PureTerra Water Insights Vol. 1, Issue 1_Feb 2019

WATER NEWSLETTER

Pureterra Ventures

— INVESTMENT ACTIVITY RECENT M&A DEALS PAGE 10

— THE DEEP DIVE WATER QUALITY MONITORING PAGE 24

— THE CHINA STORY WATER OPPORTUNITIES IN 2019 PAGE 34

A L I T T L E M O R E A B O U T U S

Our vision: Clean water for all

WHO WE ARE

Committed to enabling technologies and entrepreneurs to provide dramatic, sustainable solutions consistent with the long-term interests of our global environment

PureTerra Ventures is an investment firm focused on disruptive water technologies with a positive social impact. Based out of the Netherlands and Shanghai, we combine exceptional entrepreneurial experience, a vast network in the Chinese water sector and strong water technology expertise to create maximum value for our investors and technology companies. We aim to build long-lasting relationships with entrepreneurs and actively contribute to the commercial success of our portfolio companies. As seasoned entrepreneurs we strongly believe the power of innovation, entrepreneurship and commercial growth can make a positive global impact. Having offices in China and living with the environmental issues there every day has made us keenly aware of how fragile our global environment is. By enabling entrepreneurs and supporting innovation we aim to make a tangible impact on improving water quality around the world. We believe that not only is this achievable, but can go hand in hand with superior returns for investors and innovators alike. Alexander Crowell

- MANAGING DIRECTOR, PURETERRA VENTURES

A L I T T L E M O R E A B O U T U S

A L I T T L E M O R E A B O U T U S

People at pureterra Meet the team

Contact us

HEAD OFFICE Tappersweg 35 2031 ET Haarlem The Netherlands Phone: +310655474824 asia office HQ525 Creative Garden, Office A401 55 Jinyu Road, Shanghai, China Phone: +86 21 6402 7352

Alexander crowell managing director

maarten ter keurst director of investments

GIJSBERT DE BRUIN PARTNER

email INFO@PURETERRA.COM

VISIT OURWEBSITE WWW.PURETERRA.COM

libin song lead business analyst

JOB VAN SCHELVEN CHIEF FINANCIAL OFFICER

nic pannekeet partner

C O N T E N T S

ECONOMY INDICATORS page 08 Q4 round up and 2019 outlook

INVESTMENT ACTIVITY page 12 RECENT M&A DEALS IN THE WATER SPACE IndustRY UPDATE page 16 EARNINGS UPDATE & COMPANY ACTIVITIES EMERGING TECHNOLOGY SPOTLIGHT page 20 ATMOSPHERIC WATER GENERATOR THE DEEP DIVE page 24 ANALYZING WATER QUALITY MONITORING REGULATORY ENVIRONMENT page 30 REVISED WATERS OF THE UNITED STATES

THE CHINA STORY page 34 WATER OPPORTUNITIES IN 2019

E C O N O M Y I N D I C A T O R S

Economy Indicators

LOOKING BACK AT CLOSING 2018 UNITED STATES DISPLAYS WEANING MARKET CONFIDENCE EVEN AS LABOR FORCE COMES BACK. NET EXPORT NO LONGER AN ENGINE FOR THE CHINESE ECONOMY AS IT SEES WEAKENED MARKET DEMAND. EUROZONE LOSES MOMENTUM AMIDST UNSTABLE GOVERNMENT, CIVIL UNRESTS AND OTHER INCREASING RISKS TO ECONOMIC ACtIVITY IN THE REGION.

UNITED STATES US PPI has been decreasing in 2018 Q4 mainly because of a 13.1% plunge in gasoline prices. Overall CPI in 2018 increased 1.9%, in line with US government target of keeping inflation within 2%. The ISM Manufacturing PMI in the US fell to 54.3 in December making it the largest monthly drop since October 2008 as growth in new orders, production and employment slowed sharply. U.S. manufacturing output increased by the most (+1.1%) production of motor vehicles and a range of other goods. The labor market has been very positive in December, NFP has hit 312 thousand, far beyond expectation, and there have been jobs released to the market. CHINA PMI in December dropped to below 50, indicating a weak economy in China. Lack of new orders is the main challenge faced by Chinese companies. Policy intervention on the demand side is required. Net export is and will no longer be a driving force for Chinese economy. Contribution of net export to GDP logged -8.6% in in 10 months in December, boosted by a surge in the

UNITED STATES Fed pledges patient approach and expects “ample” balance sheet, inflation risk dying down for now, Labor force coming back to the market, market confidence is not positive as reflected by PMI and flattening yield curve.

December. Both import and export had negative growth rate in December due to the trade war with US. Monetary policy has been very stable in Q4 2018, credit expansion controlled at a low pace, M2 growth rate stayed at 8% from Oct to Dec. dampened external demand and political turbulence are causing the Eurozone economy to lose its momentum. Germany grew by 1.5% in 2018 - slowest rate registered since 2013. Poor industrial production, especially with the automobile sector readjusting to new emission standards, are contributing to the slowdown here with nil GDP growth in Q4. Despite unstable government, Spain’s economy, bolstered by increasing exports as well as consumer and government spending, grew 0.7% in Q4. Civil unrests in France impacted domestic demand however riding on foreign trade the economy grew 0.3% in Q4. Italy has entered a technical recession, shrinking by 0.2% in Q4. The accumulated government debt and weak banking performance raises concerns for the entire region. EUROZONE Plunging confidence,

CHINA WEAK MARKET DEMAND .Monetary policy has been held strict, positive fiscal policy will direct money to the “key industries” via public bonds,

pushing forward the structural reform.

