Presented by: Powered by: DIGITAL WATER INSIGHT SERVICE · focus report. presented by: powered by: digital water insight service . u.s. & canada digital water market forecast, 2019-2030

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DIGITAL WATER INSIGHT SERVICE

FOCUS REPORT

U.S. & CANADA DIGITAL WATER MARKET FORECAST, 2019-2030

WATER INDUSTRY 4.0:

1 ADVANCING WATER STRATEGIES

TABLE OF CONTENTS Report Scope & Methodology ....................................................................... 3 Executive Summary ..................................................................................... 4 Section 1. Defining Digital Water .................................................................. 9 1.1 Breaking Down the Market & Digital Water Taxonomy .............................. 9 1.2 U.S. & Canada Digital Water Market in Global Context .............................10 Section 2. Drivers for Digital Transformation in the U.S. & Canada Water Market .................................................................................................................12 2.1 Shifting Customer Demographics & Behaviors Challenge Traditional Utility Operating Models ....................................................................................... 12 2.2 Tightening Financial Constraints Require Utilities to Do More With Less .... 13 2.3 Aging Infrastructure Demands Smarter Maintenance & Investment Strategies ..................................................................................................14 2.4 Climatic & Environmental Risks Necessitate New Approaches to Utility Management ..............................................................................................14 2.5 Evolving Regional & National Policy Landscape Puts New Pressures on Utility Operations ....................................................................................... 15 2.6 Utility Culture Presents Obstacles & Opportunities for Change ................. 16 2.7 Fourth Industrial Revolution Hits the Water Industry ................................ 17 2.8 The Case for Data & Digital Water Management in a Changing World ....... 18 Section 3. Navigating the U.S. & Canada’s Digital Water Market Environment ..............................................................................................21 3.1 Segmenting a Fragmented Market .......................................................... 21

Utility Size Dictates Technology Appetite, Preferences .................................... 21 Utility Structure Determines Procurement Authority ....................................... 23 Investor-Owned Utilities Lead the Way on Digital Transformation ................... 23

3.2 The Digital Water Journey: Identifying Innovators in a Conservative Industry .................................................................................................... 24 3.3 Regional Innovation Ecosystems Foster Digital Water Demand ................ 26 Section 4. Forecast Methodology & Assumptions ......................................... 29 4.1 Taking a Tiered Approach to Utility Procurement Habits ......................... 29 4.2 Building on the Water & Wastewater Asset Base ......................................30 4.3 Determining Rates of Digital Adoption & Change ..................................... 31 4.4 Modeling Geographic Variability ............................................................. 31 4.5 Breaking Out Price Points & Pricing Models ............................................. 31

4.6 Forecasting Digital Water Growth Scenarios ............................................ 32 Section 5. U.S. & Canada Digital Water Market Forecast ................................ 33 5.1 Forecast Overview ................................................................................. 33 5.2 Digital Water Market Forecast Scenarios ................................................. 33

Steady Flight ................................................................................................... 33 Digital Liftoff ................................................................................................... 34 Failure to Launch ............................................................................................. 35

5.3 Breaking Down the Outlook ................................................................... 36 Forecast by Technology Category.................................................................... 36 Forecast by Solution Type & Revenue Stream.................................................. 37 Forecast by Utility Tier .................................................................................... 39 Forecast by Geography ...................................................................................40

5.4 The Cash Register of the Utility: Metering & Customer Management Forecast .................................................................................................... 42 5.5 From Reactive to Prescriptive: Work & Asset Management Forecast ......... 44 5.6 Intelligence Underground & Inside the Fence: Network & Plant Management Forecast .................................................................................................... 46 5.7 Turning Data into Insights: Information Management Forecast ................. 49 5.8 Emerging Digital Water Technology Segments ........................................ 51 Section 6. Breaking Down the Competitive Landscape: Digital Water Market Leaders & Potential Disruptors .................................................................... 52 6.1 Rise of the Platform Players ................................................................... 52 6.2 Platform Disruptors Set Sights on Digital Water Expansion ...................... 53 6.3 Financial Players Build Digital Water Positions ........................................ 54 6.4 EPCs Dig in as Digital Water Gatekeepers ................................................ 54 6.5 Will Big Tech Make a Big Water Play? ...................................................... 55 6.6 Winners & Losers on the IoT Communications Battlefield ......................... 56


LIST OF EXHIBITS Exhibit 1: U.S. & Canada Digital Water Market Forecast Overview, 2019-2030 .............. 4 Exhibit 2: U.S. & Canada Water & Wastewater Utility Market Segmentation byTier ...... 6 Exhibit 3: U.S. & Canada Digital Water Market Forecast (Scenario Trajectories) ............ 6 Exhibit 4: Twelve-Year U.S. & Canada Digital Water Market Totals by Technology Category (Steady Flight Scenario) ................................................................................ 7 Exhibit 5: Bluefield Digital Water Taxonomy ................................................................. 9 Exhibit 6: Maturity of Asset Management Programs vs. Regulation & Market Structure, Globally ...................................................................................................................... 10 Exhibit 7: Digital Water Projects, Vendors, & Investment by Country........................... 11 Exhibit 8: U.S. Population vs. Water Usage, 1950-2015................................................ 12 Exhibit 9: California Water & Wastewater Utility Operating Revenues, 2003-2016 ....... 13 Exhibit 10: Water & Wastewater Capital Needs vs. Historical Investment .................... 13 Exhibit 11: Average Age of U.S. Water Pipe Infrastructure by Region .......................... 14 Exhibit 12: Billion-Dollar U.S. Weather Disasters & Cumulative Costs, 1980-2018 ........ 15 Exhibit 13: U.S. CyanoHAB Vulnerability Index by State .............................................. 15 Exhibit 14: U.S. State & Federal Clean Water Act Enforcement Actions, 1993-2019 ..... 16 Exhibit 15: Comparison of Cellular Network Technologies—1G to 5G .......................... 17 Exhibit 16: Digital Water Companies by Year of Founding ........................................... 18 Exhibit 17: Annual CAPEX Savings Potential by Country, 2018-2027 ............................ 19 Exhibit 18: Municipal Digital Water Project Activity by Country,2010-2019 (Est.) ......... 20 Exhibit 19: U.S. & Canada Utility Market Segmentation by Tier ................................... 22 Exhibit 20: U.S. & Canada Digital Water Projects by Utility Tier, 2018 ......................... 23 Exhibit 21: Market Share Positioning of Leading U.S. IOUs by Geography & Customers .............................................................................................................. 23 Exhibit 22: Utility Journey to Digital Asset Management ............................................. 24 Exhibit 23: U.S. Digital Asset Management Technology Adoption Rates ..................... 25 Exhibit 24: Halifax Water OT/IT Architecture (Pre- & Post 2002).................................. 26 Exhibit 25: U.S. Digital Water Project Activity Heatmap, 2000-2019 ............................ 27 Exhibit 26: Canada Digital Water Project Activity Heatmap, 2000-2019 ...................... 27 Exhibit 27: U.S. State Rankings–Digital Water Innovation Ecosystems ........................ 28 Exhibit 28: Bluefield Forecast Methodology ................................................................ 29 Exhibit 29: Bluefield Forecast Data Sources ................................................................ 29 Exhibit 30: Fixed Leak Detection Hardware Assumptions by Utility Tier ...................... 30 Exhibit 31: U.S. & Canada Infrastructure Asset Bases .................................................. 31 Exhibit 32: Network Modeling Cost Assumptions by Utility Tier (US$) ......................... 32 Exhibit 33: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Steady Flight Scenario) ............................................................................................. 33 Exhibit 34: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Digital Liftoff Scenario) .................................................................................................................... 34 Exhibit 35: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Failure to Launch Scenario) .................................................................................................................... 35

Exhibit 36: Twelve-Year U.S. & Canada Digital Water Market Totals by Technology Category & Segment (Steady Flight Scenario) ............................................................. 36 Exhibit 37: U.S. & Canada Digital Water Market Forecast by Technology Category, 2019-2030 (Steady Flight Scenario) ............................................................................. 37 Exhibit 38: U.S. & Canada Digital Water Market Forecast by Revenue Stream, 2019-2030 (Steady Flight Scenario) ...................................................................................... 38 Exhibit 39: U.S. & Canada Digital Water Market Forecast by Expenditure Type, 2019-2030 (Steady Flight Scenario) ...................................................................................... 39 Exhibit 40: U.S. & Canada Digital Water Market Forecast by Utility Tier, 2019-2030 (Steady Flight Scenario) .............................................................................................. 40 Exhibit 41: Twelve-Year U.S. & Canada Digital Water Market Totals by Utility Tier & Forecast Scenario ....................................................................................................... 40 Exhibit 42: Twelve-Year U.S. Digital Water Expenditure Heatmap by State, 2019-2030 (Steady Flight Scenario) .............................................................................................. 41 Exhibit 43: Twelve-Year Canadian Digital Water Expenditure Heatmap by Province, 2019-2030 (Steady Flight Scenario) ............................................................................ 42 Exhibit 44: U.S. & Canada Metering & Customer Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario) .......................................... 43 Exhibit 45: U.S. & Canada Metering & Customer Management Market Forecast by Forecast Scenario, 2019-2030 ..................................................................................... 44 Exhibit 46: U.S. & Canada Work & Asset Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario) ............................................................. 45 Exhibit 47: U.S. & Canada Work & Asset Management Market Forecast by Forecast Scenario, 2019-2030 ................................................................................................... 46 Exhibit 48: U.S. & Canada Network & Plant Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario) .......................................... 48 Exhibit 49: U.S. & Canada Network & Plant Management Market Forecast by Forecast Scenario, 2019-2030 ................................................................................................... 49 Exhibit 50: U.S. & Canada Information Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario) ............................................................. 49 Exhibit 51: U.S. & Canada Information Management Market Forecast by Forecast Scenario, 2019-2030 ................................................................................................... 50 Exhibit 52: Emerging Digital Water Technology Segments ......................................... 51 Exhibit 53: Digital Water Platform Players by Company Type ...................................... 52 Exhibit 54: Digital Water Platform Player M&A Activity, 2015-2019 ............................. 53 Exhibit 55: Digital Water Platform Disruptors by Product & Market Focus ................... 53 Exhibit 56: Select EPCs’ Strategic Positioning in Digital Water .................................... 55 Exhibit 57: VC & PE Investment by Company Type, 2012-2019 YTD ............................ 56 Exhibit 58: Digital Water Activity Timeline for Select U.S. Telecoms Firms, Q3 2016 to Q3 2018 ...................................................................................................................... 56


Report Scope & Methodology This Focus Report provides a comprehensive overview of the market for digital water, wastewater, and stormwater management solutions in the U.S. and Canadian municipal water industries. Leveraging Bluefield’s robust database of digital water projects and vendors, the report offers market sizing & forecasts, demand analysis, and competitive analysis for 19 digital water technology segments in five categories: metering & customer management, work & asset management, network management, plant management, and information management.

Bluefield breaks down the market opportunity, competitive landscape, and key drivers & inhibitors for both established and emerging digital solutions, from supervisory control and data acquisition (SCADA) and geographic information systems (GIS) to risk analysis and consumer engagement platforms. Each technology forecast is further segmented by geography, utility tier, and revenue stream (hardware, software, and services).

Bluefield’s forecast is supported by a transparent methodology and assumptions that account for historical trends in digital technology adoption, growth in installed assets, regulatory drivers, and project-specific data to support critical assumptions across three distinct forecast scenarios. These key inputs are included in the report and weighted independently in the model to allow for a clear, yet nuanced, set of market forecasts.


Executive Summary A global economic transition is underway, resulting from the proliferation of a suite of new technologies and business models for connectivity, mobility, automation, and data analytics. As this digital transformation—referred to by some as “Industry 4.0” or the “Fourth Industrial Revolution”—proceeds apace, the traditionally conservative water & wastewater sector will face mounting pressure to adapt from customers, partners, and stakeholders. This pressure will be compounded by a host of economic, environmental, regulatory, and cultural changes, which will challenge utilities’ core business & operating models and make status quo approaches to water, wastewater, and stormwater management increasingly untenable.

In the United States & Canada, these developments have set the stage for more than US$92.6 billion in cumulative digital water expenditure by water & wastewater utilities from 2019 through 2030. This includes spending on connected hardware, data-driven software, and digitally-enabled professional services. As such, the annual U.S. & Canada digital water market is expected to scale at a 6.5% compound annual growth rate (CAGR) from US$5.4 billion in 2019 to US$10.8 billion in 2030, far outpacing the growth rates found in more traditional segments of the municipal water & wastewater industry.

The appetite for digital water technology varies significantly across the highly fragmented U.S. & Canada water & wastewater utility landscapes, with state & provincial variability compounded by the differing behaviors of utilities of different sizes, ownership types, and organizational structures.

Exhibit 1: U.S. & Canada Digital Water Market Forecast Overview, 2019-2030

Source: Bluefield Research

This report presents an analysis of the U.S. & Canada digital water market, including market outlook, drivers & inhibitors, competitive landscape, and key factors that could fundamentally affect investment moving forward.

Bluefield has aimed to address the following questions:

• What factors are driving U.S. & Canada water & wastewater utilities to adopt digital solutions?

• Which digital water technology segments are poised to see the most growth by 2030?

• How do market opportunities vary by utility size and geography?

• What are the emerging trends and market disruptors in the U.S. & Canada digital water market?

• Which companies are best positioned to take advantage of the U.S. & Canada digital water market opportunity?

0

2

4

6

8

10

12

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US

$ B

illion

s

U.S. Canada


The digital water transformation is upon us. With U.S. & Canada digital water project activity expanding at a CAGR of 54% from 2014 to 2018, it is clear that the U.S. & Canada water & wastewater utility sector is in the early stages of a fundamental shift. All signs point to sustained digital market growth over the next decade, as a confluence of environmental, infrastructural, financial, demographic, and technological pressures make the status quo untenable for utility service providers.

− Population growth and associated housing starts call for expansions in water & wastewater infrastructure capacity. At the same time, declining per capita water use is undercutting utility revenues and system operations that were originally designed for higher flows and wastewater concentrations.

− Extreme climate events—drought, flooding—are putting pressure on water & wastewater service providers to invest in resiliency measures, including proactive, data-driven platforms for monitoring and managing water supplies and conveyance & treatment systems.

− Regulatory pressures on water & wastewater system operators continue to mount, particularly at the state/provincial level, while federal financial support for the utility sector steadily diminishes, driving utilities to seek out new tools for optimizing operational efficiency & performance.

− U.S. & Canada water & wastewater infrastructure continues to deteriorate faster than utilities can rehabilitate or replace it, necessitating more robust and data-driven asset management, maintenance, and investment regimes.

− The rollout of 5G cellular technology by U.S. & Canada cellular carriers will enable a step change in connectivity and mobility, while developments in cloud and edge computing are unlocking new service-based business models.

− Consumer expectations in the U.S., Canada, and elsewhere are changing by virtue of the instantaneous, “always on” nature of social media, e-commerce, and smart home technologies, resulting in increasing demand for more frequent and open channels of communication between businesses—including water & wastewater utilities—and their customers.

