BY ANTONY CURRIE

General Electric picked the wrong time to quit the water business. The H2O sector has been growing slower than hoped despite the rising threat to safe and reliable supplies from drought, flooding, and population growth. But battling climate change will unclog the $1 trillion water industry’s pipes in 2017.

GE’s water struggles are instructive. Chief Executive Jeff Immelt, who took the conglomerate into the sector by spending more than $4 billion on acquisitions over a decade ago, expected revenue to hit $10 billion a year by now. It’s only around a fifth of that, GE revealed on Dec. 14, with up to $300 million of earnings before interest, taxes, depreciation and amortization.

It’s a broader industry problem. Water industry revenue has been growing around 5 percent a year – not terrible, but hardly splashy. So Immelt decided in October to sell the division as part of the merger of its parent unit GE Power with oil-services group Baker Hughes. If the unit fetches the same 10.7 times EBITDA that rival Xylem paid for water-meter manufacturer Sensus in August, the $3.2 billion of proceeds will be less than GE paid to build the business.

Immelt’s earlier optimism was hardly unusual. Global water demand is likely to increase by 55 percent by the middle of the century, according to the Organisation for Economic Co-operation and Development, as the planet’s population swells, the United Nations predicts, by a third to 9.9 billion.

Traditionally, such far-sighted forecasting has been of little use to companies, politicians and investors, though. They tend to base decisions on shorter time frames. But that’s slowly changing. Long droughts in California, India, parts of Brazil, swaths of Africa and elsewhere have focused attention on scarcity. And dire predictions are looming closer: three-fifths of the world’s inhabitants may face water shortages within the next decade.

Rickety water infrastructure in the western world also needs repairing or replacing. The UK loses nearly a third of its water to leaky pipes. In the United States, a lead-poisoning scandal in Flint, Michigan, has exposed the cost of decades of underinvestment in water infrastructure.

The money spigot is slowly opening. Investment by U.S water authorities is expected to jump by $116 billion over the next decade, a 28 percent increase over the previous 10 years, according to Bluefield Research. Overall, the country’s water infrastructure needs $685 billion of investment over the next two decades, reckons the Environmental Protection Agency.

Worldwide, up to $20 trillion of new spending could be needed by 2030, the OECD estimates. China alone has set aside $1.5 trillion to address both inadequate systems and wholesale pollution of its groundwater.

Companies may also start spending more as water risks have moved from a fringe concern to a boardroom issue in recent years. Few firms have yet to develop a comprehensive water policy, though, according to CDP, a nonprofit that runs environmental-disclosure programs for institutional investors. Such a plan takes into account not just their own operations and their suppliers, but the concerns and needs of other water users where they operate.

The Paris climate accord, which took effect in November, could be the extra jolt the sector needs. While water isn’t directly mentioned in the pact, an analysis of corporate climate pledges by CDP found that a quarter of plans to cut greenhouse-gas emissions required a stable supply of good quality water. It takes a lot of energy to move water around, so reducing waste can also cut emissions directly.

Sometimes, the reduction can be huge. Energy use is so inefficient at wastewater plants that carbon dioxide emissions could be halved using current technology, according to Xylem. In most cases, operators would even save enough on energy bills to quickly cover the cost of the upgrade.

And as water becomes scarcer around the world, the need to reuse it will rise. Currently, Israel is the leader, reusing 70 percent of its wastewater. In North America, the figure is less than 4 percent, while in low-income countries only 8 percent of wastewater is even treated, let alone reused.

That all suggests the time of the great water-revenue deluge is approaching. GE might soon be inundated with seller’s remorse.

First published Jan. 4, 2017

IMAGE: REUTERS/Jose Luis Gonzalez