EUROZONE ECONOMY SEEN LOSING MOMENTUM. FRENCH UNREST,

WEAK ITALIAN BANKING ACTIVITY AND SLOWING GERMAN INDUSTRIAL OUTPUT SIGNAL LOSS OF MOMENTUM

E C O N O M Y I N D I C A T O R S

E C O N O M Y I N D I C A T O R S

“AT THE BEGINNING OF 2018 THE GLOBAL ECONOMY WAS F I R ING ON ALL CYL INDERS , BUT I T LOST SPEED DUR ING THE YEAR AND THE R IDE COULD GET EVEN BUMP I ER IN THE YEAR AHEAD” - KR I STAL INA GEORGI EVA, world bank CEO

THE EXPERT’S OUTLOOK FOR 2019 IN AN ENVIRONMENT OF WEAKING TRADE AND INVESTMENT, THE WORLD BANK PROJECTS THE GLOBAL ECONOMY TO SLOW TO 2.9 PERCENT in 2019. IN THIS SECTION WE SUMMARIZE EXPERT OUTLOOKS ABOUT THE UNITED STATES, CHINA and the eurozone in 2019

ST. LOUIS FED OUTLOOK FOR THE US in 2019 Consumer spending in the US has been stronger than real after-tax incomes. It is expected that it will slow down in the future to come in line with real income growth. Real GDP is forecasted moving from 3.1% in Q4 2018 to 2.4% in Q4 2019. Unemployment rate is forecasted to nominally decline from 3.7% to 3.6% between Q4 2018 and Q4 2019. With projected federal budget deficit rising to $1 trillion in fiscal year 2020, pressure to reduce the deficit is expected to intensify. The Conference Board Outlook of US Economy in 2019 Economy likely to slow during 2019 towards medium-term 2% trend especially with global slowdown in growth of mature economies and rising domestic wages putting pressure on the bottom lines. On an annual basis, their outlook suggests that real capital spending growth will decline from 6.8% to 4.4% and exports growth will slow down from 4.1% to 3.0% between 2018 and 2019. Residential investment which saw no change in 2018 will see a -0.1% decline in 2019 while

real consumer spending will grow by 2.8% in 2019 versus 2.7% in 2018.

Weaker fiscal stimulus may curtail growth but reduce government liabilities burden. IMF EUROPE 2019 OUTLOOK Economic growth to slow down to 1.9% in 2019. Lack of external demand, higher oil prices and production capacity constraints to contribute to slowdown. Emerging Europe real GDP growth to slow from 2.9% to 2.0% between 2018 and 2019. On excluding Turkey, the real GDP growth movement in this period becomes 2.7% to 2.5% EUROPEAN COMMISSION 2019 OUTLOOK Strong domestic fundamentals will allow economic activity to continue growing and unemployment falling though this is clouded by several interrelated downside risks. GDP growth to moderate to 1.9% in 2019 and 1.7% in 2020. Private consumption expected to increase to 1.8% in 2019 from 1.6% in 2018 – driven by increase in wages.

WORLD BANK CHINA 2019 OUTLOOK

GDP growth to be 6.2% in 2019. Due to the uncertain outlook, the economy may need stimulus in 2019. This may be achieved by shifting government spending towards health, education and social protection. Better targeted and increased social spending likely to create jobs while encouraging household spending. OECD CHINA 2019 OUTLOOK Growth projected to decline in 2019. Monetary and fiscal policies are expected to ease while structural reforms accelerate. CPI will pick up due to fresh food prices. Trade will slowdown though the impact of trade tensions will be offset by the import tariff cuts and increased VAT refund on exported products. Trade friction will impact smaller firms more Infrastructure investment will grow by the way of bond-financed local projects. Curtailing shadow banking will enhance financial stability; smaller firms may find it difficult to raise funds.

I N V E S T M E N T A C T I V I T Y

Investment activity

KEY M&A DEALS IN THE LAST 6M WITH CHALLENGES OF WATER SHORTAGE AND WATER POLLUTION BECOMING MORE PRONOUNCED, INVESTORS ARE RECOGNIZING THE LONG TERM VALUE IN INVESTING IN THE INDUSTRY. FURTHERMORE, LEGACY BIG PLAYERS ARE INCREASINGLY LOOKING AT M&A ACTIVITY TO STRENGTHEN MARKET SHARE, EXPAND GEOGRAPHIES AND GAIN ACCESS TO INNOVATIVE SOLUTIONS

Keppel acquires Ixom for USD 796 Mn

facilities globally, employing 1200 people. Lonza acquired the water care business as part of its acquisition of Arch Chemicals in 2011, developing it as a part of the Specialty Ingredients segment. - pentAir plc to acquire us water treatment companies aquion and pelican water systems for USD 160 Mn and USD 120mn respectively Pentair plans to acquire Florida based Pelican Water Systems for $120 mn in cash. Pelican Water generates about $38 mn in annual revenue and its acquisition is expected to provide Pentair with new growth opportunities. Pentair also plans to acquire Aquion for $160 mn in cash. Pentair believes that the Aquion deal will complement its value chain in residential water offerings, pairing well with Pentair’s technical expertise and expanding its product offerings. - ecolab purchases bioquell for USD 178 Mn American company Ecolab closed acquisition of British firm Bioquell in January 2019, a