− A significant share of the U.S. & Canada utility workforce is reaching retirement age, requiring utilities to find new ways to capture or replace the institutional knowledge of veteran operators.

Size, location matter in the digital water market. The U.S. & Canada utility landscape is highly fragmented, with an estimated 65,564 water & wastewater service providers across 51 U.S. states & districts and 13 Canadian provinces & territories. These utilities vary drastically in size, ranging from small rural providers serving dozens of people to large urban utilities serving millions.

While many of the largest, most innovative utilities serving major U.S. & Canada cities have begun to embrace cutting-edge digital technologies like artificial intelligence (AI), digital twins, and the Internet of Things (IoT), the majority of the 99.5% of U.S. & Canada water & wastewater providers which serve fewer than 250,000 people—particularly those in rural areas—are still in the process of implementing core systems like SCADA, GIS, and work order management. This market fragmentation is reflected in Bluefield’s digital water outlook, which assumes differing technology penetration & adoption rates, price points, and preferred business models for four different utility tiers.


Exhibit 2: U.S. & Canada Water & Wastewater Utility Market Segmentation by Tier


Growth trajectories shaped by bottom-up utility market characteristics. Accounting for the range of sometimes unforeseen influences on water & wastewater infrastructure spending and the relative immaturity of the digital water technology landscape, Bluefield forecasts three distinct scenarios for the U.S. & Canada digital water market which result in cumulative expenditure ranging from US$78.7 billion to US$127.7 billion between 2019 and 2030. These scenarios include:

− Steady Flight represents Bluefield’s reference case, and the most likely market outlook based on current technology adoption trends in the U.S. & Canada water & wastewater industry. In the Steady Flight scenario, Bluefield forecasts US$92.6 billion in total digital water spend between 2019 and 2030, with a CAGR of 6.5%.

− Digital Liftoff is Bluefield’s more optimistic high case, and assumes that digital technology becomes mainstream in the U.S. & Canada utility industry, especially among smaller utilities (i.e., Tiers 2-4). Under Digital Liftoff conditions, cumulative 12-year spend reaches US$127.7 billion over the forecast period, with a CAGR of 12.4%.

− Failure to Launch is Bluefield’s more pessimistic low case, and assumes that the uptake of digital water solutions remains limited to a minority of innovative early adopter utilities, primarily in Tier 1, and to a lesser extent Tier 2. In Failure to Launch, Bluefield projects only US$78.7 billion in total digital water expenditure over the forecast period, with a CAGR of 3.5%.

Exhibit 3: U.S. & Canada Digital Water Market Forecast (Scenario Trajectories)


Tier 2(50,000 to 250,000

pop. served)

Tier 3 (3,300 to 50,000

pop. served)

Tier 1(over 250,000 pop. served)

Tier 4 (less than 3,300

pop. served)

Market Tiers

Water & Wastewater Utility Demographics

• 335 water & wastewater utilities• 0.5% of total utilities• 248.0 million pop. served (40.4% of total)

• 1,670 water & wastewater utilities• 2.5% of total utilities• 158.4 million pop. served (25.8% of total)



5

10

15

20

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US$

Billi

ons

Digital Liftoff

Steady Flight

Failure to Launch


Higher growth segments emerge among more mature digital solutions. The digital water market is made up of several technologies with distinctive use cases, business models, and target users within the utility workforce.

Bluefield analyzes market conditions & outlooks for 19 digital technology segments, which are grouped into five categories:

1. Metering & Customer Management expenditure totals US$38.1 billion over 12 years, with a 6.3% CAGR.

2. Network Management expenditure totals US$18.6 billion over 12 years, with an 8.4% CAGR.

3. Work & Asset Management expenditure totals US$17.0 billion over 12 years, with a 6.9% CAGR.

4. Plant Management expenditure totals US$16.1 billion over 12 years, with a 3.2% CAGR.

5. Information Management expenditure totals US$2.9 billion over 12 years, with a 15.2% CAGR.

Topline highlights include:

− The fastest growing technology segments covered in Bluefield’s forecast include software platforms for network optimization (19.1% CAGR), risk analysis (17.8% CAGR), and customer engagement (17.1% CAGR), which leverage advanced data analytics, AI, and machine learning (ML) to help utilities optimize both day-to-day operations and long-term investment planning.

− Rapid growth is also expected in IoT hardware segments such as fixed leak detection (13.4% CAGR) and dataloggers (11.9% CAGR), as utilities seek greater real-time visibility into the health and performance of their remote infrastructure.

− Spend on digital wastewater & stormwater management solutions grows at a more rapid pace than digital water management expenditure (7.0% CAGR and 6.3% CAGR, respectively) because of greater regulatory pressure on wastewater network operators, and faster growth in wastewater service populations as rural communities move from private septic systems to municipal service.

− The digital water software market grows more quickly than the hardware and professional services markets (8.9% CAGR for software vs. 5.8% CAGR for services and 5.5% CAGR for hardware), as U.S. & Canada utilities continue to invest in advanced software tools to maximize the value of their existing operational data.

− Digital water operating expenditure (OPEX) expands at a faster pace than capital expenditure (CAPEX)—9.4% CAGR and 5.5% CAGR, respectively—as utilities increasingly embrace cloud-based Software-as-a-Service (SaaS) solutions over capital-intensive perpetual license models.

Exhibit 4: Twelve-Year U.S. & Canada Digital Water Market Totals by Technology Category (Steady Flight Scenario)


Metering & Customer

Mgmt.41%

Network Mgmt.20%

Work &AssetMgmt.18%

Plant Mgmt.18%

Information Mgmt.

3%

US$92.6 Billion


Looking to the future: trends to watch & market disruptors. As the digital water market finds its footing in the U.S. & Canada municipal water & wastewater industry, a number of factors will shape its development and growth trajectory, including economic & environmental drivers, regulatory changes, competitive shifts, and cultural influences.

− Established digital water platform players will look to defend their positions against a host of potential market disruptors and outsiders looking in, including from the tech, telecoms, smart home, and financial sectors.

− Ongoing shifts in state/provincial & federal regulatory regimes and funding programs will either increase or decrease the pressure on utility operators in the U.S. & Canada to adopt new digital technologies and data-driven operating models.

− The development of new business models aligned with the financial & technical capabilities of small and medium-sized utilities could drive more mainstream uptake of digital solutions in the U.S. & Canada water industry, and disrupt market incumbents.

− An incoming generation of younger utility workers and the maturation of the “smart cities” philosophy could result in a more technophilic utility culture, while growing concerns about cybersecurity and the volatility of the digital water startup economy could produce a “techlash” among utility operators.

− Demographic, economic, and environmental shocks & stressors could force utilities’ hands in adopting digital solutions for the mounting operating challenges they face, or rob them of the resources required to deploy new tools & technologies.

− Over time, utility consolidation and convergence could reshape the U.S. & Canada water & wastewater market landscape, reducing fragmentation and introducing new practices from more digitally advanced utility sectors (e.g. power, telecoms).


Section 1. Defining Digital Water

1.1 Breaking Down the Market & Digital Water Taxonomy

The implementation of data-driven technologies within the water industry can go by many names, each with subtle differences in meaning and scope: “smart water,” “intelligent water,” “connected water,” the “internet of water,” etc. Bluefield takes a broad view of this fast-growing market segment, employing the term “digital water” to refer to the full ecosystem of data and analytics solutions which are used to support more informed decision-making across water, wastewater, and stormwater management.

This definition of digital water encompasses a wide range of products and technologies leveraged by water & wastewater service providers, including:

− Hardware, software, and services.

− Information technology (IT), operational technology (OT), and engineering technology (ET).

− Data collection, communication, management, and analytics tools.

− Emerging technologies such as IoT, AI, and ML, as well as legacy systems like SCADA, GIS, and computerized maintenance management systems (CMMS).

Bluefield segments this diverse portfolio of digital water solutions into five high-level categories, each of which is comprised of a number of related technologies or product types:

1. Metering & customer management: solutions for interfacing with utility customers, including smart meter hardware & software, customer engagement tools, and billing systems.

2. Work & asset management: broad portfolio of technologies for collecting and managing core infrastructure asset data, analyzing asset performance and health, and planning & managing asset maintenance interventions.

3. Network management: tools for collecting and analyzing operational data on distribution & collection network conditions, performance.

4. Plant management: systems for managing and optimizing operations at water & wastewater treatment facilities.

5. Information management: enterprise platforms for integrating, visualizing, analyzing, and securing utility data across departments and data silos.

Exhibit 5: Bluefield Digital Water Taxonomy

Note: Emerging technology segments not included Source: Bluefield Research

This focus report includes full forecasts for 19 of the most widely adopted technology segments identified in the Bluefield digital water taxonomy above, with additional commentary on the current and future state of the market for newer, or less mature, emerging technologies. The market forecasts and trends presented in this report apply specifically to the adoption of digital water solutions by water & wastewater utilities (both public and private) in the U.S. & Canada.

Due to considerations of scope and complexity, this report does not address select market segments that are covered in other Bluefield Digital Water analyses, including:

Category Solution Segments

Metering & Customer Management

Smart Meters Meter Data Management (MDM)

Advanced Metering Infrastructure (AMI) Customer Engagement

Automatic Meter Reading (AMR)

Work & Asset Management

Computerized Maintenance

Management System (CMMS)Network Modeling

Enterprise Asset Management (EAM) Condition Assessment Service

Geographic Information System (GIS) Risk Analysis

Network Management

Remote SCADA Fixed Leak Detection

Dataloggers Leak Detection Service

Remote Telemetry Units (RTUs) Network Optimization

Plant Management Plant SCADA

Information Management Data Management & Integration


− Digital technology expenditure by engineering, procurement, and construction (EPC) firms or other industry consultants, on behalf of utility clients (e.g. water & wastewater network modeling software licenses purchased by EPCs).

− Adoption of digital technologies for water, wastewater, and stormwater management in adjacent “non-municipal” sectors, such as domestic (smart home), commercial (smart office/smart building), or agricultural (smart irrigation).

− Digital solutions leveraged within the industrial water & wastewater management and treatment segment.

1.2 U.S. & Canada Digital Water Market in Global Context

North America represents the epicenter of the global digital economy, at least in terms of technology development and go to market strategies. The U.S. water utility sector, however, has lagged behind its peers in other advanced economies, such as the United Kingdom, Australia, and Canada, in embracing digital water technologies.

By most measures—from the deployment of network instrumentation and optimization software to the implementation of advanced asset management programs and regulatory frameworks—U.S. water & wastewater utilities have not yet reached the level of digital water innovation enjoyed by many of their counterparts elsewhere.

Exhibit 6: Maturity of Asset Management Programs vs. Regulation & Market Structure, Globally


Despite the relative immaturity of the U.S. digital water sector, the United States, as the world’s largest economy and third most populous country, still plays an outsized role in the global digital water market. Canada has also emerged as a key market for digital water technology, hosting several leading utility innovators and a robust ecosystem of digital water vendors.

According to Bluefield’s global database of digital water project and investment activity, the U.S. & Canada are global leaders in terms of digital water projects, vendors, and venture capital/private equity investments:

− 44% of the more than 1,750 municipal digital water project announcements that Bluefield has tracked since 2000 have occurred in the U.S., with another 3% initiated in Canada over this period.

− 43% of the over 300 municipal digital water solutions providers that Bluefield has identified are headquartered in the U.S., with another 8% based in Canada.

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of A

sset

M

anag

emen

t Pro

gram

sLe

ss

Mat

ure

Mor

e M

atur

e

Regulatory Pressure

Regulation and Market Structure

Lack of Regulatory Pressure

Netherlands

Denmark

United Kingdom

United States

Germany

Canada

Chile

Australia

France

Spain

Singapore

Brazil


− 68% of the more than US$800 million in venture capital (VC) and private equity (PE) funding entering the municipal digital water sector that Bluefield has tracked since 2000 have gone to U.S. firms, with Canadian firms claiming another 14%.

Exhibit 7: Digital Water Projects, Vendors, & Investment by Country


United States44%

16%

Australia8%

Canada3%

Spain3%

Other26%

1750+ Projects

United States43%

12%

Canada8%

Australia4%

Israel4%

Other29%

300+ Companies

United States68%

Canada14%

4%

Australia3%

3%

Other8%

US$800+ Million

Digital Water Projects by Country (2000-2019)

Digital Water Companies by Country

Digital Water VC/PE Funding by Country (2000-2019)

United Kingdom

United Kingdom

United Kingdom

Singapore


Section 2. Drivers for Digital Transformation in the U.S. & Canada Water Market On the whole, the U.S. & Canada water & wastewater utility sector has historically been slow to embrace change, favoring tried and trusted water management strategies over innovative new technologies and workflows. This more conservative approach is expected, given the industry’s responsibility for public health and safety, environmental stewardship, and mission-critical infrastructure. However, a confluence of mounting economic, environmental, regulatory, and demographic pressures is making the status quo increasingly untenable for U.S. & Canada water & wastewater service providers, opening the door for new data-driven solutions.

2.1 Shifting Customer Demographics & Behaviors Challenge Traditional Utility Operating Models

Growing public awareness of the need to conserve scarce water resources—combined with regulatory efforts to promote low-flow domestic appliances—have resulted in a steady reduction of per capita water consumption in the U.S. & Canada.

− Between 2005 and 2015, total U.S. public water supply volume fell by 12%, while population continued to grow by 8%. This represents the first time since 1950 that these trends have diverged.

− In Canada, residential water use per capita dropped from 335 liters per day in 2001 to 251 liters per day in 2011 (a 25% decline), while total water use per capita fell from 622 liters per day to 483 liters per day (a 22% decline) over the same period.

Exhibit 8: U.S. Population vs. Water Usage, 1950-2015

Source: U.S. Geological Survey, U.S. Census Bureau, Bluefield Research

These recent successes in public water conservation, while positive from an environmental perspective, put significant pressure on the traditional volume-based business model at the core of the water & wastewater industry, and undermine long-term financial plans based on assumptions of sustained revenue growth. In the U.S. state of California, for instance, total water utility operating revenues fell by 50% from 2013 to 2016, as a result of severe drought conditions and state-mandated water use cutbacks.

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. Pop

ulat

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(mill

ion) Public W

ater Supply Volum

e, BG

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Population Water Use Trends

California’s 25% conservation measures bring down withdrawals, representing 91% of U.S. decrease

EPA WaterSense launched in 2006National Energy Policy Act of 1992


Exhibit 9: California Water & Wastewater Utility Operating Revenues, 2003-2016

Note: Exhibit includes data for 296 municipal water & wastewater service providers Source: State of California, Bluefield Research

The growth of the bottled water market further strains utility revenues, as households in the U.S. & Canada turn to bottled water for an increasing share of their potable water supply.

− A 2019 Consumer Reports survey suggests that 34% of U.S. customers regularly avoid tap water due to concerns about water quality, while 17% don’t drink tap water at all.

− Bluefield estimates that North Americans consume roughly 107 liters of bottled water per capita on average each year, resulting in a US$39.4 billion market for bottled water in North America alone.

