Written by: Olle Olsson and Karina Barquet, SEI. This article was originally published as part of a series on sei.org.
Recent years have seen both substantial cost reductions and increases in deployment of wind & solar power.
While there are strong innovation pushes in similar directions in the water and sanitation field, it is by no means self-evident that development in mass production and cost reduction can be expected, or even possible, in the WASH (water, sanitation and hygiene) sector. In fact, innovation in water and sanitation continues to be incremental rather than radical.
There are three main reasons for why the pace of innovation in WASH differs fundamentally from that in the energy sector: because drivers of demand for electricity and WASH services are substantially different; because the defining characteristics of water are fundamentally different from those of energy; and because the type of technologies needed for the provision of potable water and sanitation often require energy.
However, it is now possible to upscale previously unfeasible technologies such as off-grid desalination or water treatment, partly thanks to reduced costs of solar panels that can provide stand-alone electricity. So, the question is, will this increased access to electricity change the drivers of demand in the WASH sector? And, more importantly, is there anything that could trigger the type of radical innovation experienced in the energy sector for the provision of water and sanitation services?
Well, how about climate change combined with dinosaur infrastructure and increased demand? While the effects of climate change will play out differently in different locations, increased investment will likely be needed to adapt sewerage mains to increased flows, drinking water networks to droughts, and power lines to increased risks from storms and wildfires. At the same time, everything points to an increase in grid costs (construction plus operations plus maintenance). Why? Well, first of all, in contrast to things that can be mass-produced in global supply chains like flat-screen TVs or solar panels, dramatic fluctuations in infrastructure costs are rare. Rather, they tend to grow roughly in line with general inflation at a rate of a couple of per cent per annum. In other words, with business as usual, grid costs can be expected to increase slightly every year in coming decades.
And on top of increases in grid costs, there is the utility death spiral. That is, as the costs of a grid-based service like electricity or wastewater treatment increase (as they have tended to do over time), the incentives for the consumer to reduce their consumption of the service also increases. Now, this is not much of an issue if this reduced consumption only comes in the form of marginal improvements in energy or water use efficiency. However, as technologies like rooftop solar PV become available at reasonable costs – and very often supported by government incentives – customers can begin to cover fairly large portions of their electricity consumption from electricity generated on their rooftops. This means that the amount of electricity purchased from the grid goes down quite substantially, which means less revenue is generated for the transmission and distribution operators. These operators still have a large grid to operate and maintain, so to cover these costs they will be forced to increase their rates. In turn, consumers then have an even stronger incentive to reduce their use of the grid in favour of increased consumption of solar PV. Now, the sun does not shine all the time, so households with rooftop solar PV must still rely on the grid as balance, selling excess electricity to the grid on sunny days and buying electricity from it on cloudy days and at night.
However, the cost of batteries – a technology that also happens to be based on bundling many small mass-produced units together – has come down dramatically in the last decades. This has meant that in places like California, which has good solar resources and substantial power grid problems, it might even be rational to completely defect from the grid. With even less use of the grid, transmission and distribution rates have to increase even more, and so the spiral continues downwards with fewer and fewer consumers paying higher and higher rates. The problem of grid defection and a utility death spiral is one of the more pertinent tensions arising from the upward trend in grid costs and the downward trend in costs of solutions based on mass-manufactured equipment that can be installed close to the consumer.
In this context, the issue of equity becomes increasingly important: if the grid is weak and expensive, it may be possible for well-to-do homeowners to disconnect from it for a more stable on-site solution. In contrast, lower-income households residing in multi-dwelling buildings may have neither the financial nor the practical means to set up, for example, a solar-battery-generator system.
Something similar happens in water and wastewater utilities where customer consumption has a direct link to utility revenues. As the need to prioritize water efficiency becomes a pressing issue in places with water shortages, growing consumption and limited storage opportunities, water utilities globally are facing a real financial challenge: rising infrastructure costs must be recovered from a shrinking sales base, because as customer consumption decreases so do utility revenues. In the short-term, the costs of operating a water and wastewater utility remain fixed and reductions in use do not reduce costs. At the same time, most water and wastewater utilities are facing an array of challenges taking place at an unforeseen pace – ageing infrastructure that will demand massive and rapid investments in the coming decade, demographic change, and on top of this climate and other environmental stresses.
This brings us to the next question: what happens when substantial numbers of people unplug from grids? Let’s take a look.
Related post: Accelerating access to energy and WASH services >>