leading provider of hydrogen peroxide vapor biodecontamination systems and

Singapore’s Keppel Infrastructure Trust

services for the life sciences and healthcare industries. - AquaVenture acquires AUC group for USD 130 Mn The acquisition was closed in November 2018. US based AUC group provides wastewater treatment and water reuse technology to property developers and utilities in the US. The wastewater treatment products and services include scalable modular treatment plants, field-erected treatment plants, and temporary bypass plants, and are delivered through financed sales and leasing. The company has more than 80 leased plants, with capacity ranging from 5,000 gallons a day (19 m3/d) to more than 1.5 million gallons a day (5,678 m3/d). - TSK Corporation acquires Huvis Water for USD 106 Mn South Korea based water treatment machinery manufacturer Huvis Water, subsidiary of chemical materials company Huvis

acquired Australian water treatment chemical product manufacturer’s holding company Ixom for USD 796 Mn. The acquisition is expected to close during Q1 2019, pending approvals from unit holders and authorities including the Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office. The deal is expected to be funded by debt at the outset, employing a bridge facility as well as a five year senior term loan. The acquisition is expected to grow Keppel’s portfolio to S$ 5.1Bn from S$ 3.8 Bn. - Platinum Equity acquires Lonza Water Care Unit for USD 630 Mn ingredients maker, announced sale of its water care business to US investment company Platinum equity for USD 630 Mn. Lonza’s water care unit includes water treatment and residential swimming pool care and has six manufacturing In November 2018, Lonza, a chemicals and drug

I N V E S T M E N T A C T I V I T Y

COMPANY SAUR

was acquired by South Korea based total environment services company TSK in November 2018. Huvis Water, with 60 years of experience in the business, manufactures, installs and operates various water treatment systems necessary for industrial plants such as semiconductors and petrochemical plants. - Tallgrass Energy Corp acquires NGL Water Solutions Bakken Saltwater Disposal business for USD 91 Mn In December 2018, NGL announced completion of Bakken Saltwater Disposal business sale to Tallgrass Energy for $91 Mn in cash. Both businesses originate from the United State. NGL intends to deploy the net proceeds from sale for dept repayment. The Bakken water operations include five saltwater disposal was acquired by South Korea November 2018. Huvis Water, with 60 years of experience in the business, manufactures, installs and operates various water treatment systems necessary for industrial plants such as semiconductors and petrochemical plants. - EQT COMPLETES ACQUISITION OF WATER SERVICES MANAGEMENT based total environment services company TSK in

offerings and cost-effective solutions for customers in pulp, paper, oil and gas, chemical processing, mining, biorefining, power, municipal and other industrial markets.” - ALLETTE signs definitive agreement for sale of U.S. Water Services Inc. to Kurita Water Industries Ltd. Japan based international water management company Kurita Water Industries, Ltd. will be acquiring U.S. Water Services Inc., subject to regulatory approvals. The acquisition will help Kurita, which is a leading international water management company, to accelerate its expansion into North America. U.S. Water Services was acquired by ALLETTE in 2015, allowing them to grow into an important player in the industrial water service provider space in North America. The deal is expected to close by the end of Q1 2019.

Completed in December 2018, this is Sweden based EQTs first investment in France. At time of acquisition, SAUR group served approximately 7,000 French local authorities under long term contracts, with focus on small and mid- sized municipalities. SAUR also had international presence and provided services to around 13 million consumers worldwide. EQT intends to bring complementary expertise in digitization, sustainable development and water infrastructure management to SAUR. - Solenis and BASF complete previously announced merger of select businesses BASF’s wet-end Paper and Water Chemicals business has completed its merger with US based Solenis in January 2019. The resulting combined company is 49% owned by BASF will the balance controlled by Solenis and funds managed by CD&R. The merger includes Paper and Water assets of the Performance Chemical unit of BASF globally and related assets including IP. Post merger, Solenis has approximately 5200 employees. As per the company press release, this merger strengthens Solenis’ position “to provide expanded chemical

Industry activity

I N D U S T R Y A C T I V I T Y

I N D U S T R Y A C T I V I T Y

-end consulting and engineering services focused on water, renewable energy and sustainable infrastructure.” Danaher Corporation (DHR) Q4 and FY 2018 Earnings Call Summary • Q4 Net Earnings: $746M (-13% year over year) • Q4 Revenue: $5.4B (+5.5%) • FY18 Net Earnings: $2.7B (+7%) • FY18 Revenue: ~$20B (+8.5%) Core revenue growth to water quality platform was middle single digits. Core revenue at Hach increased at high single digit rate in both municipal and industrial end markets. In water quality, geographically the China market was leading at DHR. Ecolab (ECL) Q4 and FY 2018 Earnings Call Summary • Q4 Adjusted Net Sales: $3.8B (3% year over year) • Q4 Adjusted Operating Income: $601M (+3%) • Q4 Adjusted Net Income: $449M (+11%)

Evoqua’s first quarter operating as a two-segment structure namely Integrated Solutions and Services (ISS) and Applied Product Technologies (APT). Approximately 44% of revenue derived from services with 99% contract renewal rate. ISS segment revenues increased 10% to $211M (organic 3%+ driven by power and food and beverage wastewater markets). APT revenues increased 7% to $113M (organic 8%+ driven by aquatics and disinfection product lines and aftermarket growth in wastewater). Kemira Oyj (KMRAF) Q4 and FY 2018 Earnings Call Summary • Q4 Revenue: EUR 662M (+4% year over year) • Q4 EBITDA: EUR 81.3M (+4%) • Q4 Net Income: EUR 26.5M (+3%) Overall, the company saw 7% organic growth which was led by Industry & Water segment, especially oil & gas chemical businesses. Mueller Water Products (MWA) Q1 2019 Earnings Call Summary • Q1 Net Sales: $193M (+8% organic) • Q1 Net Income: $16M (-23%) • Q1 Adjusted EBITDA: $31M (+20%) Net loss of $21M driven by Walter Energy accrual (tax liability related to activities for former parent). Positive outlook for 2019 – announced additional price increases for many products which will be effective in Feb 2019.