2.2 Tightening Financial Constraints Require Utilities to Do More With Less

Downward pressures on U.S. & Canada water & wastewater utility revenues are exacerbated by steady increases in the costs of providing service and diminishing federal funding to support the sector. Together, these dynamics are increasingly compelling water & wastewater service providers to maximize the impact of their limited OPEX and CAPEX budgets.

− According to the U.S. Congressional Budget Office, total public spend on the U.S. water & wastewater utility sector averaged nearly US$120 billion per year between 2008 and 2017. The federal government contributed roughly 4.5% of total expenditure during this period—down from a high of

25% to 30% in the late 1970s—with state & local governments responsible for the remainder.

− Bluefield estimates that total public & private capital investment in U.S. water & wastewater infrastructure reached US$36.6 billion in 2018, less than a third of the roughly US$120 billion in annual water & wastewater investment needed by 2018, according to the American Society of Civil Engineers.

− A 2018 survey by the American Water Works Association found that only 21% of the nearly 750 North American water & wastewater utilities polled felt fully able to cover the costs of providing service at present, with only around 16% fully confident in their ability to continue to cover service costs in the future.

− Bluefield estimates that U.S. water & sewer bills have increased by 31% in real terms since 2012, as utilities strive to cover rising operating costs and capital investment requirements. These rate hikes far outstrip growth in median household income, which increased by only 13% between 2012 and 2018, contributing to ongoing public concerns about the current and future affordability of water & wastewater service for lower-income ratepayers.

Exhibit 10: Water & Wastewater Capital Needs vs. Historical Investment

Source: American Society of Civil Engineers, Bluefield Research

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2.3 Aging Infrastructure Demands Smarter Maintenance & Investment Strategies

The deferral of needed investment in U.S. & Canada water & wastewater infrastructure is compounding the risks facing utility service providers, and increasing the costs they must pay to address asset failures. According to a common asset management tenet, the cost of unplanned maintenance on a given asset is roughly 1.5 times the cost of planned maintenance, while the cost of emergency maintenance equates to roughly triple the cost of planned maintenance, resulting in significant savings for organizations that can find and fix asset deficiencies proactively.

− In the U.S., the estimated national average age of water pipes has increased from 25 years in 1970 to 45 years in 2020, with utilities’ replacement and rehabilitation programs failing to keep pace with the aging of their linear asset stock. Bluefield recognizes that asset age is not the sole determinant of asset quality, but rather a quantitative signal of market conditions.

− In Canada, water & sewer mains in Toronto, Montreal, and Winnipeg range from 40 years of age to 60 years of age, with Canada’s highest main break and back-up rates found in these three cities as well.

− U.S. utilities lose nearly two trillion gallons of water—15% of the total drinking water treated nationwide—to leaks each year, with municipal non-revenue water (NRW) rates as high as 43% in major U.S. cities, and exceeding 85% in some smaller rural communities.

− According to a 2018 Utah State University study, water main break rates in the U.S. and Canada increased by 27% between 2012 and 2018, from 11.0 to 14.0 breaks per 100 miles annually. At an estimated average cost of US$10,000 for each repair, including pipe material, labor, traffic, and business costs, the need for more efficient maintenance of buried assets is becoming paramount.

Exhibit 11: Average Age of U.S. Water Pipe Infrastructure by Region

Source: American Water Works Association, Bluefield Research

2.4 Climatic & Environmental Risks Necessitate New Approaches to Utility Management

No country or region is immune to the increasing frequency of—and rising economic costs associated with—extreme climatic events. According to the National Centers for Environmental Information, the U.S. sustained 225 weather and climate disasters exceeding US$1 billion in damages between 1980 and 2018, with the average annual number of such events increasing from 2.5 per year in the 1980s to 11.1 per year in the 2010s. The total cost has surpassed US$1.6 trillion and does not include lower profile events like boil water advisories, water main breaks, and lead contamination.

Irrespective of disaster type, water supplies and infrastructure are at risk, thereby elevating the importance of resource availability, stormwater management, continuity of plant operations during electricity blackouts, and protection of network assets during deep freezes.

38%

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32%

32%

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16%

43%

35%

17%5%

System Age, Years

<3031 to 6061 to 100>100

35%

32%

17%

17%


Exhibit 12: Billion-Dollar U.S. Weather Disasters & Cumulative Costs, 1980-2018

Source: National Centers for Environmental Information, Bluefield Research

U.S. & Canada water services providers also face increasing pressure to protect their community water supplies from both established and emerging contaminants of concern, some of which are becoming more prevalent as a result of changing climatic conditions.

− Cyanobacterial harmful algal blooms (CyanoHABs), exacerbated by warmer temperatures and higher nutrient loading of waterways from fertilizer runoff, are increasing in number across the U.S., with over half of U.S. lakes and reservoirs expected to be affected by 2022. Bluefield estimates that monitoring costs for cyanotoxins may reach up to US$78.0 million per year, while treatment for taste and odor compounds alone will cost US$33.1 million annually by 2022.

− In 2016, the U.S. Environmental Protection Agency (EPA) conservatively estimated that 1.3% of the country’s over 150,000 public water systems may have concentrations of per- and polyfluoroalkyl substances (PFAS) above 70 parts per trillion (ppt), the maximum concentration limit (MCL) which the EPA formalized in 2019. This level is significantly higher than many would consider appropriate to protect human health, and a handful of U.S. states have passed regulations imposing MCLs in the 10 ppt-20 ppt range.

− A November 2019 study revealed that a third of the 12,000 tests for lead contamination conducted on Canadian drinking water supplies since 2014 exceeded the Canadian government’s national safety guideline of 5 parts per billion.

Exhibit 13: U.S. CyanoHAB Vulnerability Index by State

Source: U.S. Environmental Protection Agency, U.S. Geological Survey, Bluefield Research

2.5 Evolving Regional & National Policy Landscape Puts New Pressures on Utility Operations

As the financial, infrastructural, and environmental risks facing U.S. & Canada water & wastewater utilities have mounted, the patchwork of state/provincial and federal regulatory pressure on the utility sector has scaled accordingly, forcing service providers to adopt new water, wastewater, and stormwater management tactics and technologies.

− In the U.S., the total number of formal & informal enforcement actions of the Clean Water Act (CWA) increased by 250% between 1993 and 2018. State regulators have shouldered the vast majority of responsibility for CWA enforcement, with the federal share of enforcement actions falling from 45% to 2% over this period.

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− Under the Trump administration, the U.S. EPA has shied away from the use of consent decrees for violations of the CWA, issuing an annual average of 1.7 municipal consent decrees (vs. an average of 7.4 consent decrees per year under Obama). Even so, federal consent decrees remain an important long-term driver of wastewater infrastructure investment, with the EPA issuing 91 municipal CWA consent decrees worth US$51.6 billion in total estimated compliance costs between 1998 and 2018.

− State & provincial governments in the U.S. and Canada have led the charge in requiring water & wastewater utilities to implement formal asset management programs, with recent regulations and funding mechanisms in the U.S. states of Michigan, New Jersey, Ohio, Indiana, and New Hampshire, and in the Canadian province of Ontario, driving increased adoption of asset management technologies by local water & wastewater providers.

− At the federal level, America’s Water Infrastructure Act of 2018 requires U.S. community water systems serving more than 3,300 people to implement risk assessment and resilience programs, earmarking US$25.0million in supporting grants.

− The Federation of Canadian Municipalities launched a federally funded municipal asset management grant program totaling CAD$50.0 million (US$37.7 million) in 2017.

Exhibit 14: U.S. State & Federal Clean Water Act Enforcement Actions, 1993-2019

Note: Bluefield used EPA data for California, which causes an uplift over the last three years. California state agency reports show lower enforcement action totals Source: U.S. Environmental Protection Agency, Bluefield Research

2.6 Utility Culture Presents Obstacles & Opportunities for Change

Because water & wastewater utilities are tasked with safeguarding public health and environmental stewardship, they are naturally and appropriately cautious, preferring tried and tested approaches over disruptive new technologies and workflows. However, the aging workforce at U.S. & Canada water & wastewater utilities is projected to see significant retirements over the next ten years. This shift will challenge utilities as they lose the institutional knowledge that veteran system operators have built up over decades, necessitating the adoption of new operational systems and technologies to compensate for this brain drain.

− According to the Brookings Institution, U.S. water treatment operators are 46.4 years old on average, exceeding the national median of 42.2 years old.

− From 2016 to 2026 the U.S. Bureau of Labor Statistics projects that 10.6%of water sector workers will retire or transfer each year, on average. Continued economic growth will drive more people to retire.

− Municipal water and wastewater utility managers must also prepare to welcome the next generation of water workers, including by adjusting

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roles and workflows to better align with the backgrounds, skills, and expectations of 21st century employees.

− The move towards greater automation and the need for associated skill sets pose a challenge in attracting skilled workers.

2.7 Fourth Industrial Revolution Hits the Water Industry

A global economic transition is underway, resulting from the proliferation of a suite of new technologies and business models for connectivity, mobility, automation, and data analytics. As this digital transformation—referred to by some as “Industry 4.0” or the “Fourth Industrial Revolution”—proceeds apace, the traditionally conservative water & wastewater sector will face increasing pressure to adapt from a range of partners and stakeholders, including customers, municipal leaders and policymakers, technology and service providers, and utility staff.

Highlighting this shift are critical developments, including:

− Cisco has estimated that the number of connected devices in the global IoT will reach 50 billion by 2020, and 500 billion by 2030. Regionally, North America is projected to have the fastest growth in connected consumer and industrial devices, with a 16% CAGR from 2017 to 2022.

− The rollout of 5G cellular technology by U.S. & Canada cellular carriers—initiated in 2018 in the U.S., and expected in 2020 in Canada—will enable a step change in connectivity and mobility. 5G represents a significant upgrade over 4G, with maximum speeds at least 10-20 times faster and 50 times less latency. 5G technology also optimizes the use of the radio frequency spectrum, providing bandwidth for 100 times more connected devices than 4G.

− Developments in cloud and edge computing have unlocked new service-based business models, such as SaaS and Data-as-a-Service (DaaS), which replace CAPEX-intensive upfront software licensing fees and on-premise implementation requirements with more flexible OPEX-centered subscription models.

− Advances in AI, ML, and predictive analytics enable the automation of increasingly sophisticated tasks and the recognition of underlying patterns and relationships in increasingly large and complex datasets.

− Digital twins—or digital replicas of physical assets, processes, or facilities which are continuously updated and calibrated with real-time data—have emerged as the new paradigm for infrastructure engineering, operations, and lifecycle maintenance in several asset-intensive industries (e.g. manufacturing, power).

− Consumer expectations in the U.S., Canada, and elsewhere are changing by virtue of the instantaneous, “always on” nature of social media, e-commerce, and smart home technologies, resulting in increasing demand for more frequent and open channels of communication between businesses—including water & wastewater utilities—and their customers.

− Municipalities around the world are launching “smart cities” initiatives, leveraging IoT and other emerging digital technologies to transform urban planning, resource management, and public service delivery across municipal agencies, including water & wastewater utilities.

Exhibit 15: Comparison of Cellular Network Technologies—1G to 5G

Note: 1 Mbps=1,000 Kbps; 1 Gbps=1,000 Mbps; 1ms=0.001 seconds; speed, latency statistics reflect best-performing version of each network technology (e.g. 2G EDGE, 3G HSPA+) Source: Bluefield Research

The water utility industry’s supply chain and vendor landscape are also experiencing their own transformations, both as new digital startups target the sector with novel product offerings, and as incumbent equipment and service providers seek to capitalize on higher-value, higher-margin software and data businesses. Increasingly, all devices used within the water & wastewater industry, from meters

Network Technology Year Launched Max Speed

(bits per second)Average Speed

(bits per second)Latency

(milliseconds)

1G 1979 2.4 Kbps N/A N/A

2G 1991 0.3 Mbps 0.1 Mbps 500 ms

3G 2001 42 Mbps 8 Mbps 100 ms

4G 2009 1 Gbps 50 Mbps 50 ms

5G 2018 10 Gbps-20 Gbps 200 Mbps-500 Mbps 1 ms


and quality sensors to pumps and treatment systems, are enabled for connectivity, making it difficult for even the most conservative utilities to remain disengaged from new digital market realities.

− In Bluefield’s analysis of more than 350 global companies offering digital water solutions for the municipal, residential, agricultural, and commercial & industrial sectors, 64% of them have been founded since 2000. In 2015 alone, Bluefield recorded 28 digitally focused launches targeting the water & wastewater industry.

− Between 2009 and 2018, Bluefield has tracked 121 M&A deals in the municipal digital water sector globally, with annual deal flow expanding at a CAGR of 26% over this period. To date, more than 35 deals have been recorded in 2019, indicating a significant uptick in digital water M&A over the 2018 full year total of 24 deals.

− Between 2009 and 2018, Bluefield has identified nearly US$675.0 million in VC and PE funding for early-stage municipal digital water solutions providers globally, with annual investment growing at a CAGR of 19% over this period. US$89.7 million in VC and PE funding entered the sector through Q3 2019, just below the 2018 full year total of US$91.5 million.

Exhibit 16: Digital Water Companies by Year of Founding


2.8 The Case for Data & Digital Water Management in a Changing World

Against the backdrop of these mounting economic, environmental, demographic, and infrastructural pressures, it is becoming increasingly apparent that status quo approaches to water, wastewater, and stormwater management are no longer tenable, and new solutions are needed to address the challenges of the coming decades. The adoption of digital technologies and data-driven operating models represents one such solution for U.S. & Canada water & wastewater utilities, enabling more informed decision-making about network & plant operations, infrastructure asset health and performance, customer needs and behaviors, and the efficient utilization of scarce natural, financial, and human resources.

− Collection and analysis of asset health and performance data allows utilities to shift from corrective or preventive maintenance regimes to predictive or prescriptive approaches, resulting in reduced costs and fewer asset failures. Bluefield estimates that the adoption of advanced asset management tools could result in CAPEX savings of US$17.6 billion and US$2.6 billion, respectively, for U.S. & Canada utilities between 2018 and 2027.

− Real-time data on plant & network operating conditions enables utilities to optimize their use of costly operational resources, such as energy and

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chemicals, and respond proactively to extreme weather, asset failures, and pollution events. For instance, the U.S. water & wastewater industry consumes between roughly 4% and 13% of total national electricity output, at a total cost of US$4.0 billion per year. Data analytics tools and automation systems can cut utilities’ energy usage by as much as 20% to 30%, resulting in significant OPEX savings and a reduced carbon footprint.

− Real-time water consumption data—whether in the hands of utility service providers or customers themselves—can help promote conservation of scarce water resources, and identify pipe bursts and leaks before they cause significant disruption. Consumption monitoring platforms also open up new channels of communication and engagement with customers, resulting in greater customer satisfaction and less public pushback against needed rate increases.

− Platforms for compiling data on the location, condition, and performance of underground water & wastewater infrastructure can be used to encode the institutional knowledge of veteran network operators before they reach retirement and offer valuable education and training tools for incoming workers.

