Getting realistic but not pessimistic about desal
Published December 7th, 2017
I have just finished presenting our updated desalination market forecast for DesalData subscribers. It involved carving 5 million m3/d of expected new capacity out of our previous forecast. There were two main reasons for this adjustment. The first is actually a good thing in the grand scheme of things, but less good from a desal perspective: utilities and governments are getting better at managing demand. Whether it is through better water pricing or more effective leakage reduction and conservation campaigns, there are fewer and fewer countries – particularly in the GCC region – where demand is running away from supply at an uncontrollable rate. The second reason is one I have mentioned here before: that drought no longer drives the desal market. Instead, when a city finds that its conventional reserves are stretched after a long period of rain, there is a much bigger tendency to focus on water conservation and reuse in the light of the experience in Australia (where cities were left which huge mothballed desalination plants when the drought ended).
But a slower build-out of new desal facilities doesn’t mean that desal is no longer a big opportunity. It means that the opportunity has simply moved elsewhere. Back in 2011, spending on desalination plant operations overtook capital expenditure on desalination plants for the first time in nearly a decade. Today, spending on operations equals twice the amount of spending on new plants. Desalination companies need to respond to this.
It is likely that less than half of the installed capacity is being operated in an optimised way. The biggest problem is biofouling. Nothing really works reliably to counteract it. Chlorination – the most widely used solution – is also the most widely cited cause of the problem (it kills bacteria and creates food for them). Getting it right is a black art which can have a dramatic impact on the efficiency with which a plant can be operated. This, together with tighter energy management and automation, means that there is potential to improve the industry’s operating efficiency by an estimated 20%.
It reminds me of the story that Jack Welch tells about GE’s nuclear power unit after the Three Mile Island nuclear accident in 1979. He told the unit to develop a new budget on the basis that GE never sold a new nuclear power plant ever again. Instead, it focused on building a service offering, and became one of GE’s most profitable subsidiaries.
Desal companies suffering from the horrible levels of competition in the EPC (engineering, procurement and construction) market need to do the same. They need to use their understanding of the desal process to build a robust service offering. This might involve buying brownfield assets, pursuing third-party operating contracts, developing specific performance contracts, or selling trouble-shooting services. In the longer term, such a development would also help encourage clients to focus on lifecycle costs in their initial procurement, which would benefit everyone in the industry.
Desal is still probably one of water’s best long-term growth markets. By 2050, 75% of the world’s population will live in the coastal zone, and it is going to be progressively cheaper to turn to the sea rather than to conventional resources to meet this concentration of demand. The problem is that in order to profit from this market, you need to be very careful where you play.
The full webinar and commentary is available for download to DesalData subscribers. Non-subscribers should e-mail email@example.com for details on how to access the information.