Guest Column | November 14, 2024

Making Waves: Technology In The UK Water Sector

By Samuel Pollard

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It is estimated that global water-related infrastructure investment of $6.7T is required by 2030, which could increase by ~3.5x to $22.6T by 2050[1]. Currently, governments trying to deliver on the UN’s sixth Sustainable Development Goal of ensuring “Clean Water and Sanitation” are faced with huge funding gaps.

However, the tap is beginning to run warm, as the UK’s water sector is on the brink of a technological revolution, driven by the upcoming Asset Management Period 8 (AMP8) cycle. This unprecedented £88 billion investment, effective from April 2025, represents a 73% increase from the previous cycle and is set to transform the industry's approach to water management. We believe this will bolster the sector’s resilience in the wake of profound challenges associated with climate change, ageing infrastructure and rising water demands, providing innovative solutions.

In Deep Water

The planet is facing an escalating water crisis, with water scarcity impacting billions of people globally. According to UNICEF, nearly two-thirds of the global population experience severe water scarcity for at least one month each year. By 2025, half of the world’s population could live in areas experiencing water scarcity[2].

More specifically, the UK is impacted by acute water challenges, with climate change affecting the water cycle and precipitation patterns, and degrading water ecosystems. This reduces freshwater uptake, leading to an increased threat of flooding and droughts which has an impact on businesses and supply chains.

These challenges are exacerbated by ageing water infrastructure, which has suffered from chronic underinvestment, with infrastructure unable to cope with growing water demands. The pressures on UK water infrastructure are expected to grow with continued population growth, urbanisation and economic development.

This affects everyone across the water chain, from consumers and water companies, policy makers, regulators and environmental agencies. Fortunately, new technology, as part of the AMP8 upgrade is keeping the water sector’s glass half full.

A Break In The Clouds

The integration of technology within the water sector, from Internet of Things (“IoT”) devices to optimisation software, is seen by many as a way of addressing issues arising from climate change, growing urban populations and ageing infrastructure in the UK. Innovation and technology advancements are one of the primary focus areas of AMP8 and provide a significant opportunity for water software and providers of tech-enable solutions.

  • Better insights and decision-making – Smart monitoring devices capture a broad range of data fields in real time which provides more meaningful insights and actionable intelligence. This simplifies the analysis and management of water quality and wastewater discharges, ensuring it is more effective at both a plant and network level. In October 2024, Anglian Water announced a partnership with Clancy and Kier to roll out smart meters across their infrastructure by 2030 to deliver on AMP8 investment[3].
  • Prevent failures – Leak detection software and advanced data analytics can predict when components are likely to fail which enables water companies to proactively repair infrastructure, avoiding costly damages and service disruption.
  • Avoid fines – In order to manage behaviours, Ofwat has been ramping up fines for water companies for underperformance. In August 2024, Thames, Yorkshire and Northumbrian Water found themselves in ‘hot water’, facing penalties of £168m due to excessive sewage leaks[4]. As data collection continues to improve, the regulator can more accurately identify failures which will require water companies to perform better to avoid further fines.
  • Budgets go further – Optimisation software and digital twins enable water companies to visualise their water infrastructure and mitigate problems before they escalate. AI and ML integration across software tools is improving insights, enabling better budget allocation and more cost-effective optimisation of water quality and operations.
  • Plug skills gap and improve safety – Improved monitoring reduces the need for unnecessary maintenance visits and smart control devices can make simple adjustments without the need for human intervention which improves health & safety and boosts productivity in a sector with a growing skills gap.

The water technology market is more nascent than broader climate tech, with only $470M invested into water start-ups in 2021, according to GWI WaterData. This compares to almost $27B for climate technology in the first half of 2022 alone, which is less than 1% on an annualised basis. Given the lower levels of adoption and significant market drivers, many analysts expect digital transformation within the water sector to grow at >20% over the next few years[5].

There are extremely exciting investment opportunities for connected monitoring and control systems and the associated software and services. Providers are benefitting from the convergence of terrestrial and non-terrestrial (“NTN”) satellite networks which is ensuring more robust and resilient global connectivity and expanding network capacity, particularly in rural or remote areas.

Historically, NTN connectivity was prohibitively expensive for IoT applications and only ~10% of the earth’s landmass connected by terrestrial networks[6]. However, the convergence of NTN networks is improving the efficacy of IoT devices which is bolstering the use of smart monitoring and control equipment within the water sector as data can now be reliably transmitted from isolated locations.

Technology Provides A Silver Lining

We are still facing a huge global challenge when it comes to availability and quality of water worldwide, including issues in the UK. Solving this crisis provides a compelling opportunity for investors. Water software and connected monitoring devices provide solutions to improving the way in which water is managed and cleaned, and the wave of new investment funding from AMP8 will help to accelerate growth in this sector.



Samuel Pollard is an Investment Associate at Baird Capital (bairdcapital.com).

 

References

  1. https://www.ft.com/content/516f9896-05bb-4721-a9e2-4065d902d462
  2. https://www.theclancygroup.co.uk/anglian-water-clancy-and-kier-announce-new-alliance-to-deliver-on-amp8-investment/
  3. https://www.theclancygroup.co.uk/anglian-water-clancy-and-kier-announce-new-alliance-to-deliver-on-amp8-investment/
  4. https://www.ofwat.gov.uk/thames-yorkshire-and-northumbrian-water-face-168-million-penalty-following-sewage-investigation/
  5. https://h2oglobalnews.com/what-does-digital-transformation-mean-for-managing-water-quality-2/
  6. https://smartwatermagazine.com/news/datakorum/new-age-iot-5g-terrestrial-and-satellite-networks-working-together