Exhibit 17: Annual CAPEX Savings Potential by Country, 2018-2027


Bluefield’s digital water project implementation data suggests that U.S. & Canada water & wastewater utilities are increasingly recognizing the role that data and digital technologies can play in water, wastewater, and stormwater management, with adoption rates increasing rapidly, particularly in the past five years. Between 2014 and 2018, U.S. digital water project announcements grew at a CAGR of 53%, with Canadian project activity expanding by 65% over the same period.

Data through H1 2019 suggest a resumption of year-over-year growth in U.S. digital water project activity following a moderate decline in 2018, while Canadian project announcements are poised to dip slightly from their 2017–2018 peak. However, recent drops in recorded project activity can be attributed in part to delays in project announcements, with public notice of a new project often not made until months after it has been initiated.

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Exhibit 18: Municipal Digital Water Project Activity by Country, 2010-2019 (Est.)

Note: 2019 project announcement estimates are annualized based on H1 2019 data Source: Bluefield Research

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Section 3. Navigating the U.S. & Canada’s Digital Water Market Environment

3.1 Segmenting a Fragmented Market

The U.S. & Canada water & wastewater sector is highly fragmented, with most communities in the U.S. & Canada served by local or regional utilities owned by municipal governments or, less commonly, by private entities. This market landscape contrasts with that of water industries in other advanced economies (e.g. the United Kingdom), as well as with that of the North American power sector, where the vast majority of citizens are serviced by a handful of large investor-owned utilities (IOUs) with expansive regional or national geographic footprints.

The fragmentation of the U.S. & Canada water industry results in a diverse market environment for digital water, wastewater, and stormwater management solutions, with the appetite for digital technology varying significantly across utility organizations of different sizes and management structures. This variability can pose challenges for vendors targeting the sector, but it also creates opportunities, particularly for those which are adept at identifying the water sector’s innovators—those utilities which have, by virtue of some combination of economic, environmental, regulatory, and cultural factors, embraced new digital technologies and data-driven operating models.

Utility Size Dictates Technology Appetite, Preferences

Given the size and fragmentation of the U.S. & Canada water industry, robust data on the exact number of water & wastewater utilities active in the U.S. & Canada, and the sizes of the communities that they serve, are difficult to come by. Bluefield has approximated these statistics by cross-referencing several public datasets from federal agencies in the U.S. & Canada, such as the U.S. EPA, the U.S. Census Bureau, Statistics Canada, and Environment Canada. Bluefield estimates that:

− 49,133 U.S. water utilities serve a combined population of 306.9 million, 93.8% of the total U.S. population.

− 13,177 U.S. wastewater utilities serve a combined population of 240.6 million, 73.5% of the total U.S. population.

− 1,621 Canadian water utilities serve a combined population of 33.2 million, 88.9% of Canada’s total population.

− 1,633 Canadian wastewater utilities serve a combined population of 32.5 million, 87.1% of Canada’s total population.

U.S. & Canada water & wastewater utilities vary significantly in scale, ranging from large urban utilities and regional wholesalers with several million customer connections, to small rural providers serving communities of fewer than 100 people. These differences in size correspond to marked differences in terms of OPEX and CAPEX budgets, staff resources and capabilities, major operational challenges and pain points, and openness to technological change and innovation. In order to reflect this variability, Bluefield breaks the U.S. & Canada water & wastewater utility landscape into four tiers, based on the size of the populations they serve:


Exhibit 19: U.S. & Canada Utility Market Segmentation by Tier


The majority of digital water activity to date in the U.S. & Canada has been concentrated in the upper echelons of the utility market, as large urban utilities are more likely to have the financial resources, operational scale and complexity, and internal cultural drivers necessary to leverage advanced digital solutions. In 2018, Tier 1 utilities accounted for 25.0% of the 176 municipal digital water projects that Bluefield tracked in the U.S. & Canada, despite representing only 0.5% of all water & wastewater service providers.

However, Tier 2 and Tier 3 utilities—which respectively accounted for 31.8% and 39.8% of 2018 digital water project activity in the U.S. & Canada—are quickly emerging as a key growth market for digital water solutions providers as well. Incumbent vendors of core water & wastewater OT and IT systems (e.g. SCADA, GIS, enterprise asset management [EAM] or CMMS, advanced metering infrastructure [AMI] or automatic meter reading [AMR]) have sought to scale their solutions down as their Tier 1 markets reach saturation, entering into competition with newer market entrants promoting digital tools which are purpose-built to fit smaller utilities’ budgets and technical capabilities. In addition, Tier 2 and Tier 3 utilities often have more streamlined management structures than their larger peers, reducing the bureaucracy of the procurement process, and shortening the municipal sales cycle.

In Tier 4, the uptake of digital water solutions is still limited to all but a few core systems, such as GIS and smart metering. Of the nearly 50,500 total water & wastewater utilities active in the U.S. & Canada, Bluefield identified only six that implemented digital technologies in 2018 (3.4% of total recorded project activity). However, Bluefield expects that larger Tier 4 utilities may become a more viable digital water market in the future, as new business models (e.g. cloud-based SaaS & DaaS, joint procurement programs bundling multiple utilities under one contract) make digital technology affordable for small, rural service providers.

Tier 2(50,000 to 250,000

pop. served)

Tier 3 (3,300 to 50,000

pop. served)



pop. served)

Market Tiers Water Utility Demographics Wastewater Utility Demographics

• 138 water utilities• 0.3% of total utilities• 98.5 million pop. served (32.1% of total)


• 8,227 water utilities• 16.8% of total utilities• 100.8 million pop. served (32.8% of total)

• 39,913 water utilities• 81.2% of total utilities• 23.6 million pop. served (7.7% of total)

• 146 wastewater utilities• 1.1% of total utilities• 124.2 million pop. served (51.6% of total)


• 3,850 wastewater utilities• 29.2% of total utilities• 49.1 million pop. served (20.4% of total)

• 8,611 wastewater utilities• 65.4% of total utilities• 8.9 million pop. served (3.7% of total)

U.S. Market Landscape

Tier 2(50,000 to 250,000

pop. served)

Tier 3 (3,300 to 50,000

pop. served)



pop. served)

Market Tiers Water Utility Demographics Wastewater Utility Demographics









Canada Market Landscape


Exhibit 20: U.S. & Canada Digital Water Projects by Utility Tier, 2018


Utility Structure Determines Procurement Authority

U.S. & Canada utilities also vary significantly in terms of organizational structure. Though the majority of U.S. & Canada water & wastewater utility customers—85% to 86% in the U.S. and as much as 97% in Canada—are serviced by publicly-owned providers, these organizations can take many different forms: standalone local or regional agencies or utility districts, dedicated water & wastewater departments within municipal governments, or divisions of municipal public works departments (DPWs).

A water or wastewater utility’s degree of embeddedness within a larger public organization (a city government, a DPW, etc.) can play a role in determining its digital purchasing habits. Service providers that share OPEX & CAPEX budgets, IT resources, or procurement authority with non-water departments may face greater limitations in deploying best-in-breed or pure-play digital water solutions and may be more likely to utilize more generalized enterprise software platforms that can serve a range of local government agencies.

Investor-Owned Utilities Lead the Way on Digital Transformation

While the U.S. & Canada water & wastewater utility landscape is dominated by public service providers, private operators nonetheless play an important role in the market—particularly in the U.S., where roughly 48% of water utilities and 31% of wastewater utilities are privately-held.

The majority of these players are small local firms, but Bluefield has identified a cohort of leading U.S. IOUs that are driving utility market consolidation at regional and national scale, collectively accounting for an estimated 6% of the total U.S. water service population.

Exhibit 21: Market Share Positioning of Leading U.S. IOUs by Geography & Customers

Note: NW Natural Holdings has not broken out water-related revenues since acquiring approximately 25,000 customers since 2017 Source: Bluefield Research

Leading IOUs in the U.S., and to a lesser extent in Canada, play an active role in the digital water market, as both producers and consumers of data-driven technologies for water, wastewater, and stormwater management. As private, for-profit enterprises, IOUs typically face more acute financial pressure than public utilities to

Tier 125%

Tier 232%

Tier 340%

Tier 43%

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Aqua America

Suez

American States

California Water Service

Liberty Utilities

San Jose WaterConnecticut Water

York Water

Eversource

Global Water Resources

EPCORMiddlesex


maximize operational efficiency and the return on their network investments, leading to a greater willingness to leverage new digital solutions. However, they often favor traditional enterprise software deployments over newer SaaS-based business models, as they can more easily capitalize upfront software license purchases than recurring SaaS subscription fees in their rate cases.

− Leading IOUs are responsible for nearly 5% of all U.S. digital water project implementations that Bluefield has tracked since 2000, despite accounting for only 1.4% of the U.S.’s 49,133 total community water systems.

− American Water, the largest U.S. IOU, is also the single most active player in the U.S. & Canada digital water market, with 20 recorded digital water projects across its national service area since 2000. This figure represents more than the combined project count of the next two most active players, East Bay Municipal Utility District in California and DC Water in Washington, D.C.

− IOUs act as important vehicles for geographic expansion for digital water solutions providers, as a successful project or pilot program in one IOU-owned system can open the door to deployments in other service areas, including across state lines.

− IOUs also serve to develop and incubate digital water solutions, via internal R&D (e.g. Global Water Resource’s 2013 spin-out of now-defunct Fathom), partnerships (e.g. American Water’s 2016 digital collaboration initiative with General Electric), and M&A (e.g. Suez’s 2018 acquisition of U.S.-based digital water firm Optimatics).

3.2 The Digital Water Journey: Identifying Innovators in a Conservative Industry

The implementation of digital solutions and data-driven operating models is often framed as a journey toward digital transformation, with different stages or benchmarks through which an organization progresses as its collection, management, and use of data becomes more sophisticated. Bluefield’s schematic of the water & wastewater utility journey toward digitally-enabled asset management, for instance, identifies three stages:

− First, utilities must “turn on the lights” from a digital perspective, establishing basic data feeds by implementing core asset data collection and visualization platforms (e.g. SCADA, GIS).

− Next, utilities must unify asset data feeds across departments and data siloes—operations, engineering, finance, customer service—onto a common tactical asset management platform (e.g. EAM, CMMS, event management), gaining new operational insights and efficiencies from the integration of previously disparate datasets.

− Finally, utilities can train strategic asset management and advanced analytics tools (e.g. asset investment planning, risk analysis) on their integrated asset health and performance data, enabling more proactive operating models, predictive maintenance regimes, and prescriptive long-term planning and investment decisions.

Exhibit 22: Utility Journey to Digital Asset Management


Given the sheer size, diversity, and fragmentation of the U.S. & Canada water & wastewater industry, it should come as no surprise that some utilities are further along in their digital journeys than others, with the majority still establishing core data feeds and basic situational awareness. According to a 2018 survey by the American Water Works Association:

Establish data feeds through improved network monitoring to facilitate management.

Unify data feeds on common platform to enhance management activities.

Multi-siloed shift towards predictive and prescriptive analytics, proactive and reliability-centered maintenance regimes.

Situational Awareness

Data Integration / Descriptive Analytics

Diagnostic Analytics

Predictive, Prescriptive Analytics and Management

Instrumentation / Sectorization

Smart Metering

SCADAIntegration

EventManagement

Work OrderManagement

NetworkManagement

Strategic AssetManagement

GIS & Hydraulic Models

Utility Data Silos

Tact

ical

Stra

tegi

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ore


− More than half of the 676 North American utilities polled have implemented core systems for generating and managing operational and asset data (e.g. SCADA, GIS, hydraulic models).

− Adoption rates for tactical asset management platforms (e.g. CMMS, enterprise management) range between 30% and 40%.

− Fewer than a quarter of utilities surveyed have adopted advanced, strategic asset management or operational optimization tools.

− More broadly, only around 15% to 20% of survey respondents have implemented data mining and analytics techniques to glean new insights from existing operations & maintenance or customer data, indicating the relative immaturity of the sector when it comes to harnessing the power of data and advanced digital solutions.

Exhibit 23: U.S. Digital Asset Management Technology Adoption Rates

Source: American Water Works Association, Bluefield Research

To win customers and contracts in the U.S. & Canada water & wastewater utility sector, digital water solutions providers must be adept at recognizing the signs and stages of digital transformation and at identifying the minority of utility innovators and early adopters in an otherwise conservative, slow-moving industry. While most digital water projects are implemented in response to specific external drivers or acute utility pain points—environmental risks such as water scarcity, infrastructural

problems such as leaks and main breaks, regulatory pressures like consent decrees—these external factors are typically only part of the story.

Digital innovation is as much, if not more, about people and culture as it is about hardware and software. A willingness to experiment with new, potentially unproven digital solutions and data-driven operating models is still relatively rare among water & wastewater service providers, whose chief concern is safeguarding public health, environmental resources, and mission-critical infrastructure. The utilities that have made the most progress along the digital water journey are those that have developed internal cultures and organizational structures which promote and enable innovation.

− Digital transformation is often driven by utility leadership but requires buy-in at all levels of the organization. The Town of Cary, a Tier 2 community in North Carolina, has embraced a startup mentality across municipal departments (including water & wastewater), instilled by a forward-thinking town manager who took office in 2016. In order to drive organization-wide cultural change, the town manager initiated a book club for town employees, focused on learning and applying best practices for leadership, organizational culture, and digital innovation.

− Open, accessible data management structures enable innovation and collaboration across departmental silos. Halifax Water, a Tier 1 municipal water & wastewater agency in Nova Scotia, restructured its IT & OT architecture in 2002, housing data from disparate SCADA systems on a central OSIsoft PI data historian accessible across the organization. This has empowered staff from multiple departments to utilize core operational data in new and innovative ways for planning, problem-solving, and decision-making.

− Successful digital initiatives align with long-term organizational goals, targets, and strategic plans. Bellevue Utilities, a Tier 1 utility in Washington, has linked its digital water projects to the City of Bellevue’s broader Smart Cities strategy, prioritizing technologies which advance core city values (livability, sustainability, resiliency) as well as measurable key performance indicators related to water service interruptions and sewer overflows.

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Core Asset Mgmt. Tactical Asset Mgmt. Strategic Asset Mgmt.


− Dedicated roles and departments for innovation keep organizations focused on long-term digital transformation. The Washington Suburban Sanitary Commission (WSSC), a Tier 1 water agency based in Laurel, Maryland, has established an Office of Innovation and Research, with numerous staff positions explicitly committed to expanding the WSSC’s use of data and analytics for process improvement and decision-making.

Exhibit 24: Halifax Water OT/IT Architecture (Pre- & Post 2002)

Source: Halifax Water, Bluefield Research

3.3 Regional Innovation Ecosystems Foster Digital Water Demand

Though the cultural and organizational hallmarks of digital transformation are internal and utility-specific, they have a broader regional dimension as well. Digital innovators and early adopters can share experiences and best practices from successful digital technology rollouts with more conservative neighbors, helping to create more awareness and trust of data-driven technologies and vendors among local and regional utility networks. In addition, digital solutions providers—particularly resource-constrained startups—typically target strategic state/provincial or regional markets, building pockets of customers around flagship accounts.

As a result, certain regions of both the U.S. & Canada have seen greater penetration of digital water, wastewater, and stormwater management technologies than others.