reflect in operating results from Jan 1, 2019. MWA anticipates incurring another $2M to $3M as future transaction and integration expense with regards to this acquisition. Pentair (PNR) Q4 and FY 2018 Earnings Call Summary • Q4 Sales: $741M (-3%) • FY18 Sales: $3B (+4%) • Q4 Operating Income: $113M (+32%) • FY18 Operating Income: $437M (+15%) • Q4 Net Income: $93M (-51%) • FY18 Net Income: $347M (-48%) 2019 expectations: core sales growth 4-5%, segment income growth 8-12% and adjusted EPS growth 6-11% ($2.50 - $2.60). Focused strategy on expanding pool and accelerating residential and commercial water treatment (requiring investment at business and enterprise level).

StOCK COVErAGE SUMMARY AND HIGHLIGHTS OF EARNINGS CALLS FOR Q4 2018/Q1 2019 OF THE BIGGEST PLAYERS IN THE WATER INDUSTRY ECOSYSTem

Xylem (XYL) Q4 and FY 2018 Earnings Call Summary • Q4 Adjusted Net Income: $159M (+16%) • FY18 Adjusted Net Income; $522M (+20%) • Q4 Revenue: $1.4B (+10% organically) • FY18 Revenue: $5.2B (+10%) Xylem benefitted from productivity, volume leverage and price realization which accelerated throughout the year. These gains were offset by impacts of inflation, sales mix and funding of strategic investments.

software capabilities with its installed base. Tetra Tech (TTEK) Q1 2019 Earnings Call Summary • Operating Income: $56M (+15% year over year) • Attributable Net Income: $42M (-8%) • Revenue: $717M (-5%) Achieved best Q1 in company history with record net revenue, operating income. Record backlog of $2.8B, up 15% year over year. Company continues to see “increasing demand across end markets for high-

China, India and ME continue to be focus markets which delivered 11% revenue growth. Plan to launch several new technologies in 2019 – expected to leverage Xylem’s data, analytics and software capabilities with its installed base Strategic priorities for 2019 – commercial excellence, emerging markets and innovation. Plan to launch several new technologies in 2019 – expected to leverage Xylem’s data, analytics and

2019 adjusted diluted EPS is forecast to be $5.80 to

$6.00. Strong pricing, volume growth and cost efficiencies expected to more than offset moderating delivered product cost increases and unfavorable foreign exchange impacts.

Evoqua (AQUA) Q1 2019 Earnings Call Summary • Q1 Revenue: • Q1 Net loss: $16M (+5.5%) • Q1 Adjusted EBITDA: $38M (-4%)

$323M (+9% year over year)

Acquisition of Krausz Industries completed for $140M; will

I N D U S T R Y A C T I V I T Y

SUEZ furthers its development in Taiwan with new industrial water contract SUEZ Water Technology & Solutions signed a 12- year industrial wastewater membrane service contract with Forest Water Environmental Engineering to increase operational efficiency and wastewater discharge water quality. The two parties signed a MOU to jointly pursue reclaimed water opportunities in Taiwan in order to alleviate the pressure on conventional water sources and promote Taiwan’s water sustainability. Xylem to Drive Water-Industry Innovation on Imagine H2O Deal Xylem plans to join forces with Imagine H2O to promote innovation across the global water industry over the long run. Imagine H2O assists entrepreneurs in building and scaling solutions which help resolve global water challenges. Per the partnership deal, Xylem will become the Sustaining Core Sponsor for

Imagine H2O’s annual flagship accelerator program. Per this, the company’s water experts and engineers will provide the required support to the innovative water start-ups companies under Imagine H2O’s accelerator program. Grundfos unveils innovative digital tools solution Grundfos, a global leader in advanced pump solutions and a trendsetter in water technology, has announced the launch of its innovative digital sizing and selection tool that let customers find the optimal solution for every project. The Grundfos Product Center will help customers make the right choice faster, speeding up their entire work process; covering every sector, including domestic and commercial building services, the water supply industry, wastewater management, industry and OEM solutions.

agreement to establish a joint venture with Yongsan Chemicals, a privately-owned chemicals company in South Korea to expand its presence in the APAC region Atkins, Black and Veatch and RPS awarded Anglian contract The study will see the expertise of the three organizations combined to explore the early development of a number of proposed strategic pipeline schemes, which have the potential to transform water supplies across the east of England. Atkins, RPS and Black & Veatch have a strong track record of collaborative framework delivery in the water industry, having worked together on the likes of Thames Water’s eight2o alliance and as part of a joint venture for Scottish Water.. DuPont Water Solutions Announces Global Price Increase for Ion Exchange and Reverse Osmosis Products Ion Exchange Resin price increases range from 5-20 percent, and Reverse Osmosis membrane price increases range from 5-10 percent for selected products/ applications. The increase will take place with immediate effect and as contracts allow, varying according to the field of industry application and region.

