How is the world's largest energy crisis affecting the water sector?
Although the water sector is one of the most affected by the current energy crisis due to the water-energy nexus throughout the entire water cycle, it once again demonstrates its resilience and seeks alternatives to reduce costs, although it is not an easy task.
In the midst of the economic recovery from the global pandemic caused by COVID-19, and with a still uncertain future, 2022 was marked by the onset of a huge and complex energy crisis aggravated by Chinese restrictions and the Russian invasion of Ukraine. Gas and coal prices reached record highs, resulting in increased electricity prices, which is not only having an impact on household energy bills, but also putting significant pressure on industrial sectors, including the water sector.
During the pandemic, the water sector proved to be an essential sector that remained operative. Its robustness, stability and efficiency in adapting to extreme situations, guaranteed the water security of citizens by maintaining the quality of the service and supported the most vulnerable population through different strategies and mechanisms, despite a socioeconomic crisis with pronounced effects on our society.
We are now once again immersed in a new global crisis that challenges energy security and the role of industrial policy, and the water sector is standing firm despite being one of the most affected.
We are immersed in a new crisis that challenges energy security, the role of industrial policy and the willingness to embrace change
The impacts of the water-energy nexus
The current energy crisis affects not only the direct use of energy, but also all the processes indirectly involved, whether they concern raw materials, transport or structural costs. In this regard, water and energy have a two-way relationship: on the one hand, energy is consumed throughout the water cycle and, on the other hand, water consumption is necessary for energy production. This makes energy a determining factor that provides people with access to water and wastewater services in an adequate quantity and quality. "The cost of energy is one of the biggest contributors to the final price of water production and distribution; therefore, the impact of the increase we are experiencing is directly transferred to production costs", says Fernando Cortabitarte, Director of the Water Cycle at ACCIONA.
Water treatment processes demand so much energy that the current energy crisis has had a significant impact on operating costs, and in every stage of integrated water cycle management, energy consumption is the main variable cost. In the United States, the EPA remarks that drinking water and wastewater plants are usually the largest energy consumers for municipalities, accounting for 30 to 40 per cent of total energy consumed. “Overall, drinking water and wastewater systems account for approximately 2 per cent of energy use in the U.S.” In Northern Ireland, for example, Northern Ireland Water (NI Water) is the largest electricity consumer.
Water treatment processes demand so much energy that the current energy crisis has had a significant impact on operating costs
Water treatment processes demand so much energy that the current energy crisis is having a significant impact on operating costs, and in every stage of integrated water cycle management, energy consumption is the main variable cost. Most affected are wastewater treatment and drinking water production in terms of the cost per m3/hour treated or produced, respectively, considering the difficulties in adjusting the processes of wastewater treatment plants, drinking water treatment plants, seawater and brackish desalination plants to take advantage of cheaper energy prices at certain hours of the day. As much as 40 per cent of operating costs for drinking water systems can be for energy, adds the EPA.
This situation means that integrated water cycle management companies are caught between a dramatic rise in their costs - energy prices have tripled - and sometimes, depending on the country, a lack of autonomy to increase water tariffs, meaning that water sector companies are bearing the impact of the increase in costs with great uncertainty about their recovery. "If this continues, we run the risk of abandoning contracts and even the bankruptcy of some companies that are currently providing their know-how. This, in turn, could strain the provision of services that is undoubtedly essential for our society," warns Ignacio López del Moral, head of the Water Segment at Schneider Electric Spain.
Another of the problems that this energy crisis and the volatility of the price of energy is generating is the financial uncertainty that companies are enduring: "Business margins have been drastically reduced", says Teresa Quiróz Lodoli, assistant technical director at Gestagua. "Competitiveness between companies is directly affected, benefiting especially companies with more technical and economic resources" and she warns that, apart from the risk of bankruptcy of the companies as they are unable to pay for the energy bill, the companies will try to minimize expenses with the consequent damage to the correct functioning of the managed services. "Without a major tariff revision linked to energy costs, it will be practically impossible to continue with the contracts."
The water sector has always been ready to step up to any crisis and demonstrate, once again, its strength in the face of adversity
Water sector options
The water sector is characterized by giving more than it receives. Access to water and sanitation is a human right and, as such, its services are considered essential for the population. It has always been ready to step up to any crisis and demonstrate, once again, its strength in the face of adversity, ensuring the continuity of services.
The management of water services involves a high energy cost that the sector has tried to alleviate through technological development
However, not everything is in their hands. Faced with an exceptional situation like the one we are experiencing, exceptional measures must be taken, starting by promoting more exhaustive planning of energy management in general, and in the water sector in particular. According to Ignacio López del Moral, this involves reviewing the current situation of infrastructure and equipment, establishing a comprehensive action plan to reduce the energy demand and guarantee access to the best prices, while reducing the carbon footprint: "We include these actions within our global sustainability strategy; they are already being applied in our facilities and to customers who want to count on us as a sustainability partner". A small investment in the design phase of infrastructure can lead to significant savings throughout their life cycle, not only in terms of costs, but also in terms of water and energy efficiency.
Another exceptional measure refers to water tariffs and service costs: "Water tariffs and service provision costs should assume the real costs of production, but there is a political component that we cannot ignore," says Fernando Cortabitarte. "Currently, most contracts are unbalanced because the real costs have not been passed on. If the high energy costs remain in force and cannot be passed on, the imbalance will increase". This could lead to unsustainable situations for water managers from an economic point of view, so "in the short term, it should be made easier for contracts without price review provisions to pass on the exceptional cost overruns and, in the medium term, agile and rigorous mechanisms should be established so that water tariffs reflect the real cost of providing services".
From Gestagua, Teresa Quiróz Lodoli asks for "a special tariff for consumers whose turnover is directly proportional to energy consumption as they carry out their activity", as well as "subsidies to improve the energy efficiency of existing equipment or any necessary upgrades, and lowering the cost of CO2 emission rights".
Last year, Europe’s water sector gathered at an event organized by EurEau to discuss how it could maintain affordable water services in an uncertain energy future and highlighted the need to develop strategies to become energy independent, which would, in turn, make the water sector more resilient to energy price shocks.
The future: the commitment to clean energies
By integrating energy efficiency operations into their water and wastewater plants, municipalities and utilities can save between 15% to 30%
The management of water services involves a high energy cost that the sector has tried to alleviate through technological development and the implementation of digitalisation under the umbrella of sustainability and the much-needed energy transition.
In this regard, in recent years we have seen facilities for the generation of electrical energy through processes that are synergistic with water management, such as the use of renewable energies for the production and distribution of water, as well as the production of biogas and green hydrogen in wastewater treatment plants.
In short, the technological maturity for the production of clean energy, added to the electricity consumption of each of the stages in the integrated water cycle, makes renewable energies the key to meeting the electricity demand of the water sector and reducing both production costs and the carbon footprint. The EPA assures that by integrating energy efficiency operations into their water and wastewater treatment plants, municipalities and utilities can save between 15 to 30 per cent, saving thousands of dollars.