− In the U.S., the six states with the most digital water project activity—California, Texas, Florida, Colorado, Georgia, and Ohio—together account for 46% of the more than 750 municipal digital water projects that Bluefield has tracked nationwide since 2000, even though they represent only 36% of the total U.S. population.

− The 19 states with the fewest digital water project announcements account for just 7% of projects tracked over the same period, but 11% of the country’s population.

− In regional terms, the lion’s share of the states with high or mid-high digital project activity are located on the East Coast, in the South, and in the eastern Midwest, while low-activity states are concentrated in New England, the western Midwest, and the northern Rocky Mountain region.

− The states with the lowest levels of digital water adoption are also predominantly rural—12 of the 15 U.S. states with the largest rural populations have been identified as low activity states.


Exhibit 25: U.S. Digital Water Project Activity Heatmap, 2000-2019


The Canadian market shows an even greater degree of regionalism, with recorded digital water activity to date highly concentrated in a small group of municipalities and provinces.

− Two provinces—Ontario and Alberta—together account for nearly 68% of the 60 digital project announcements that Bluefield has identified in Canada since 2000, despite housing only 50% of Canada’s total population. These are two of Canada’s most urbanized provinces, with 86% of Ontario’s population and 83% of Alberta’s population living in urban areas as of the 2011 Census.

− Toronto Water, the municipal water & wastewater utility serving Canada’s largest city, is itself responsible for 15% of Canada’s total recorded digital water project activity since 2000.

− Bluefield has tracked no significant digital water project activity in the provinces of Manitoba and Prince Edward Island, or the territories of Nunavut, Yukon, and the Northwest Territories. With the exception of Manitoba, these are among Canada’s least urban provinces, with rural populations ranging from 39% to 53% of total.

Exhibit 26: Canada Digital Water Project Activity Heatmap, 2000-2019


In an effort to quantify the state and regional differences in U.S. digital water market innovation, Bluefield has leveraged our proprietary datasets on digital water project announcements, vendors, and affiliated institutions to rank U.S. states on the relative strength of their digital water “innovation ecosystems,” with each state receiving a weighted score on the basis of:

− Number of municipal digital water projects tracked from 2000-2019, adjusted to account for differences in service population.

− Number of municipal digital water solutions providers headquartered in each state, adjusted to account for differences in service population.

− Number of water technology hubs or innovation clusters active in each state.

− Number of utilities participating in innovation-focused industry groups by state (e.g. WEF ‘Utility of the Future,’ SWAN Americas).

Similarly, to evaluate the distribution of leading external drivers for digital water technology adoption, Bluefield has assigned each state a second score that


measures its overall susceptibility to environmental and infrastructure risks like drought, water main breaks, and combined sewer overflows. This “utility operating conditions” score is comprised of state and regional data from a variety of Bluefield datasets and public sources, and includes:

− Drought susceptibility.

− Flood vulnerability.

− Water quality challenges & violations.

− Susceptibility to combined and sanitary sewer overflows.

− Average age of water & wastewater infrastructure by region.

− Average water main break rate by region.

Combined, these two scores give us a clearer picture of the distribution of digital water innovation in the U.S. All else being equal, the states facing the greatest environmental and infrastructure challenges are those which would stand to see the greatest benefit from adopting digital water solutions and should thus have the most robust digital water innovation ecosystems. In other words, states with the highest utility operating condition scores should also have the highest digital innovation ecosystem scores, and vice versa.

In reality, however, some states have developed digital water innovation ecosystems that are much stronger than their external operating conditions alone would suggest. These include states facing extreme environmental and infrastructure challenges, like California and Massachusetts, but also those that have innovated at a high level despite a more moderate degree of external risk, like Colorado and Maryland. Such states are digital water leaders, with strong local or regional cultures of innovation that are not driven exclusively by external threats.

Exhibit 27: U.S. State Rankings–Digital Water Innovation Ecosystems


At the same time, some states have seen a much lower level of digital water adoption and innovation to date, despite facing severe environmental and infrastructure problems which could be addressed, at least in part, with digital solutions. These states—which include Missouri, Louisiana, and New Jersey—have fallen behind their peers at the forefront of digital water transformation, but they may also be fertile ground for future market development and education efforts, as local utilities are forced to consider new solutions to mounting external risks and challenges.

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Section 4. Forecast Methodology & Assumptions

Exhibit 28: Bluefield Forecast Methodology


Bluefield’s forecast relies on a transparent methodology that accounts for historical technology adoption trends; growth in installed assets & equipment; environmental, regulatory, and cultural market drivers; and project-specific data to support critical assumptions. These factors are weighted independently to forecast utility capital and operating expenditure across technology segments, utility tiers, revenue streams, and geographies.

As an emerging market segment, digital water lacks the robust high-level data found in other industry verticals. National statistics and environmental agencies do not track digital assets or expenditures within the municipal water industry. Further, the majority of digital water solutions providers either are privately held and thus do not publish revenues and customer counts, or are publicly-traded but do not specifically report on digital water market activity.

In order to approximate present market conditions, capture historical trends, and predict future outcomes as accurately as possible, Bluefield has leveraged and triangulated numerous public and proprietary datasets on U.S. & Canada digital water projects, customers, and solutions providers:

Exhibit 29: Bluefield Forecast Data Sources


4.1 Taking a Tiered Approach to Utility Procurement Habits

Bluefield’s forecast model allows for different sets of assumptions to be applied to water & wastewater utilities of different sizes to reflect variability in digital water demand and purchasing behavior across utility tiers (see Section 3.1). For each of


the 19 technology segments included, Bluefield applies a separate set of assumptions to each utility tier for:

− Baseline 2018 market penetration rates (expressed as a percentage of water & wastewater utilities currently using each technology).

− Annual adoption rates for forecast outyears (expressed as growth of the market penetration rate).

− Baseline instrumentation density rates, where applicable (for solutions linked to physical assets—e.g. dataloggers per mile of water or wastewater pipe).

− Annual instrumentation density growth rates for forecast outyears, where applicable (expressed as growth of the instrumentation density rate).

− Asset or system replacement rates, where applicable (expressed as a percentage of existing devices or systems replaced each year).

Exhibit 30: Fixed Leak Detection Hardware Assumptions by Utility Tier

Note: This table shows an example of the assumptions applied to the fixed leak detection hardware segment. Assumptions vary for each forecasted segment. Source: Bluefield Research

4.2 Building on the Water & Wastewater Asset Base

While some digital water, wastewater, and stormwater management technologies are deployed utility-wide, others are implemented at specific sites within utilities’ conveyance or treatment systems, and tied to individual water or wastewater

infrastructure assets. For instance, remote dataloggers and acoustic leak detection loggers are positioned throughout utilities’ linear water & wastewater pipe networks, while SCADA & telemetry system components, like remote telemetry units (RTUs), programmable logic controllers (PLCs), and human-machine interface (HMI) software, are installed within utilities’ vertical assets (treatment plants, pump & lift stations, storage facilities).

In order to model current and future market conditions for these technology segments, Bluefield has leveraged our proprietary dataset on the underlying U.S. & Canada water & wastewater asset base. This data is compiled from a range of sources, including publicly available databases, and assumptions that enable estimates of the number of installed assets.

− In the U.S., water & wastewater pipe network length estimates are calculated by combining baseline EPA pipe data with pipe length-per-housing start ratios and private well/septic system usage rates, which vary by state and geography (urban vs. rural).

− EPA datasets based on permitting information underpin inputs around the number of U.S. water & wastewater treatment plants per state.

− Other assets integrated into U.S. water & wastewater networks, including pump and lift stations, storage tanks, reservoirs, and wells, are estimated using assumptions around the number of assets per mile of water & wastewater pipe, which vary by region.

− Canadian water & wastewater infrastructure asset data by province and geography (urban vs. rural) is collected from Statistics Canada’s Core Public Infrastructure Survey, and inflated to account for the assets owned by Canada’s private utilities.

− Total infrastructure asset counts by country and state/province are segmented into utility tiers based on the estimated share of water & wastewater customers served by each tier, using state & provincial data from the EPA and Statistics Canada.

Utility TierBaseline

Penetration Rate

Annual Adoption

Rate

Density Rate (Devices per Mile of Pipe)

Annual Density

Growth Rate

Annual Device Replacement

Rate

Tier 1 (>250,000 pop. served) 25.00% 6.50% 0.850 3.50% 2.50%

Tier 2(50,000 to 250,000 pop. served)

10.00% 7.75% 0.725 2.50% 1.50%

Tier 3(3,300 to 50,000 pop. served)

1.50% 9.00% 0.600 1.50% 0.50%

Tier 4 (<3,300 pop. served) N/A N/A N/A N/A N/A


Exhibit 31: U.S. & Canada Infrastructure Asset Bases

Note: National asset counts rounded to the nearest hundred Source: U.S. Environmental Protection Agency, U.S. Geological Survey, Statistics Canada, Bluefield Research

4.3 Determining Rates of Digital Adoption & Change

Bluefield’s model quantifies the adoption rates for each digital technology segment over the forecast period, the instrumentation density rates for digital hardware segments, and the replacement rates for digital hardware and enterprise software systems. These rates—differentiated by utility tier—are informed by Bluefield’s digital water project dataset, company & utility project and procurement documentation, and market interviews.

In addition, Bluefield forecasts the growth of the underlying water & wastewater infrastructure asset base on which digital water, wastewater, and stormwater management solutions are implemented. Estimated counts of utility service providers and water & wastewater treatment plants per utility tier grow as a function of assumed growth in water & wastewater service population. New distribution & collection network infrastructure additions are based on urban and rural housing starts.

4.4 Modeling Geographic Variability

Bluefield’s model allows for differentiation of underlying assumptions across each U.S. state and Canadian province. At a baseline, this flexibility allows for differing growth rates for water & wastewater service populations and housing starts, which drive variability in the growth of state and provincial infrastructure asset bases to which digital technologies are applied.

4.5 Breaking Out Price Points & Pricing Models

Price points and pricing models vary for different digital water, wastewater, and stormwater management solutions, in terms of both total top-line deployment costs, and breakdowns across revenue streams.

− Hardware purchase and replacement costs are modeled on a per-unit basis.

− Software pricing structures vary for technology segments with differing business models (e.g. enterprise/on-premise vs. cloud-based/Software-as-a-Service). Segment forecasts are accordingly broken out by upfront license purchase fees, annual maintenance & support fees, and/or annual SaaS subscription fees.

− Professional service fees, such as hardware installation, software setup & integration, and network leak detection & condition assessment services costs, are forecasted where appropriate.

− All revenue streams are modeled as either one-time upfront CAPEX or recurring annual OPEX.

Price points for each digital water technology segment and revenue stream are triangulated using bottom-up utility project & procurement data and market interviews and are broken out by utility tier where appropriate.

Network Asset United States Canada

Water Pipe Network (miles) 2,216,100 117,200

Wastewater Pipe Network (miles) 1,754,800 95,800

Water Treatment Plants (#) 19,000 2,200

Wastewater Treatment Plants (#) 15,700 1,300

Water Pump Stations (#) 35,800 3,400

Water Storage Tanks (#) 49,900 2,300

Water Reservoirs / Dams (#) 24,100 1,200

Water Wells (#) 130,400 6,600

Wastewater Pump / Lift Stations (#) 161,100 11,200

Wastewater Storage Facilities (#) 12,800 700

Wastewater Outfalls (#) 45,200 2,500


Exhibit 32: Network Modeling Cost Assumptions by Utility Tier (US$)

Note: This table shows an example of the cost assumptions applied to the network modeling segment. Assumptions vary for each forecasted segment. Source: Bluefield Research

4.6 Forecasting Digital Water Growth Scenarios

Bluefield’s model allows for scenario forecasting in which key market growth levers—e.g. adoption rates and instrumentation density growth rates—are modeled independently across technology segments, utility tiers, and market geographies to better understand their impacts on the overall market outlook.

This report highlights three different potential growth scenarios for the U.S. & Canada digital water market:

1. Steady Flight: Bluefield’s baseline forecast scenario—assumes moderate rates of digital adoption over the forecast period, with select digital water solutions steadily penetrating the Tier 2, Tier 3, and Tier 4 markets.

2. Digital Liftoff: Assumes that digital transformation occurs rapidly over the forecast period, with digital solutions achieving mainstream market acceptance even among smaller utilities (Tiers 2-4) by the mid- to late 2020s.

3. Failure to Launch: Assumes that digital water technologies see only incremental adoption over the forecast period, with the majority of market activity remaining concentrated among existing early adopter utilities in Tier 1 and, to a lesser extent, Tier 2.

Utility Tier Upfront Software License Costs

Upfront Setup & Integration Service Costs

Annual Software Support Costs

Tier 1 (>250,000 pop. served) $100,000 $166,667 $25,000

Tier 2 (50,000 to 250,000 pop. served) $28,000 $46,667 $7,000

Tier 3 (3,300 to 50,000 pop. served) $14,000 $23,333 $3,500

Tier 4 (<3,300 pop. served) N/A N/A N/A


Section 5. U.S. & Canada Digital Water Market Forecast

5.1 Forecast Overview

Bluefield’s analysis of the U.S. & Canada digital water market includes a twelve-year forecast of water & wastewater utility expenditure on digital water, wastewater, and stormwater management solutions from 2019 through 2030. The outlook is informed by both bottom-up inputs & assumptions and top-down municipal water market dynamics which shape utility procurement behavior. Bluefield presents three distinct forecast scenarios for the U.S. & Canada digital water market, among which the Steady Flight scenario is considered the baseline forecast under current market conditions.

Bluefield’s forecast methodology allows for a granular analysis of projected digital water expenditure trends across multiple dimensions, including:

− Forecast scenarios (Steady Flight, Digital Liftoff, Failure to Launch) that are shaped by varying inputs & assumptions.

− Geographic breakouts across the U.S. & Canada (50 U.S. states & District of Columbia, 13 Canadian provinces & territories).

− Technology segmentation (19 digital water technology segments organized into four solution categories).

− Solution types (hardware, software, services).

− Utility tiers (Tiers 1-4) that are distinguished by utility service population size.

Together, these breakdowns highlight the key trends expected to shape the U.S. & Canada digital water market over the next decade and identify the most significant opportunities for digital water, wastewater, and stormwater management.

5.2 Digital Water Market Forecast Scenarios

Steady Flight

Bluefield’s reference case forecast—the Steady Flight scenario—projects US$92.6 billion in total U.S. & Canada digital water spend between 2019 and 2030, with annual expenditure increasing from US$5.4 billion in 2019 to US$10.8 billion in 2030 (a 6.5% CAGR).

− The U.S. accounts for 90.2% of the 12-year total (US$83.6 billion), with Canada contributing 9.8% (US$9.0 billion).

− Canada’s digital water market growth rate (6.6% CAGR) slightly outpaces that of the U.S. (6.5% CAGR) due to the faster growth of Canada’s underlying water & wastewater infrastructure asset base.