Leading company activities

TRACKING NEW PROJECTS, AGREEMENTS, MARKETS & OTHER ACTIVITIES OF LEADING PLAYERS IN THE WATER INDUSTRY ECOSYSTEM

Veolia Water Technologies wins Kraft Heinz China Contract Veolia Water Technologies will provide Kraft Heinz China with an in-house wastewater treatment solution for its new plant in Guangdong, China. The plant covers an area of over 13 hectares and will product 125,000 tons of soy sauce annually. Solutions provided by Veolia includes its AnoxKaldnes Biological Activated Sludge solution and AnoxKaldnes Moving Bed Biofilm Reactor. Additionally, the plant will also be equipped Dissolved Air Floatation (DAF) clarifier system for total phosphorous removal and biological sludge separation. Ecolab plans to spin-off part of its oil industry chemicals business as standalone public entity

IDIQs

currently contributes $2.4bn in annual revenue, roughly 17% of Ecolab’s total business. With the spin-off, the company will forego its upstream energy business, i.e. production of chemicals employed in oil- fields and well-drilling while holding on to its downstream energy business, i.e., chemicals for refineries and petrochemical plants. February 2019 saw the debut of Xylem Rental Solutions, Xylem’s new approach to its rental solutions business. Xylem Rental Solutions along with a broad range of sizes/configurations will also rent specialty products and systems, which are not readily available from other companies. AECOM, Hydrogeologic and Tetra Tech selected for NASA Environmental Remediation Xylem Rental Solutions Debut

They have been awarded a potential $300 million combined contract for a period of five years by NASA. The companies are expected to “investigate, design and implement environmental remedial measures” for NASA across its facilities in the United States. NASA expects the work to conclude by February 2024. In February 2019, Evoqua launched Depolox 400 M analyzer designed “to provide reliable measurements of disinfectant parameters in drinking water and industrial water applications.” The new Depolox is expected to ensure greater confidence in measurement while deploying a simple and intuitive interface for operators. Evoqua launches Depolox 400M

Kemira forms a joint venture in South Korea

Kemira has signed an

The soon to be spun-off entity

E M E R G I N G T E C H N O L O G Y S P O T L I G H T

Emerging technology spotlight

Atmospheric water generator technology

Atmospheric water generator (awg) is an emerging market in the water industry. an awg device extracts water from humid ambient air. this can be done through a process of condensation. unlike dehumidifiers, awg’s are designed to make water potable. in this section, we explore this emerging technology.

Industry size outlook cross usd 8.5 bn by 2024

THE AWG UNDERLYING TECHNOLOGY

problems.

market CONSTRAInTS Cooling condensation systems which dominate the market require high amounts of electricity. The lower power of wet desiccation systems will thereby propel the segment in the future. This will be dependent on advancements in the performance of substances used to soak up water. The preexisting utilization of water desalination as a useful means of acquiring water from the environment is a major restraint on the atmospheric water generator market. However, the cost advantage and higher efficiency of advanced atmospheric water generators will help the market for the latter overtake the water desalination market in the near future. INDUSTRY SIZE OUTLOOK AWG market may surpass USD 8.5 billion at the end of 2024. China atmospheric water generator Market is expected to reach USD 1.5 billion by 2024. U.S. atmospheric water generator market may register gains at over 25% by 2024. Germany atmospheric water generator market may witness

Atmospheric water generation is primarily done in two ways: cooling condensation and wet desiccation. In cooling condensation, humid air is concentrated and cooled down to temperatures that will turn the water vapor into dew. In wet desiccation, hygroscopic compounds are utilized to soak up water from the air, and then separated from the compound to acquire pure water. market overview Due to increasing constraints in availability of freshwater, AWG has witnessed rapid rise in demand. Currently due to their ease of use and efficiency, cooling condensation tech dominates the AWG market. Wet desiccation tech is also seeing a rising demand, however cooling condensation is expected to dominate the market. market Drivers Limiting global availability of fresh water is one of the key drivers of the AWG market. Ease of operations and high output ratios in AWG allows for widespread residential application, which could ameliorate water shortage

key market driver limited availability of fresh water & ease of operations

KEY constraints lack of efficiency, external competition from desalination industry

major awg players watair inc., dew point, sainsons technocom,

atlantis solar, Fijian Yuxin Electric, ecoblue and island sky corporation

E M E R G I N G T E C H N O L O G Y S P O T L I G H T

E M E R G I N G T E C H N O L O G Y S P O T L I G H T

significant gains at over 25% within forecasted timeframe. Atmospheric water generator from industrial application may grow significantly with gains at over 30% at the end of 2024. Increasing application scope in heavy manufacturing such as oil & gas, paper and steel along with infrastructure industry may propel industry growth. Commercial water generator systems may witness moderate growth owing to rising demand from commercial projects, military and institutions such as hospitals, schools, hotels and banks to provide clean & safe water thereby stimulating atmospheric water generator demand. mAJOR AWG INDUSTRY PLAYERS Global atmospheric water generator market share is moderately fragmented. Some of the key players in the market are Watair Inc, Dew Point, Sainsons Technocom, Atlantis

unique because of its small and portable size, production capacity, variable powering capabilities (to include solar) and scalability. The field of atmospheric water generation is an emerging market, and Exaeris’ newly patented technology fills a distinct gap in the marketplace for outdoor adventurers, survivalists, mobile living, disaster recovery and military personnel. Exaeris is developing an affordable line of AWG products and peripheral devices that efficiently and economically produce water from moisture in the air, providing a reliable source of fresh water in areas where access is limited. eMERGING TECH./CO. - WATERGEN AUTOMOTIVE PRODUCT In January 2019, Watergen rolled out their latest innovation – a prototype that generates three liters of clean water per hour inside a vehicle. This innovation makes Watergen the first company to integrate AWG in a vehicle. eMERGING TECH./CO. - SKYWATER SKYSOURCE ALLIANCE The Skywater/Skysource alliance won the prestigious

$1.5 Mn Water Abundance XPRIZE for creating an easily deployable high-volume water generator that can be used in any climate, extracting a minimum of 2,000 litres of water per day from the atmosphere using 100% renewable energy at a cost of no more than 2 cents per liter. Their winning system combined existing condensation technology with a biomass gasifier.

