I find this a deeply interesting article from Christopher Gasson in today's GWI newsletter. These macro changes in the water industry could have profoundly positive implications for a connected, yet nimble, innovator like Fluence. We are ahead of this curve.









https://www.globalwaterintel.com/news/2019/40/everything-in-water-is-about-to-change?utm_campaign=1588283_GWI%20Briefing%20-%203rd%20October&utm_medium=email&utm_source=Media%20Analytics%20Ltd%20T%2FA%20Global%20Water%20Intelligence&dm_i=36G3,Y1IZ,5Z0TX3,3KF8X,1

Everything in water is about to change

The world of water, through the eyes of GWI publisher Christopher Gasson.

Last week I was in Paris to meet Veolia’s chief operating officer Estelle Brachlianoff. This week I was there again to watch Suez CEO Bertrand Camus present his plans for turning the company around. Both of them had a very similar message, and that message – coming from the two biggest companies in the business – is going to have implications across the world of water.

The first point is that they both want to build their businesses based on performance, not on volume. The second point is that they are prepared to take process risk, but not construction risk. These ideas will reshape the nature of the water business, both in terms of its scope and its supply chain.

Building a business based on performance means different things to Veolia and to Suez. The former has the luxury of alternatives: if there are not enough opportunities in water where it can be paid for performance, it can always focus its growth on energy services and waste. The latter, since acquiring GE Water, has no alternative but to make the water business work better. It can, however, reduce its exposure to volume-based businesses. The speculation is that this means selling Agbar, the Spanish water operator which developed as a state within a state under the previous Suez management. The proceeds of that sale can then be reinvested to accelerate the growth of Suez Advanced Solutions, the smart water services unit responsible for the AquAdvanced suite of digital monitoring and control solutions (which, ironically, is a child of Agbar).

Neither Veolia nor Suez will say it straight, but neither company sees its traditional outsourced water operations business as a key to its future growth. Instead, it is a different kind of relationship that they are looking to build with public utilities. They are no longer saying, “we are better at managing this than you, so let us take control.” Instead they are saying, “we have a suite of innovations which can help you achieve your objectives effectively – let us see if we can reach an agreement that rewards us for performance.”

At the moment, most public utilities are a little suspicious of this approach. In their minds, Suez and Veolia still stand for privatisation (in the broad sense of the word), and dealing with them is a political risk. If, however, the companies can reposition themselves so that they stand for performance rather than control, it could open a vast market, not just for them, but for every other innovator frustrated by the inward-looking and risk-averse customer base they find in the water utility sector.

The switch in focus from construction risk to process risk means turning away from design-build or engineering, procurement and construction contracts to focus on process equipment supply. This is a particularly painful wrench for Suez. Its former Degrémont subsidiary was the greatest wastewater design-build firm the world has ever seen. Selling equipment into other people’s projects is a much trickier business. First, you have to convince the client to write a specification with enough room for innovation in process design, and then you have to find an EPC or construction partner who is prepared to pay a premium for your process, while still hoping to be the low bidder on a project.

The shift away from construction risk makes absolute business sense – most of the American engineers are doing the same thing, but for water technology companies it entails a big change in the way the market works. Historically, the best way of getting a process innovation into the market has been to take construction risk. That is how Zenon’s membrane bioreactors conquered the world. The EPC contractors are the ones with power in the supply chain. Somehow, if Suez and Veolia’s strategies are going to be successful, the technology providers will need to take power from the EPC contractors.

The simple solution is to focus on the industrial market. This is essentially what GE did when it bought Zenon and then decided it didn’t like EPC risk. In the industrial market, water technology suppliers are generally restricted to process risk. I do, however, see a trend emerging which could boost the position of technology within the supply chain. It is the extension of warranties on equipment to the years beyond commissioning.

This is largely happening on the industrial side at the moment, but it will eventually spread to the municipal market. The negotiation tends to go like this. The client asks for an extended warranty of ten years or more. The supplier balks and says that it can’t offer that kind of assurance because it has no means of telling how well the customer will look after their equipment. The customer presses the issue, and the supplier compromises by suggesting that the only way that it can offer the warranty is by remotely monitoring the system. No sooner has the supplier thought about this, than it sees the real opportunity: a service contract under which it optimises the operation of the equipment 24/7 from an off-site control centre. This saves the client expenditure on energy, chemicals, and maintenance, and both sides go away happy. It is how the business in water will move from equipment sales to technology-as-a-service.

It is an exciting moment. I suspect that a lot of what we write about in GWI over the next couple of years is going to be about how these two trends play out in practice. Stay tuned.