− Drinking water accounts for 69.3% of the 12-year market total (US$64.2 billion), while wastewater & stormwater represents 30.7% (US$28.4 billion). The market for digital wastewater solutions is projected to expand at a CAGR of 7.0% (compared to a 6.3% CAGR for drinking water), a function of more stringent regulatory pressure on wastewater operators, as well as of more rapid growth in the U.S. wastewater service population as rural communities move off of private septic systems to municipal sewer service.

Exhibit 33: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Steady Flight Scenario)

Note: “Wastewater” includes spend on digital wastewater & stormwater solutions Source: Bluefield Research

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Canada Water Canada Wastewater


Bluefield considers the Steady Flight scenario to be the most likely growth trajectory for the U.S. & Canada digital water market, as it is based on a balanced view of both the drivers and the inhibitors shaping digital adoption in the water & wastewater utility sector.

Digital Liftoff

The Digital Liftoff forecast scenario represents a more optimistic higher growth outlook for the U.S. & Canada digital water market, characterized by more rapid adoption and much deeper penetration of digital solutions in the U.S. & Canada utility sector. In this scenario, total 12-year digital water expenditure reaches US$127.7 billion by 2030, or US$35.1 billion more in cumulative value than in the Steady Flight scenario. Annual spend increases from US$5.4 billion in 2019 to US$19.7 billion in 2030 (a CAGR of 12.4%).

− In the Digital Liftoff scenario, the U.S. utility sector represents 90.5% of the 12-year market total (US$115.6 billion), with a CAGR of 12.5%.

− Canadian utilities account for 9.5% of total expenditure (US$12.1 billion), with a CAGR of 12.1%.

− Drinking water claims 66.3% of the 12-year market total (US$84.7 billion) in the Digital Liftoff scenario, with wastewater & stormwater contributing 33.7% (US$43.0 billion). The digital wastewater & stormwater market expands more quickly with a 14.7% CAGR, compared to a CAGR of 11.3% for drinking water.

Exhibit 34: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Digital Liftoff Scenario)


A number of key economic, environmental, regulatory, and cultural drivers could push the U.S. & Canada digital water market toward the Digital Liftoff forecast trajectory, such as:

− Increased federal and state regulatory pressure on water & wastewater system operators would likely result in more rapid adoption of digital solutions for real-time monitoring and data collection, compliance reporting, and automation & control. Wastewater utilities have historically faced stricter regulations than water utilities, but increasing public awareness around issues such as water quality and water loss could lead to an uptick in regulatory pressure on drinking water service providers over the next decade.

− Chronic and acute environmental stressors (e.g. drought and water scarcity, more frequent extreme precipitation events) could spur greater uptake of digital solutions as utilities seek to maintain expected service levels and build resilience in a changing climate.

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Digital Liftoff

Steady Flight


− New offerings and business models which can scale to meet the financial and technical capacities of small and medium-sized utilities (e.g. Tiers 2-4) could drive faster adoption and broader market penetration of digital solutions. Cloud-based SaaS & DaaS models can give smaller utilities access to data and basic digital tools without requiring heavy upfront CAPEX commitments, while joint procurement models can spread the costs of digital technology across multiple small neighboring utilities.

− More rapid consolidation of the U.S. & Canada water & wastewater utility market would result in more widespread deployment of digital water technologies, as small utilities are absorbed by larger providers (public or private) with the financial and technical resources to leverage digital solutions. Increasing convergence of the water utility sector with other utility verticals (e.g. power, telecoms) could also accelerate digital transformation in water, as digital adoption rates are higher in these sectors.

− Though economic downturns typically result in reduced investment across the water & wastewater utility sector, a sustained North American recession could actually boost adoption rates for select digital water technology segments, as it could compel utilities to leverage data and digital tools in order to optimize limited OPEX and CAPEX resources.

− The broader digital transformation of public sector infrastructure and services via smart cities initiatives could quicken the pace of digital water adoption by driving utilities to adopt more innovative cultures and data-driven operating models, in order to meet the changing expectations of customers, staff, and elected officials.

Failure to Launch

By contrast, the Failure to Launch forecast scenario represents a more pessimistic market outlook, in which digital adoption remains limited to a minority of primarily large (e.g. Tier 1-2) early adopter utilities, and digital water solutions fail to gain wider traction in the U.S. & Canada utility sector. Under this scenario, Bluefield projects that the U.S. & Canada digital water market will reach only US$78.7 billion in total value between 2019 and 2030—US$13.9 billion less in cumulative utility spend than under the Steady Flight scenario, and US$49.0 billion less than in the

Digital Liftoff scenario. Forecasted annual expenditure grows from US$5.4 billion in 2019 to US$7.9 billion in 2030, a CAGR of 3.5%.

− In the Failure to Launch scenario, U.S. utilities contribute 90.2% of the 12-year digital water market total (US$71.0 billion), with a CAGR of 3.5%. Canada accounts for 9.8% of total expenditure (US$7.7 billion), with a 3.6% CAGR.

− Drinking water solutions represent 68.6% of cumulative 12-year digital expenditure (US$54.0 billion) under this scenario, with a CAGR of 3.1% over the forecast period. Digital wastewater & stormwater technology accounts for the remaining 31.4% of total market value (US$24.7 billion), with a 4.3% CAGR.

Exhibit 35: U.S. & Canada Digital Water Market Forecast, 2019-2030 (Failure to Launch Scenario)


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Several roadblocks and inhibitors could push the U.S. & Canada digital water market toward the low-growth trajectory identified in Bluefield’s Failure to Launch forecast scenario, including:

− The recent trend toward environmental deregulation at the federal level could continue, further reducing the pressure on U.S. & Canada water & wastewater utilities to digitize system operations, monitoring, and compliance reporting.

− Cutbacks in federal or state infrastructure funding could decrease financial support for capital-intensive digital water implementations (e.g. AMI rollouts, SCADA system replacements), making such initiatives less affordable for smaller utilities in particular.

− The growing wave of high-profile cyberattacks on water utilities and other municipal agencies (e.g. Atlanta in 2018, Baltimore in 2019) could succeed in dampening utility demand for connected hardware and software, which can put utilities’ data, IT & OT systems, and mission-critical infrastructure at risk.

− The volatility of the digital startup economy could result in a utility “techlash” if digital water solutions or solutions providers are unable to deliver on their contracts and commitments. The sudden bankruptcy of U.S.-based billing & customer management provider Fathom in November 2019 was a case in point, as it left Fathom’s utility clients scrambling to find alternatives for multiyear software & services contracts, and may come to serve as a cautionary tale for utility operators wary of new startups and emerging technologies.

− Digital water, wastewater, and stormwater management solutions providers could increasingly elect to bypass the utility sector entirely, instead targeting end user markets with shorter sales cycles in the residential, commercial & industrial, or agricultural sectors. These non-municipal verticals account for a growing share of the recent startups and early-stage investment that Bluefield tracks in the digital water market (see Section 6.5).

5.3 Breaking Down the Outlook

Forecast by Technology Category

Bluefield’s forecast model projects water & wastewater utility expenditure across 19 digital water technology segments, ranging from more established, mature solutions (e.g. SCADA, smart metering) to newer, faster growing digital technologies (e.g. risk analysis, network optimization). These segments are grouped into five categories, with 12-year outlooks as follows:

Exhibit 36: Twelve-Year U.S. & Canada Digital Water Market Totals by Technology Category & Segment (Steady Flight Scenario)

Note: Numbers may not add up to total due to rounding Source: Bluefield Research Differing baseline market sizes and growth trajectories for each technology category are a function of differences in market maturity, projected adoption rates, and price points for each of the 19 technology segments analyzed. Under Bluefield’s Steady Flight forecast scenario:

− Metering & Customer Management accounts for the largest share of digital expenditure by U.S. & Canada utilities, with a projected 12-year total of US$38.1 billion (41.2% of the total digital water market). Annual spend on metering & customer management hardware, software, and

Network ManagementRemote SCADA

Network Optimization

Dataloggers

Fixed Leak Detection

RTUs

Leak Detection Service

Metering & Customer Management

Network Management


Plant Management

Information Management

Smart Metering

AMR Network

AMI Network

Customer Engagement

Meter Data Management

US$38.1 Billion

Metering & Customer ManagementTotal Digital Water Market

Plant SCADA

Plant Management

Data Management

Information Management

CMMS

EAM

Condition Assessment Service

GIS

Network Modeling

Risk Analysis


US$17.0 Billion

US$2.9 Billion

US$18.6 Billion

US$16.1 Billion

US$92.6 Billion


services increases from US$2.3 billion in 2019 to US$4.4 billion in 2030, with a CAGR of 6.3%. This is slightly below the total market CAGR of 6.5%, owing to the relatively high baseline market penetration rates of smart metering and AMR technologies, particularly within the larger utility tiers.

− Network Management represents the second largest category of U.S. & Canada digital water spend, with a cumulative 12-year value of US$18.6 billion (20.1% of total). The network management market is expected to grow from US$1.0 billion in 2019 to US$2.4 billion in 2030. With a CAGR of 8.4%, network management is also the second-fastest growing digital water category, due to the rapid anticipated growth of newer technology segments such as network optimization, fixed leak detection, and dataloggers.

− Work & Asset Management is projected to claim the third largest share of U.S. & Canada utilities’ digital expenditure, with a 12-year market total of US$17.0 billion (18.3% of total). Annual spend will increase from US$1.0 billion to US$2.0 billion by 2030. The work & asset management market is expected to expand at a moderate CAGR of 6.9%, as larger, more mature core asset management segments such as EAM & CMMS balance out faster growth in advanced solution segments like condition & risk analysis.

− Plant Management is the slowest digital water technology category, growing at a CAGR of 3.2% from US$1.1 billion in 2019 to US$1.6 billion in 2030. This is due to the high baseline penetration rate of legacy Plant SCADA systems, the core technology segment analyzed within the plant management category. Overall, this category is expected to contribute US$16.1 billion in value over the 12-year forecast period (17.3% of total).

− Information Management is the smallest technology category, as well as the fastest growing. Bluefield expects U.S. & Canada water & wastewater utilities’ data management spend to expand from US$98.6 million in 2019 to US$468.4 million in 2030, for a CAGR of 15.2%, and a cumulative 12-year market value of US$2.9 billion (3.1% of total).

Exhibit 37: U.S. & Canada Digital Water Market Forecast by Technology Category, 2019-2030 (Steady Flight Scenario)


Forecast by Solution Type & Revenue Stream

The 19 digital water, wastewater, and stormwater management solution segments covered in Bluefield’s forecast encompass a wide range of business models, from the purchase and installation of IoT hardware to software license purchases, integration services, and annual SaaS subscription fees. In Bluefield’s Steady Flight scenario:

− Hardware—such as smart meters and AMI/AMR endpoints, RTUs and dataloggers, and fixed leak detection devices—accounts for the largest share of U.S. & Canada utilities’ projected digital water expenditure, with a 12-year cumulative market value of US$36.3 billion (39.2% of total).

− Though the hardware segment’s 5.5% CAGR is slower than that of the software & services segments, Bluefield expects annual hardware spend to exceed that of software & services over the forecast period, as utilities add greater IoT instrumentation density to their networks in order to leverage advanced automation and analytics capabilities. Hardware

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spend is projected to grow from US$2.2 billion in 2019 to US$4.0 billion in 2030.

− Software is the fastest growing segment, with a CAGR of 8.9% over the forecast period. Bluefield projects that the digital water software market will expand from US$1.3 billion in 2019 to US$3.3 billion in 2030, for a cumulative 12-year total of US$25.3 billion (27.3% of the total digital water market).

− Services—including hardware installation and software integration, as well as digitally-enabled project-based professional services like leak detection and condition assessment—account for US$31.0 billion in cumulative value over the forecast period (33.5% of total). Bluefield expects the digital water services market to grow at a 5.8% CAGR, from US$1.9 billion in 2019 to US$3.5 billion in 2030.

Exhibit 38: U.S. & Canada Digital Water Market Forecast by Revenue Stream, 2019-2030 (Steady Flight Scenario)


Bluefield’s forecast model classifies digital water spend as either upfront CAPEX (e.g. one-time purchases of hardware or software licenses) or recurring OPEX (e.g.

annual software maintenance & support fees or SaaS subscriptions). Under Bluefield’s Steady Flight scenario:

− CAPEX accounts for the lion’s share of U.S. & Canada digital expenditure, generating US$68.0 billion in cumulative market value over the 12-year forecast period (73.4% of total). Yearly digital water CAPEX increases from US$4.2 billion in 2019 to US$7.6 billion in 2030.

− OPEX is anticipated to contribute US$24.6 billion in cumulative value over the forecast period (26.6% of total), with annual OPEX growing from US$1.2 billion in 2019 to US$3.3 billion in 2030.

− Bluefield expects digital water OPEX (9.4% CAGR) to expand significantly faster than CAPEX (5.5% CAGR), as emerging SaaS-based market segments (e.g. customer engagement and risk analysis software) continue to scale quickly relative to more mature CAPEX-intensive solutions such as SCADA and EAM. However, CAPEX continues to dominate total digital water expenditure over the forecast period, as a majority of utilities (particularly in Tiers 2-4) have yet to make their initial CAPEX investments in digital instrumentation and core enterprise software systems.

− In separate analysis, Bluefield has projected that total CAPEX investment in U.S. municipal water & wastewater infrastructure will reach a cumulative US$629.4 billion between 2019 and 2028, growing at a 2.6% CAGR from US$56.3 billion in 2019 to US$70.6 billion in 2030. Digital water CAPEX is expected to grow at more than double the rate of U.S. water & wastewater CAPEX investment overall, with a 5.3% CAGR between 2019 and 2028, and is anticipated to account for 8.6% of total U.S. municipal CAPEX by 2028 (up from 6.7% in 2019).

− Bluefield forecasts that U.S. utilities’ overall OPEX costs will total US$871.5 billion between 2018 and 2027, expanding annually at a 1.7% CAGR from US$80.7 billion in 2018 to US$93.9 billion in 2027. Digital water OPEX is projected to see a CAGR of 8.9% over this period, more than five times greater than that of municipal OPEX overall, and will represent 2.3% of total U.S. water & wastewater utility OPEX by 2027 (up from 1.3% in 2018).

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− In terms of total expenditure (TOTEX), digital solutions for drinking water management will claim 6.6% of U.S. water utility TOTEX by 2027 (up from 4.7% in 2019), while digital wastewater & stormwater technologies will represent 3.1% of wastewater utility TOTEX by 2027 (up from 2.2% in 2019). Digital technology’s share of water utilities’ expenditure is higher than that of wastewater utilities due to the size of the market for metering & customer management solutions, which is exclusive to potable water service providers.

− Altogether, the digital water market will account for 4.9% of the US$162.6 billion in combined annual water & wastewater utility TOTEX that Bluefield projects by 2027, up from 3.5% of the 2019 total of US$138.3 billion. This share increases to 7.2% of 2027 water & wastewater TOTEX in Bluefield’s Digital Liftoff forecast scenario and drops to 3.9% under the Failure to Launch scenario.