Solar, Fijian Yuxin Electric, Ecoloblue and Island Sky corporation.

eMERGING TECH./CO. - EXAERIS WATER INNOVATIONS Exaeris Water Innovations and University of Tulsa issued an AWG patent in December 2018. The AWG technology is

T H E D E E P D I V E

THE DEEP DIVE

revised european commission directive Shifting towards a risk-based approach determining the future direction of water quality monitoring driving forces Regulations, time to result, process control, cost savings barriers Lack of skilled labor, remote location application, maintenance and operation Technologies available Ion selective electrodes, Nucleic acid detection/PCR, Immunoassays, ATP, Fluorescence, MALS, Flow cytometry future development trend • Improved performance of current sensors • Real-time, online, rapid, full coverage sensors • Effective monitoring of microbial contaminants

The Deep Dive

Water quality monitoring

in this edition, the deep dive covers water quality monitoring. amidst a revised european commission directive for drinking water standards, we evaluate the driving forces, barriers, available technologies and future development trends in water quality monitoring

February 1 2018, the European Commission adopted a proposal for a revised drinking water directive to improve the quality of drinking water. A major shift towards “risk-based approach” has been noticed in this proposal that determines the future direction of water quality monitoring industry. it now requires risk assessment for the complete process from source water, to distribution and finally to tap water. The revised approach will allow utilities to focus on risks that matter, based on cost- effective source measures, thereby avoiding non-relevant analyses and efforts, while ensuring drinking water safety in an enhanced manner.

that regular reporting will no longer be enough. Utilities are expected to closely monitor their water from source to tap and capture any event as soon as possible. It is anticipated that this requirement will make real-time online monitoring technologies and full coverage tests more popular. This offers a huge potential for sensor manufacturers throughout Europe. Large suppliers would be expected to implement the risk-based approach within three years and small suppliers within six years. As estimated by the European Commission, there will be 5.9-7.3 billion euros needed for its implementation, with the majority allocated towards treatment and monitoring systems at water utilities.

It is currently anticipated that the global water analysis instrumentation market will grow to 3.6 billion dollars by 2020. Laboratory-based water analysis accounts are the primary driver, though online systems are also growing fast at 7.6% CAGR. Regulations Everyone agrees that regulation is most important factor driving the water industry. In drinking water, regulations determine what should be measured, how they should be measured and at what frequency. A major change as the one undertaken by the European Commission will significantly influence the market demand and ultimately the innovation direction of the THE DRIVING FORCES

• Software development • Remote-use sensors

However, it also raised a new challenge for utilities in

T H E D E E P D I V E

FUTURE DEVELOPMENT TRENDS

sensors in the field.

industry.

Remote Location Application For the broad distribution network monitoring, most incumbent sensors can barely meet the requirements, thereby raising demand for technical innovations. Power supply and supporting infrastructure is one area where you will find some new technologies popping up recently, e.g. Ayyeka, HydroSpin, Aqua Robur, etc.; on the other hand is the frequent maintenance which makes the opex forbiddingly high considering the transportation costs. Maintenance & Operation As explained above, frequent maintenance and complex operations make online monitoring less attractive. Optical sensors are prone to fouling; chemical sensors are not as stable, and bring additional cost of reagent consumption. Technologies Available On the table on the right, we list several main rapid detection technologies on the market for chemical and microbial detection and compared their advantage/ disadvantage. Each technology has its application restrictions, hence utilities need to choose their solution package according to their own demand. Furthermore, not all listed technologies can be used for online water monitoring, leaving a large gap for future technical innovations to fill. This can be achieved either by improving performance of current technologies, or by bringing disruptive solutions that change the game.

Improved Performance of Current Sensors Higher selectivity, accuracy, and robustness Lot of incumbent sensors are affected by matrix interferences, limiting their applications. They are also designed more so for wastewater monitoring than for drinking water. Less maintenance required Optical sensors will gain more popularity since no reagents are required, but further improvements are expected to make them less prone to fouling. As the regulations evolve, real-time online monitoring will become prevalent in water industry and full coverage sensors will have their market especially with the change towards “risk-based approach”. Real-time, Online, Full Coverage Sensors need to be better monitored. There is no winning solution in this regard yet, although competition is getting stronger. Matrix interference is less a threat for sensors in drinking water, but low contamination level poses another challenge - “real time” is not as easy. principles, correlation between data captured and parameter interpretation may not be direct, hence better algorithm can to some extent make up for the shortage of the hardware sensor. Besides, since usually multiple sensors are Effective Monitoring of Microbial Contaminants Microbial contaminants Software Development For a lot of measurement

Time to Result Speed is critical. Speed means money for industries, but in the drinking water sector, it means life. Microbial contamination is fatal yet slowest to be detected by traditional lab tests - people could lose their lives during the several days between sampling and results. Hence, real-time online monitoring is expected to see a growth surge. Technology in this area is much less mature compared with chemical or physical parameters. Process Control Utilities want to know more about their plants. This will not only decrease the risk of contamination, but also help utilities save their costs by process optimization. Cost Savings Online sensors can have higher capex compared with lab tests, however the cost per test is usually lower, taking into account the amount of tests it can deliver in its lifetime and much lower opex. It is also important for online sensor providers to make sure they can keep opex at a relatively low level by reducing maintenance requirements so as to compete with incumbent technologies and justify their ROI. Lack of Skilled Labor Ageing work force has been a widely accepted fact in water industry. A lot has been done to motivate young generations to join this old industry. Lack of qualified technical staff is holding back the implementation of advanced THE BARRIERS

