three years’ time. The desal industry serves the former group very well. It provides a cheap and almost unlimited supply of renewable fresh water, supporting the way of life for millions of people who might otherwise have to live elsewhere.
Where the desalination industry has yet to prove itself is in meeting occasional demand for water. In cities like Sydney or Melbourne, where desalination plants have been built on a just-in-case basis, they have not left a pleasant taste in the mouth. They have cost a lot of money, either up front or on the basis of a take-or-pay contract, and until they are really needed, politicians are going to take a lot of heat from the electorate for ordering them. This heat is undoubtedly going to influence how other cities, concerned about drought, consider the desalination option.
You could say that the desalination plants built in Australia were an insurance policy against a bad drought. As the only truly drought-proof renewable fresh water resource, desalination is probably the only technology able to offer this kind of insurance. The trouble is that a desalination plant that you only use for six weeks every five years is an extremely expensive insurance policy. Unless the industry finds a way of reducing the fixed costs of having “desal insurance”, not so many cities are going to want to buy it (there is a whole string of cities along the California coast which are potential customers).
What would make the difference is a flexible solution which can be brought online with a few weeks’ notice and taken offline and deployed elsewhere until needed again. This kind of solution could be a modular containerised system, or a ship-mounted system. The costs could be shared among different customers with different annual rainfall patterns (for example moving from Australia to California or China between the seasons). The “desal insurance” premium would be reduced. The reason why this proposition has been so slow to evolve is because it is difficult to finance: no one is prepared to put up the money for a large desal facility without a long-term operating contract to pay for it.
My feeling is that over the next five years, the focus of technological innovation in desalination will switch from municipal applications to industrial applications. Issues such as recovering value from brine will become more important than reducing energy consumption. What will give the municipal sector the kind of impetus it needs to return to its pre-2009 growth trend will be imagination at work on financial models.