Exhibit 39: U.S. & Canada Digital Water Market Forecast by Expenditure Type, 2019-2030 (Steady Flight Scenario)


Forecast by Utility Tier

Digital technology demand and purchasing behavior vary significantly for utilities of different sizes. According to Bluefield’s Steady Flight scenario:

− Tier 1 water & wastewater utilities (or those serving populations greater than 250,000 people) account for the lion’s share of U.S. & Canada digital water market activity over the forecast period, with US$44.6 billion in cumulative spend between 2019 and 2030 (48.2% of total). Given the relative maturity of digital water demand among Tier 1 utilities compared to smaller utility tiers, this market segment grows slower than the market average with a CAGR of 5.3%, from an annual total of US$2.8 billion in 2019 to US$4.9 billion in 2030.

− Tier 2 utilities (which serve between 50,000 and 250,000 people) contribute US$25.2 billion in cumulative digital water expenditure over the forecast period (27.2% of total), with annual spend growing at a 7.0% CAGR from US$1.4 billion in 2019 to US$3.0 billion in 2030.

− Tier 3 utilities (serving between 3,300 and 50,000 people) represent US$21.1 billion in cumulative digital market spend (22.8% of total). The annual Tier 3 market segment expands from US$1.1 billion in 2019 to US$2.7 billion in 2030, a CAGR of 8.4%.

− The Tier 4 utility market (for utilities serving fewer than 3,300 people) is the smallest, but fastest growing, segment. Tier 4 water & wastewater utilities account for US$1.7 billion in cumulative digital expenditure over the 12-year forecast period (1.8% of total), with annual spend growing at a CAGR of 8.8% from US$85.4 million in 2019 to US$216.1 million in 2030. Tier 4 demand is limited to a few core technology segments (SCADA, GIS, CMMS, smart metering), as small utilities typically lack the financial and technical capacity to leverage more advanced digital solutions.

− Average annual expenditure per utility on digital water, wastewater, and stormwater management technology varies significantly by utility tier over the 12-year forecast period. Bluefield estimates that Tier 1 utilities will spend an annual average of US$11.1 million per utility, versus US$1.3 million for Tier 2 utilities, US$134,700 for Tier 3 utilities, and US$2,800 for Tier 4 utilities.

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Exhibit 40: U.S. & Canada Digital Water Market Forecast by Utility Tier, 2019-2030 (Steady Flight Scenario)

Note: Tier 1 = >250,000 population served; Tier 2 = 50,000 to 250,000 pop. served; Tier 3 = 3,300 to 50,000 pop. served; Tier 4 = <3,300 pop. served Source: Bluefield Research

Bluefield’s three digital water forecast scenarios—Steady Flight, Digital Liftoff, and Failure to Launch—assume differing rates of digital technology adoption and market penetration by utility tier. Bluefield anticipates that more widespread uptake by smaller water & wastewater utilities will drive the U.S. & Canada digital water market toward the higher Digital Liftoff trajectory, while more restricted implementation by large early adopter utilities will limit the market to the lower Failure to Launch trajectory.

− Tier 1 utilities account for only 45.8% of the 12-year cumulative market total under the Digital Liftoff scenario (US$58.5 billion), compared to 56.1% of the market total under the Failure to Launch scenario (US$44.2 billion). The Tier 1 market grows at an 11.6% CAGR in the Digital Liftoff scenario, versus a 3.3% CAGR in the Failure to Launch scenario.

− Tier 2 utilities’ share of the 12-year market total drops slightly from 27.6% in the Digital Liftoff scenario (US$35.2 billion) to 25.8% in the Failure to

Launch scenario (US$20.3 billion). Tier 2 utility expenditure grows at a 12.5% CAGR under the Digital Liftoff scenario and a 3.6% CAGR under the Failure to Launch scenario.

− Tier 3 utilities see the largest increase in digital water market share in the Digital Liftoff scenario, accounting for 24.9% of the cumulative 12-year market total under Digital Liftoff (US$31.8 billion), compared to only 16.9% of the market total under Failure to Launch (US$13.3 billion). The Tier 3 market grows at a CAGR of 14.0% in the Digital Liftoff scenario, versus a 3.8% CAGR in the Failure to Launch scenario.

− Tier 4 utility expenditure is still restricted to core digital water technology segments in the Digital Liftoff scenario, but accounts for 1.8% of the 12-year market total (US$2.3 billion), compared to only 1.2% under the Failure to Launch scenario (US$1.0 billion). Bluefield projects a 13.9% CAGR for Tier 4 utility spend under Digital Liftoff and a 3.1% CAGR under Failure to Launch.

Exhibit 41: Twelve-Year U.S. & Canada Digital Water Market Totals by Utility Tier & Forecast Scenario

Note: Tier 1 = >250,000 population served; Tier 2 = 50,000 to 250,000 pop. served; Tier 3 = 3,300 to 50,000 pop. served; Tier 4 = <3,300 pop. served Source: Bluefield Research

Forecast by Geography

Distribution of digital water market activity across the U.S. & Canada varies by state/province and region, with differing demographic, economic, environmental,

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and cultural conditions impacting local and regional utility spend on digital water, wastewater, and stormwater technology.

In the U.S., population is a primary determinant of digital expenditure, with the eight most populous U.S. states—California, Texas, Florida, New York, Pennsylvania, Illinois, Ohio, and Georgia—accounting for the top eight spots in cumulative 12-year digital water market spend, as well as 48.6% of total U.S. digital water market value between them. However, differences in the sizes and growth rates of water & wastewater infrastructure asset bases, service populations, and residential construction markets also contribute to state-level variability in digital water market activity.

− Texas represents the top U.S. digital water market, with Bluefield projecting US$10.3 billion in total digital expenditure by Texan water & wastewater utilities between 2019 and 2030 (12.3% of the national total).

− Though Texas’s total population is second to that of California, Texas accounts for a larger share of housing starts (188,200 in 2018, compared to 117,100 in California), water service connections (13.0 million in 2018, compared to 9.7 million in California), and water & wastewater treatment facilities (more than 2,800 in 2018, compared to roughly 540 in California). As a result, Texas is the largest U.S. market for metering & customer management (US$4.7 billion over the forecast period) and plant management (US$1.9 billion).

− California claims the second largest share of the U.S. digital water market, with US$8.6 billion in cumulative 12-year spend (10.2% of the national total). With the nation’s largest shares of Tier 1 & Tier 2 utilities (276 in 2018, compared to 117 in Texas) and urban water & wastewater pipe infrastructure (350,700 total miles in 2018), compared to 268,900 miles in Texas), California represents the top market for network management (US$2.4 billion over the forecast period), asset management (US$1.9 billion), and information management (US$380.2 million).

− Florida represents the third largest cumulative U.S. digital market opportunity (US$5.0 billion over the forecast period, or 6.0% of total), followed by New York (US$4.0 billion, or 4.8%), Illinois (US$3.3 billion, or 4.0%), Ohio & Pennsylvania (each with US$3.2 billion, or 3.9%), and Georgia (US$2.9 billion, or 3.5%).

− Of the 30 states with cumulative market opportunities greater than US$1.0 billion over the 12-year forecast period, those located in the Southern and Western United States boast the highest expected growth rates, resulting from higher rates of expansion of both population and residential construction in these regions. The digital water markets in both South Carolina and Colorado are projected to grow at a CAGR of 7.4% over the forecast period, followed by Florida (7.2% CAGR), and North Carolina, Washington, Arizona, and Texas (each with a 7.0% CAGR).

− By contrast, Midwestern and Northeastern digital water markets are projected to grow at a slower pace than those in the West and South, as states in these regions see low or even negative rates of population and housing market growth over the forecast period. Missouri’s anticipated CAGR of 5.2% puts it at the bottom of the list for states with 12-year digital water market opportunities greater than US$1.0 billion, followed by Kansas (5.3% CAGR), Maryland (5.4% CAGR), New York (5.5% CAGR), and Pennsylvania & Ohio (each with a CAGR of 5.6%).

Exhibit 42: Twelve-Year U.S. Digital Water Expenditure Heatmap by State, 2019-2030 (Steady Flight Scenario)


The Canadian digital water market is even more concentrated in geographic terms than the U.S. market, with 89.0% of cumulative 12-year market activity projected to occur in Canada’s four most populous provinces: Ontario, Quebec, British


Columbia, and Alberta. As in the U.S., demographic, economic, and infrastructural factors shape the distribution of digital water spend across provinces and technology categories. In Bluefield’s Steady Flight scenario:

− Ontario dominates the Canadian digital water market, with Ontario’s water & wastewater utilities accounting for a projected US$3.3 billion in cumulative 12-year digital expenditure (36.9% of the national total), including the largest shares of all five technology categories covered in Bluefield’s forecast. Ontario is Canada’s most populous and most urbanized province, giving it the largest shares of Canada’s water & wastewater service populations, Tier 1 & 2 utilities, and most water & wastewater infrastructure asset classes.

− Quebec represents the second largest digital water market opportunity in Canada, with a cumulative 12-year market value of US$2.1 billion (23.2% of total) and the second largest shares of the metering & customer management, asset management, plant management, and information management markets. Quebec is Canada’s second most populous province and trails only Ontario in most water & wastewater utility and infrastructure asset metrics.

− British Columbia ranks third in Canadian digital water market activity, contributing US$1.5 billion in anticipated 12-year digital expenditure (16.7% of total). With Canada’s highest rate of growth for urban housing starts (13.9%), British Columbia is also expected to claim the second largest share of cumulative network management expenditure over the forecast period (US$374.8 million, compared to US$500.4 million in Ontario and US$343.4 million in Quebec), as the province’s urban utilities increasingly turn to digital solutions to help manage sprawling linear assets over expanding service territories.

− Alberta accounts for the fourth largest share of Canadian digital water expenditure (US$1.1 billion over the forecast period, or 12.2% of total). However, the province’s 2.4% water service population growth rate leads Canada, making Alberta the third biggest Canadian market opportunity for metering & customer management solutions (US$567.0 million over 12 years, compared to US$1.6 billion in Ontario and US$809.6 million in Quebec).

− Among the eight provinces with at least a US$100.0 million cumulative 12-year market opportunity, Alberta leads the pack with a projected CAGR of 7.8%, followed by British Columbia (7.5% CAGR) and Manitoba (7.3% CAGR).

− Nova Scotia is anticipated to see the slowest growth among Canada’s top eight provincial digital water markets, with its low projected water & wastewater service population growth rates (0.4% and 0.1%, respectively) driving a digital market CAGR of only 5.2%. Quebec is second slowest with a 6.0% CAGR, followed by Saskatchewan & Ontario (each with a 6.3% CAGR) and New Brunswick (6.4% CAGR).

Exhibit 43: Twelve-Year Canadian Digital Water Expenditure Heatmap by Province, 2019-2030 (Steady Flight Scenario)


5.4 The Cash Register of the Utility: Metering & Customer Management Forecast

Collectively, U.S. & Canada utilities provide potable water service to roughly 340.1 million people through 109.4 million service connections. The Metering & Customer Management technology segment serves as the central interface between data-driven water utilities and their customer bases, with a range of digital hardware,


software, and service offerings which enable utility operators to monitor, analyze, and engage with their customers in near real-time. In Bluefield’s Steady Flight scenario:

− The smart metering segment—which encompasses smart meter hardware and installation services—claims the lion’s share of U.S. & Canada metering & customer management spend, accounting for US$19.6 billion in expenditure (51.4% of the category total) over the 12-year forecast period. As one of the largest and most mature technologies covered in Bluefield’s digital water market forecast, smart metering is anticipated to grow at a moderate CAGR of 5.2%, from US$1.2 billion in 2019 to US$2.1 billion in 2030.

− AMI network spend (including AMI endpoints and network infrastructure, such as base stations) is expected to gradually overtake AMR expenditure as more utilities gravitate to fully remote smart metering systems with real-time data collection functionality. Annual AMI market growth accordingly outpaces that of the AMR market, with a 7.1% CAGR (US$375.2 million in 2019 to US$794.9 million in 2030) compared to a 3.8% CAGR for AMR (US$466.5 million in 2019 to US$703.9 million in 2030).

− However, cumulative 12-year expenditure on AMR systems slightly exceeds AMI network infrastructure spend, with US$6.9 billion for AMR (18.1% of the category total) versus US$6.7 billion for AMI (17.6% of the category total).

− Customer engagement software—platforms like WaterSmart Software, DropCountr, and AmCoBi’s AquaHawk, which enable utility customers to visualize and analyze their household metering data, and receive automated notifications about potential leaks—is the fastest growing technology segment within the metering & customer management category. Bluefield projects that customer engagement spend will expand at a 17.1% CAGR from US$91.8 million in 2019 to US$521.7 million in 2030 (representing US$3.0 billion in cumulative spend, or 7.9% of the category total), as utilities increasingly turn to digital tools for encouraging community water conservation in the face of mounting water scarcity.

− Meter data management (MDM) software represents the second fastest growing segment within the metering & customer management category, as utilities increasingly leverage the MDM modules offered by their smart metering, AMR, and AMI vendors (e.g. Sensus, Badger, Itron) to glean greater insights from customer meter data. Bluefield expects the MDM segment to grow at an 8.3% CAGR, from US$100.6 million in 2019 to US$241.6 million in 2030, for a cumulative US$1.9 billion (5.0% of the category total).

− The U.S. accounts for 89.8% of cumulative 12-year metering & customer management spend (US$34.2 billion), with Canada contributing the remaining 10.2% (US$3.9 billion).

− Hardware—smart meters, AMR & AMI network infrastructure—accounts for the lion’s share of total U.S. & Canada metering & customer management spend with US$23.9 billion (62.6% of the category total), followed by professional services (US$10.3 billion, or 27.1% of total) and software (US$3.9 billion, or 10.3% of total).

Exhibit 44: U.S. & Canada Metering & Customer Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario)


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Bluefield’s scenario analysis reveals differing possible market trajectories for the Metering & Customer Management category:

− Total 12-year expenditure on metering & customer management technology rises from US$38.1 billion in the Steady Flight scenario to US$48.2 billion in the Digital Liftoff scenario (a difference of US$10.1 billion), and falls to US$31.9 billion in the Failure to Launch scenario (US$6.2 billion less than the Steady Flight scenario, and US$16.3 billion less than the Digital Liftoff Scenario).

− Metering & customer management spend grows annually at a 10.4% CAGR under Digital Liftoff, increasing from US$2.3 billion in 2019 to US$6.7 billion in 2030. Under Failure to Launch, this technology category instead expands at a CAGR of 3.0%, reaching an annual value of only US$3.1 billion by 2030.

Exhibit 45: U.S. & Canada Metering & Customer Management Market Forecast by Forecast Scenario, 2019-2030


5.5 From Reactive to Prescriptive: Work & Asset Management Forecast

Bluefield estimates that U.S. & Canada utilities collectively manage over US$1.45 trillion worth of water & wastewater infrastructure assets, with US$1.25 trillion in the U.S. and US$0.2 trillion in Canada. In the U.S., 1.7 million workers are employed in the water & wastewater sector, with a significant share—as much as 70% to 80% for some utilities—responsible for the operations & maintenance (O&M) of remote assets in field service roles.