technology

contaminants rcovered

advantages

disadvantages

companies

ion selective electrodes

S::CAN, YSI, HACH, Intellitect

chemical

no chemical required, low costs

Low selectivity; Prone to fouling; and drift; Matrix interferences; Complicated operation and maintenance; Frequent calibration Cannot distinguish between live and dead microorganisms; Can be negatively affected by natural interferences; Not real time, at least 2 hours required Requirements for reagents; Matrix interferences; Pre-concentration required for drinking water; Cannot identify the contaminant species nor quantify

nucleic acid detection/pcr

Idaho Technologies; Rheonix; Smiths Detection; LLNL Neural Technologies; Agilent Technologies

chemical, biological

High sensitivity; Quantitative information; Selective

immunoassays

Tetracore; New Horizons; Diagnostics; AdVnt; Response Biomedical Corporation

biological

Fast detection of presence

atp

Expensive enzyme; Cannot identify the contaminant species

Luminultra, Applitek

biological

Rapid on- site analyses

(available within several minutes); Broad coverage (measures all living organisms) High sensitivity; Small required sample volume; Low sample preparation requirements; Short measurement time High accuracy of particle existence

fluorescence

Difficulties in data analysis; Matrix interference; Pre-concentration required for drinking water

TECTA; VWMS; AquaBio; MicroLan; Colifast

biological

multi-angle light scattering (mals)

Rustek, Ltd.

biological

Cannot identify the contaminant species, false positive due to non-harmful particle detected; Only detect particles within a certain size range

flow cytometry

SBT Instruments

Result interpretation (especially at low concentration level for drinking water) can be subjective

biological

Rapid, sensitive; Compatible with various staining and labeling methods

T H E D E E P D I V E

used together, compatibility is critical. Software that can make data management easier for utilities, and help utilities better service their customers will increase in the future. Sensors That Can Be Used In Remote Areas More available energy supply and data communication solutions Depending on the power requirement, available space and costs, there will be more power supply options coming up for sensor suppliers. Battery life is getting longer, traditional solar cells are becoming more affordable, and new technologies that recycle energy from water flow itself are in early commercialization. Thanks to the investment attraction, IoT infrastructure like NB-IoT, Sigfox, Lora, etc. is developing fast and getting more and more mature in various applications. Other solutions like drone/satellite technologies: Drone/satellite technologies are gaining traction in water industry now. Currently their application focuses on leak detection. However, trials have been seen to use them for water quality monitoring, if this can be proved commercially feasible, it will be very interesting for utilities.

WATER QUALITY MONITORING SENSOR

R E G U L A T O R Y E N V I R O N M E N T

Regulatory Environment

event. • Ditches, i.e., artificial channels used to convey water, are jurisdictional if they have been used, or are suitable for future use, in interstate commerce, as are certain ditches constructed within jurisdictional tributaries or wetlands. • Wetlands are considered jurisdictional only if they abut a jurisdictional water or have a direct hydrologic surface connection with a jurisdictional water in a typical year (such as a wetland that is flooded by a perennial or intermittent stream in a typical year). • Wetlands are no longer jurisdictional if physically separated from a jurisdictional water by upland or by dikes, barriers, or similar structures and lack a direct hydrologic surface connection to such waters.

REVISED WOTUS in 2017 president donald trump signed an executive order directing the epa to repeal the obama era clean water rule. the rule which met with opposition due to its overreaching nature is now set to be replaced by a new definition for the waters of the united states (or wotus) which will be under federal jurisdiction.

In December 2018, EPA and the US Department of the Army signed a proposed rule to narrow down the scope of defining waters of the United States or WOTUS. If the proposed definition is implemented, it will be considered beneficial for homebuilders, land developers and farmers. Generally, the Act prohibits discharge of pollutants into navigable water, unless it is as per guidelines of required permits. There have been long standing jurisdictional issues and the new proposed definition is expected to be a step in relieving confusion. For the most part, the new proposed definition challenges the 2015 WOTUS definition issued by the Obama administration which was perceived by some as “expanding federal jurisdiction over wetlands beyond that intended by Congress.” At the time of writing this report, EPA had released the new draft WOTUS rule and the public comment period was underway. The public comment period extends over 60 days and is expected to conclude on 15th April, 2019. • Eliminates interstate waters as a standalone category of waters of the United States. Wetlands that cross state lines but do not have a connection to traditional navigable waters are no longer regulated. • Specifies characteristics of jurisdictional tributaries, ditches and wetlands. Only tributaries, ditches or wetlands meeting the express definition are jurisdictional. • To be jurisdictional, a tributary must contribute perennial (continuous year-round) or intermittent (continuously during certain times of a typical year) flow to a traditional navigable water, either directly or indirectly through other jurisdictional waters. • Significantly, tributaries do not include surface water features that flow only in direct response to a rain or snow Foley & Lardner LLP summarize what the proposed rule entails, as follows

history of the clean water act the federal water pollution control act of 1948 was the first substantial law addressing water pollution this law was amended in 1972 to become commonly known as the clean water act. for regulation of water pollution and gave epa the authority to implement programs for controlling water pollution. importantly, it introduced the requirement of permits for discharging pollutants into navigable waters. the amendments included establishing basic structure at the heart of the existing change is defining wotus and accordingly establish the requirement of permits for polluting navigable waters. the 2015 obama rule was considered overreaching to the displeasure of several stakeholders. it was also considered too complex for the average person to decipher without incurring large consultancy and legal costs.

