This post is submitted by Paul O’Callaghan, founding CEO of the Clean Tech consultancy, O2 Environmental Inc. and lecturer on Environmental Protection Technology at Kwantlen University.
The prospect of ‘Peak Water’ is stimulating both investment and innovation in the water sector. More and more water technology start-ups are receiving venture capital funding and at the same time, a number of investment groups are offering specific water funds. So how safe a bet is water?
The magazine Inc.com just ran an excellent article called ‘Blue is the New Green’ where they feature 11 entrepeneurs who are looking to create radical change in this space. In what was one of the largest venture capital investments to date in a water start-up, one of the companies featured in the article, Water Standard, secured $250 million in March 2008 to help fund their plans to convert old tankers into floating desalination factories. They see a growing market for this as they can re-fit old single hulled tankers and mobilise to areas that need water urgently. They can do this in far shorter order than it takes to get through planning, design, build and commission a new land based desalination facility.
Water Funds
For those of us who may not have $250M to invest…, but would like to invest in water solutions, the investment group Calvert just launched the ‘Calvert Global Water Fund’ (CFWAX) on Sept 30th 2008. The Fund invests in utility, infrastructure, and technology companies active in managing water resources. The fund is managed by KBC Assett Management who say that they stay on top of the technological issues involved in the water cycle through its ‘outside environmental advisory committee of scientists’. Jens Peers, lead portfolio manager of the Calvert Global Water Fund says ‘we believe that no other water asset management group has set up a comparable committee of unbiased experts.”
Their timing for the launch however couldnt have been worse really given the stampede out of equities. The value of the stock dropped 18% from $15 at the start of October to approximately $12.20 today. The Calvert fund will invest in mainly publicly quoted companies, circa 90% with less than 10% invested in privately held companies.
If you are looking for a fund which is focused on unquoted companies, then the Aqua Resources Fund launched by Four Winds Capital Management and listed on the London Stock Exchange in July 2008. This fund will invest in water related assets in areas such as infrastructure, technology, recycling, treatment, distribution and water to energy, mainly by taking direct stakes in unquoted companies and projects. The investments must be at least 60% involved in water activities.This enables them to access a broader base of investments and go after small cap, pure plays, in the water sector. Most other water funds focus on public equity investments where there is inevitably significant non water business activities, e.g. Veolia have a movie making division! Leonora Walters provides some good commentary on this at the Investegate.
Water Indices
For a snap shot look at how the water industry as a whole is doing, some of the Water Indices can provide a useful overall barometer. Despite all the long term positive signs and reasons to invest in water, this didn’t however stop a number of water indexes from taking a hammering in the past few weeks, the ISE-B&S Water Index (^HHO) is down approximately 30% since the start of August and the Global Water Intelligence (GWI) Global Water Index was down 9.9% between 10th August and 19th September 2008. So what does all this show? When the scary music starts, people still go running for the beach!
Sustainable investment Guru, Jan Schalkwijk, commented in his popular article titled “Harnessing The Power of Water” -
http://www.ecoinvestmentclub.com/content/view/67/37/
Essentially, there are three sources of energy in the ocean: wave, tidal, and thermal. Wave energy applications harness kinetic wave energy to spin a turbine, which in turn drives a generator. Tidal energy is captured by building dammed reservoirs that take in water during high tide and let it out during low tide in a manner similar to a hydroelectric power plant. Finally, ocean thermal energy is created by the temperature differences in the ocean. Essentially, the concept is to build a heat engine that allows the flow of heat from the ocean’s surface (which is warmer), to lower depths (which are colder). The engine would convert some of that heat energy to work energy, much like an internal combustion engine.
That’s as scientific as I feel comfortable getting, so let’s discuss the market place for ocean energy. In effect, the market is still nascent. There are only a handful of investable companies. One is Finavera, a Canadian renewable energy company with wave and wind assets. Its wave power product is called the AquaBuOY. The company has developmental wave energy projects in Hawaii, Oregon, Canada, Portugal, and South Africa. Finavera has not yet made any money and is down over 55% year-to-date. Ocean Power Technologies (OPT), another company involved in wave energy, has only had marginally better performance, with a year-to-date showing of -34%. For the nine months ended January 31, 2008, OPT reported revenues of $3.7 million compared to $1.5 million in the same period last year, Though this is a 142% increase, its net loss has also increased over the same time period by 51% to $8.3 million. There are several other small players in the market. Perhaps the safest way to get involved would be through a larger renewable energy company with ocean energy assets. On the whole, however, it may be a safer bet to wait for this market to mature a little more before riding this wave.
Jan will also be speaking on Nov 5th for the special emergency panel discussion titled, “What’s Next For The Green Economy??”… visit the Eco Investment Club to learn more…
Hi Jan,
Thanks for the link to that article. Excellent reading, I would agree with everything you said there.
Paul
Jan, can you provide any more details about that talk on Nov 5th??? I had a look on Eco Investment Club and didnt see anything there. Thanks!
Excellent article. In the UK however it seems there is a shortage of investment funds in this area, despite the focus on ‘big idea’ projects like the Severn Barrage.
yep, to date there has been. I think this is starting to change … I just wrote about this in new post: A Perfect Storm for Water.
There may be a shortage of funding for big projects, but there is more focus now on dealing with water at a local scale and on technologies which can do this.