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Progressive Investor Releases Report, "Investing in Water"

Progressive Investor Releases Report, "Investing in Water"

Published 03-28-07

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NEW YORK, NY - March 28, 2007 "“ Progressive Investor announces the release of its report, "Investing in Water."

Over the past few years, concerns about diminishing, contaminated water supplies and an aging infrastructure have made the water industry one of the hottest areas for investors, which have pushed company valuations up to historically high levels.

The industry will continue to grow but not at a pace that can support these sky high valuations, that is until barriers to growth are removed. The water industry will experience a sea change over the next decade as trends in the industry coalesce, according to a new report, "Investing in Water," by Progressive Investor, a leading sustainable investment research firm.

Over the years, the $400 billion water industry ($100 billion in the U.S) has provided reliable, steady returns to investors - largely because of dividends paid by utilities - but the industry as a whole is growing at 4-6% a year (except for certain sub-sectors), not at the heady 15-20% investors expect.

There are two main reasons for the impending water crisis. First, the world is running out of fresh water because of uncontrolled growth in population, industry and agriculture "“ all demanding ever increasing amounts of pure water. Fresh water is contaminated with thousands of chemicals - whether they be from industrial processes, fertilizers and pesticides from farms, or from "xenobiotic" contaminants "“ human excretions of birth control pills, antibiotics or the remnants of chemotherapy. Add climate change to the mix, which is changing water and weather patterns around the world, and we have the makings of a real disaster.

Second, an estimated $1 trillion is desperately required to repair, upgrade and build infrastructure worldwide. The 100-year old US water and wastewater infrastructure consists of a million miles of pipes - thousands of which are eroding and leaking. In the developing world, new infrastructure is sorely needed to serve the billion people who currently lack access to fresh water.

While the technology is available to fix the problems, there isn’t the money to pay for it. Water is currently managed - through subsidies and absurdly low prices - as if it were worthless instead of the life-sustaining, valuable, and increasingly scarce resource that it is.

The root of the problem is that water is ridiculously cheap, concludes the report.

Water utilities can't afford to upgrade, the infrastructure continues to decay, and individuals, businesses and farms have little incentive to conserve and change their extremely inefficient practices, the report continues.

"The drivers for huge growth are there and investment capital is there, but these won't connect until the price of water rises significantly," says Rona Fried, CEO of Progressive Investor. "How can an investor place capital in a company that's developed an advanced membrane to remove "xenobiotic" contaminants if no utility can afford to pay for it? Where's the return on investment for the $300 billion dollars needed to prevent the infrastructure from literally collapsing under our feet?"

The report identifies the following trends which are coalescing to remove barriers to growth:

1. Tighter regulations: governments are moving toward zero discharge and water re-use regulations; desalination plants will be required to treat toxic byproducts rather than discharging them into the ocean.

2. Advanced filtration techniques: chemicals to treat water are being replaced by ultraviolet, ozone and other advanced, environmentally responsible techniques, and they are filtering more complex contaminants, such as growth hormones from farm runoff.

3. Measuring water consumption: water meters are increasingly penetrating the market to measure and conserve water in households; industry (the largest water consumer after agriculture) is adopting water re-use, and is increasingly reporting on its "water footprint."

4. Water pricing mechanisms are being formulated: there will be much higher prices, and trading systems for water rights and water pollution rights.

5. Continued consolidation and privatization: While only 10% of customers worldwide are served by investor-owned utilities today, that could rise by as much as 500% over the next decade. Small water utilities are being rolled up by large ones.

6. Dominance of a few conglomerates: General Electric, Danaher, Siemens, 3M, and Suez are widely expected to dominate the water industry in the next 5-10 years.

"A few niche segments are experiencing rapid growth," observes Rona Fried. "Ultraviolet radiation and membrane filtration are growing 15% a year, as they replace chlorine for disinfection. Metering and monitoring are strong growth areas, as is desalination. Utilities are beginning to spend on infrastructure repair which could well accelerate with the Democratic Congress."

"There's a consensus that the water industry won't be characterized by silver bullets or huge technological breakthroughs, but rather dozens of known technologies in which we see consistent, incremental improvements. Pumps use less energy, membranes are far more efficient," notes Steve Maxwell, Managing Director of investment banking firm TechKNOWLEDGEy Strategic Group and a contributor to the report.

Adds Steve Hoffmann, co-founder, Palisades Water Index Associates LLC, and another contributor to the report, "The water business needs to consolidate to some degree. It's not a matter of finding breakthrough technologies; it's a matter of making what exists efficient."

There's lots of bad news about the state of the world's water, but there's also good news. Although a billion people don't have access to adequate quantities of clean water, the other 5.2 billion do (83% of population). Industry and agriculture are becoming more efficient. Awareness of water issues is increasing. And in the end, if we draw less and stop polluting, nature will provide free freshwater for all of eternity.

"Investing in Water" is a succinct overview of the grave issues associated with this precious resource, insight into the solutions that await us, how this affects the investing landscape. It covers the major players in the industry, where the action is on the private equity side, and future trends for the industry.

The sections are:

Executive Summary
Background: Water, Water Everywhere?
Solutions: Bringing Water Back From the Brink
The Water Investment Landscape
Water Investment Vehicles
Analyst Conversation: The Experts' Views on Water Investments
Private Equity & Water
Frustrations in Water Investing
Table: Key Water Stocks

The contributing analysts are:

Steve Hoffmann, Co-founder, Palisades Water Index Associates LLC
Steve Maxwell, Managing Director, TechKNOWLEDGEy Strategic Group
Neil Berlant, SVP & Managing Director of the Water Group, Crowell, Weedon & Co.
John Dickerson, CEO, Summit Global Management
John Quealy, VP & Equity Research Analyst, Cannacord Adams

Progressive Investor is a monthly newsletter that guides investors and advisors toward sustainable investments. It covers all renewable energy sectors, healthy lifestyle, green building and more. logo

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