SUMMARY OF PROPOSED CATEOGIES OF REGULATEDD WATER

CATEGORY

REGULATION

Traditional navigable waters Tributaries to traditional navigable waters

Federally regulated; no change

Federally regulated if contribute flow to traditional navigable waters in a typical year; ephemeral features excluded Ones that function like traditional navigable waters will be federally regulated. Ditches that contribute flow to a traditional navigable waterway in a typical year are regulated. Same as tributaries to traditional navigable waters Impoundments that forms lakes and ponds behind them will continue to be federally regulated; no change Wetlands with direct hydrological surface connection to another water of the US in a typical year will be federally regulated

Ditches

lakes and ponds

Impoundments

Adjacent Wetland

The 2015 Obama rule of the WOTUS was perceived to be a power grab by both farm and industry groups in the US. The rule was put in place to define which streams and wetlands are federal clean water protections. However, it was perceived to be overreaching and too complicated for the average person to understand. President Trump’s executive order in repealing the 2015 rule targets this very contention. The idea was to put together a WOTUS so simplified that a landowner could look at a water body and be able to understand if it was in fact under federal jurisdiction. However, as is the case with most law, simplification to such extent is largely unattainable. Even still, the revised WOTUS is being appreciated by landowners, farm, energy and industry groups alike as they welcome a relatively eased down definition.

R E G U L A T O R Y E N V I R O N M E N T

R E G U L A T O R Y E N V I R O N M E N T

“ The Envi ronmental Protect ion Agency proposal would narrow the extent of . . . the Waters of the Uni ted States (WOTUS) rule that Pres ident Barack Obama’ s admini strat ion expanded in 2015 to cover a wide range of water bodi es . Pres ident Donald Trump , who has accused Obama of over-reaching on regulat ions , made roll ing back WOTUS one of hi s top pol icy pr ior i t i es . ” - REUTERS

As mentioned earlier, at the time of writing this report, the 60-day public comment period for WOTUS is underway. While many environmentalist organizations object to the new definition, many industries and land rights groups support the new definition. important to know that the new WOTUS may scale back federal protection for more than 51% of wetlands and 18% of streams without relatively permanent surface water connections to nearby waterways. This implies fewer waterways for which land users need to obtain permits to be able to pollute. The issue summarized is that the pollution from unregulated tributaries or wetlands can flow into major bodies of water thereby impacting the levels of water pollution and drinking water access in the US. Another way to view this is that the standards of protecting water against pollution are in a way being lowered with the new definition. Understandably, this To set context for the objections to WOTUS, it is

has also caused the fishing industry to object to the new WOTUS along with other industries that will be directly economically impacted by a surge in water pollution. Critics are also saying that while the Obama rule was derived bearing a scientific frame of mind, the Trump rule is derived from more of a legal perspective, i.e., simplifying the complexities of the law from a legal standpoint. It is the anticipation of scaling back these complications which has resulted in many proponets to the new WOTUS. Detailed definition of federally regulated waters in the Obama rule was perceived to be a federal overreach. It was considered very complex in nature and possibly inhibited farmers by requiring them to undertake expensive consultants and engineers to determine which water on their property was subject to federal regulation and required permits, etc. The new WOTUS which is positioned as a simplified definition is thereby

expected in saving costs and, as some proponents would say, eliminate a hurdle to economic growth. The beginnings of the WOTUS revision stem from politics. Revision of the “overreaching” WOTUS was an important campaign agenda for President Trump. However, what started as a political issue may soon take a much more serious turn if it results in deterioration of the quality of the waters of the United States.

CHINA WATER OPPORTUNITIES 2019

C H I N A S T O R Y

Higher regulations on municipal wastewater treatment call for technology upgrade

The China Story

Semiconductor is a rising star in industrial wastewater treatment

Rural wastewater treatment needs suitable regulation and technology

Sludge treatment remains a bottleneck

CHINA WATER OPPORTUNITIES 2019 2018 has been a special year for China and for Chinese water industry, during the 40th anniversary of open-up policy of China and the 20th anniversary of water reform, Chinese water companies find themselves facing bigger challenges due to the economic downturn and stricter regulations.

technology upgrade Changes in the “Discharge standard of pollutants for municipal wastewater treatment plant” (GB 18918- 2002) has aroused broad discussion since it was first proposed in 2015. Some argue that this new standard is a waste of social capital, treating water to a higher level than the surface water, pouring back to the dirty river. But aside from that, it also opens a new market for advanced technologies. Current wastewater treatment plants are facing with limited space to scale up, and sludge treatment capacity shortage. Hence with the new standard coming out, technologies that has higher efficiency, less foot print and less sludge will have more chances in China municipal wastewater

Listed environmental companies in China lost nearly 50% of their market value, PPP projects turned into a bubble at the end of the day, and Beijing Orient Landscape ended up with merely 50 million yuan in their pocket with a bond issue meant to raise 1 billion yuan. “Free capital” from government seemed finally come to end for this industry, and companies need to rethink their strategy, enhance their competency and stand on their own feet. Reviewing the past 2018, we see some challenges in this market which can also be a good opportunity for companies in 2019:

treatment.

Semiconductor is a rising star in industrial wastewater treatment In June 2018, Poten Environment Group acquired 70% share of TG Environment with 350 million RMB, increasing wastewater treatment. IC (integrated circuit) industry in China has seen exponential growth in past few years since 2015, and will grow strongly in the future boosted by industrial policies. This creates two opportunities for water/wastewater treatment companies: 1) increasing demand of ultra-pure water in chip manufacturing process; 2) more advanced wastewater treatment for disposal (COD standard raised from 100mg/L its competitiveness in semiconductor water/

The promising areas and opportunities for the water industry in China

Higher regulations on municipal wastewater treatment call for

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