The Work & Asset Management technology segment consists of a suite of digital solutions for establishing more proactive, data-driven workforce management practices, and preventive or prescriptive asset maintenance regimes. These include core systems for collecting and analyzing data on asset location and condition, tactical asset management platforms for managing day to day asset operations and maintenance, and advanced, strategic asset management tools for assessing long-term asset failure risk and planning capital investments. Under Bluefield’s Steady Flight scenario:

− Asset work order management segments (CMMS & EAM) together account for US$9.9 billion in cumulative 12-year spend (58.7% of total work & asset management expenditure), as utilities of all sizes increasingly replace their reactive, paper-based maintenance regimes with more proactive, data-driven digital tools for planning and carrying out asset O&M work.

− Bluefield projects that the CMMS market will remain both larger and faster growing than the EAM segment over the forecast period, expanding at a 6.6% CAGR from US$370.1 million in 2019 to US$747.6 million in 2030, compared to EAM’s anticipated growth from US$248.3 million in 2019 to US$339.8 million in 2030 (a 2.9% CAGR). This is due to the greater penetration of the smaller utility market segments by CMMS vendors (e.g. Cityworks, Lucity, Beehive Industries) relative to EAM vendors (e.g. IBM Maximo, Infor, SAP, Oracle), who primarily target the more mature, saturated Tier 1 utility market.

− Digitally-enabled condition assessment service providers (e.g. Pure Technologies, Aquam) are expected to see their U.S. & Canada market expand from US$142.5 million in 2019 to US$398.1 million in 2030 (a CAGR of 9.8%), as utilities turn to advanced digital solutions to gather

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more robust, granular data on the condition and health of their buried infrastructure assets. This segment is expected to contribute a cumulative total of US$3.0 billion (17.7% of the category total) over the forecast period.

− The geographic information system segment—including software, server infrastructure, and setup & integration services—is expected to account for US$2.7 billion in cumulative market value (15.9% of the category total). Bluefield expects the annual U.S. & Canada GIS market to grow at a 7.9% CAGR from US$143.8 million in 2019 to US$332.7 million in 2030, as GIS vendors like Esri continue to penetrate smaller utility tiers in particular with GIS tools for storing, analyzing, and visualizing asset location and O&M data.

− Bluefield projects that the annual network modeling software and services market will expand at a 6.9% CAGR from US$39.6 million in 2019 to US$82.2 million in 2030, claiming US$698.7 million of total utility expenditure over the 12-year forecast period (4.1% of the category total). Advanced network modeling offerings from vendors such as Bentley Systems and Innovyze are expected to see continued growth in the Tier 1 & 2 utility markets, particularly with the increasing appetite for “digital twin” platforms among larger utilities, but will see more limited adoption in the Tier 3 & 4 markets, where utilities gravitate toward basic modeling tools which are offered free of charge by public agencies (e.g. U.S. EPA).

− The risk analysis segment—which consists of advanced software tools for calculating the Likelihood of Failure & Consequence of Failure for water & wastewater infrastructure assets, such as those offered by Fracta, Voda.ai, and Pure Technologies—is expected to see the fastest growth among work & asset management technologies, as larger, more innovative utilities seek to generate greater value from existing asset data with artificial intelligence, machine learning, and predictive analytics. Bluefield forecasts that annual risk analysis spend will increase from US$18.0 million in 2019 to US$109.1 million in 2030 (a 17.8% CAGR), for a 12-year total of US$616.4 million (3.6% of the category total).

− The U.S. accounts for 89.7% of cumulative 12-year expenditure on work & asset management technologies by U.S. & Canada water & wastewater utilities (US$15.2 billion), with Canada responsible for the remaining

10.3% (US$1.7 billion). Spend on drinking water work & asset management is anticipated to claim 60.1% of the 12-year total (US$10.2 billion), while wastewater & stormwater account for 39.9% (US$6.8 billion).

− Software claims the largest portion of work & asset management spend, with 57.6% of the cumulative 12-year total (US$9.8 billion), while professional services (e.g. condition assessment service, as well as asset management software setup & integration) account for 42.2% of the category total (US$7.1 billion). Hardware (e.g. GIS server infrastructure) plays a minor role in the work & asset management market, representing only 0.3% of total category spend (US$49.9 million).

Exhibit 46: U.S. & Canada Work & Asset Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario)


Applying Bluefield’s scenario modeling to the technologies in the Work & Asset Management category reveals different possible market outcomes:

− Under the Digital Liftoff scenario, cumulative 12-year work & asset management expenditure by U.S. & Canada water & wastewater utilities

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reaches US$23.0 billion over the forecast period, or US$6.0 billion more than the US$17.0 billion projected in the Steady Flight scenario. In the Failure to Launch scenario, this category generates only US$14.3 billion in 12-year market value (US$2.7 billion less than in the Steady Flight scenario, and US$8.7 billion less than in the Digital Liftoff scenario).

− The work & asset management market grows at a 12.3% CAGR under the Digital Liftoff scenario, with annual expenditure increasing from US$1.0 billion in 2019 to US$3.4 billion by 2030. In the Failure to Launch scenario, annual work & asset management spend reaches only US$1.5 billion by 2030, representing a CAGR of 3.8% over the 12-year forecast period.

Exhibit 47: U.S. & Canada Work & Asset Management Market Forecast by Forecast Scenario, 2019-2030


5.6 Intelligence Underground & Inside the Fence: Network & Plant Management Forecast

Together, U.S. & Canada utilities manage vast, complex water & wastewater treatment and conveyance systems encompassing nearly 4.2 million miles of distribution & collection network pipe, more than 211,000 pump & lift stations, and

over 38,000 water & wastewater treatment facilities. The Network Management and Plant Management technology categories consist of a range of digital hardware, software, and services for monitoring and controlling conveyance network and treatment plant operations, optimizing system efficiency and performance, and detecting leaks and other network incidents. In Bluefield’s Steady Flight scenario:

− Supervisory control and data acquisition (SCADA) platforms account for the majority of U.S. & Canada utility expenditure in the network & plant management categories, with SCADA hardware (e.g. PLCs), software (e.g. HMI software), and services (e.g. systems integration) collectively generating US$25.8 billion in cumulative market value over the 12-year forecast period. Treatment plant SCADA systems—the core technology segment analyzed within Bluefield’s plant management category—represent US$16.1 billion in total spend, with remote SCADA contributing US$9.7 billion in total value (52.4% of the network management category total).

− As a relatively mature market segment in the U.S. & Canada water & wastewater utility industry, annual plant SCADA expenditure is expected to grow at a modest CAGR of 3.2% (from US$1.1 billion in 2019 to US$1.6 billion in 2030), while the less saturated remote SCADA market will expand more quickly at a 5.1% CAGR (US$0.6 billion in 2019 to US$1.1 billion in 2030).

− Telemetry hardware—such as remote telemetry units (RTUs) and dataloggers—is projected to account for a combined US$3.6 billion in cumulative utility expenditure over the forecast period, including US$2.5 billion for dataloggers (13.3% of the network management total) and US$1.1 billion for RTUs (5.8% of the category total).

− The logger market is expected to grow at a more rapid pace than the RTU market, with annual logger spend increasing at an 11.9% CAGR from US$103.8 million in 2019 to US$357.7 million in 2030, as large utilities with expansive linear networks scale their remote monitoring instrumentation footprints in order to gather more robust real-time data on key operating parameters (e.g. pressure, level, flow, quality). RTUs, meanwhile, are a more mature segment confined primarily to vertical network assets (e.g.

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pump stations, storage tanks), resulting in a more moderate CAGR of 4.3% (from US$71.3 million in 2019 to US$113.2 million in 2030).

− Data-driven leakage management solutions—including fixed acoustic leak detection systems and digitally-enabled leak detection services—are set to generate US$2.7 billion in cumulative 12-year value, including US$1.7 billion for fixed leak detection (8.9% of the network management total) and US$1.0 billion for leak detection services (5.4% of the category total).

− Fixed acoustic leak detection vendors (e.g. Echologics, Gutermann) are expected to see their annual U.S. & Canada market grow at a CAGR of 13.4% over the forecast period (from US$63.1 million in 2019 to US$252.6 million in 2030) as technologically progressive utilities in water scarce regions increasingly leverage permanent acoustic monitoring hardware and software to reduce water waste and NRW. Project-based leak detection service providers (e.g. Utilis, Matchpoint) will continue to see healthy demand as well, with their annual market increasing from US$55.8 million in 2019 to US$120.1 million in 2030 (a 7.2% CAGR).

− The market for water, wastewater, and stormwater network optimization platforms—which use real-time predictive analytics, artificial intelligence, and machine learning to optimize pipe network storage capacity (e.g. OptiRTC, EmNet) or pump network energy consumption (e.g. Suez Derceto, Riventa)—is anticipated to see the fastest growth of all network management technologies. Bluefield projects that network optimization spend will expand at a 19.1% CAGR from US$70.0 million in 2019 to US$477.7 million in 2030, for a cumulative US$2.6 billion over 12 years (14.1% of the category total), as U.S. & Canada utilities seek out opportunities to reduce operating costs, avoid regulatory penalties, and optimize network performance via advanced data analytics tools.

− The U.S. accounts for 91.6% of the cumulative 12-year network management market (US$17.0 billion) and 90.9% of the total plant management market (US$14.6 billion), with Canadian utilities contributing 8.4% of network management expenditure (US$1.6 billion) and 9.1% of plant management spend (US$1.5 billion).

− Wastewater & stormwater are expected to claim the lion’s share of both network & plant management expenditure, due to the greater degree of

regulatory pressure on wastewater treatment plant and conveyance network managers to automate system operations and minimize failures. Wastewater & stormwater represent 54.7% of the U.S. & Canada network management market (US$10.2 billion) and 61.8% of the plant management market (US$9.9 billion), compared to 45.3% of network management (US$8.4 billion) and 38.2% of plant management (US$6.1 billion) for drinking water utilities.

− Hardware—e.g. SCADA equipment, telemetry devices, and acoustic leak detection instrumentation—accounts for 36.8% of total 12-year U.S. & Canada network management spend (US$6.8 billion), followed by services with 34.0% (US$6.3 billion) and software with 29.2% (US$5.4 billion). SCADA systems integration services dominate the plant management category with 43.2% (US$6.9 billion), followed by SCADA hardware with 34.6% (US$5.6 billion) and HMI software with 22.2% (US$3.6 billion).


Exhibit 48: U.S. & Canada Network & Plant Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario)


Comparison of Bluefield’s high, low, and base case scenarios reveals significant differences in potential 12-year market trajectories for the Network & Plant Management technology categories:

− The U.S. & Canada network management market reaches a total 12-year value of US$34.2 billion under the Digital Liftoff scenario, compared to US$18.6 billion in the Steady Flight scenario (a difference of US$15.6 billion). Bluefield anticipates that the network management category would see the largest increase in total value relative to the baseline forecast under Digital Liftoff conditions, as a broad-based digital transformation of the U.S. & Canada water & wastewater industry would necessitate significant increases in expenditure on remote network monitoring hardware, advanced network automation & analytics software, and integration services, especially within the smaller water & wastewater utility tiers.

− Cumulative network management expenditure falls to US$15.2 billion in the Failure to Launch scenario (US$3.3 billion less than in Steady Flight, and US$18.9 billion less than in Digital Liftoff).

− The annual network management market is projected to grow at a CAGR of 19.0% in the Digital Liftoff scenario, from US$1.0 billion in 2019 to US$6.7 billion in 2030. Under the Failure to Launch scenario, network management spend reaches only US$1.6 billion by 2030, representing a 4.8% CAGR over the forecast period, as demand for digital network monitoring, control, and analytics solutions remains restricted to a minority of large utility innovators.

− The plant management category is less subject to changes in scenario assumptions, as it consists of a fairly mature, saturated market segment (plant SCADA). Bluefield estimates that cumulative plant management expenditure would increase from US$16.1 billion in the Steady Flight scenario to US$18.1 billion under Digital Liftoff conditions (a difference of US$2.0 billion). Meanwhile, total plant management spend falls to US$15.5 billion in the Failure to Launch scenario (US$0.5 billion less than in Steady Flight, and US$2.6 billion less than in Digital Liftoff).

− In the Digital Liftoff scenario, annual plant management expenditure by U.S. & Canada utilities expands from US$1.1 billion in 2019 to US$2.0 billion in 2030, for a CAGR of 5.5%. Under Failure to Launch conditions, plant management spend reaches only US$1.5 billion by 2030, representing a 2.5% CAGR.

0

1

2

3

4

5

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US$

Bill

ions

Plant SCADA Remote SCADA Network Optimization

Dataloggers Fixed Leak Detection RTUs

Leak Detection Service


Exhibit 49: U.S. & Canada Network & Plant Management Market Forecast by Forecast Scenario, 2019-2030


5.7 Turning Data into Insights: Information Management Forecast

As U.S. & Canada water & wastewater utilities increasingly turn to digital technologies for metering & customer management, work & asset management, network management, and plant management, their demand for information management solutions will grow commensurately. Large urban utility service providers may have hundreds of thousands of data streams across their SCADA, AMI, and network monitoring systems which each generate thousands of readings per day, creating a deluge of data that can overwhelm utility operators if not managed proactively.

The Information Management category consists of software solutions for storing, integrating, analyzing, and visualizing multiple data streams across utility siloes, such as billing & customer service, finance, engineering, and operations. In the Steady Flight scenario:

− Data management, the core technology segment analyzed with the Information Management category, is expected to claim US$2.9 billion in

U.S. & Canada water & wastewater utility expenditure over the 12-year forecast period. Bluefield projects that annual demand for data management platforms (e.g. OSIsoft’s PI System) and SCADA historian modules will grow at a 15.2% CAGR from US$98.6 million in 2019 to US$468.4 million in 2030.

− U.S. utilities account for 86.3% of cumulative 12-year information management expenditure (US$2.5 billion), with Canadian utilities contributing the remaining 13.7% (US$0.4 billion).

− Wastewater claims a slightly larger share of information management spend than drinking water, as wastewater treatment processes are more complex and data-intensive. Bluefield projects that wastewater will account for 53.7% of the total U.S. & Canada information management market (US$1.6 billion), with drinking water representing the other 46.3% (US$1.3 billion).

− Software will generate 90.5% of total information management market value (US$2.6 billion), with the remaining 9.5% allotted to software setup & integration services (US$0.3 billion).

Exhibit 50: U.S. & Canada Information Management Market Forecast by Technology Segment, 2019-2030 (Steady Flight Scenario)


0

2

4

6

8

10

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US$

Billi

ons

Plant SCADA Remote SCADANetwork Optimization DataloggersFixed Leak Detection RTUsLeak Detection Service

Digital Liftoff

Failure to Launch

0

100

200

300

400

500

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US$

Milli

ons

Data Management


Bluefield’s scenario analysis reveals various potential market outcomes for the Information Management technology category:

− Total 12-year information management spend reaches US$4.3 billion under Digital Liftoff conditions, representing US$1.4 billion more in cumulative market value than the US$2.9 billion projected in the baseline Steady Flight scenario, as more widespread uptake of other data-intensive digital technologies (e.g. network management, metering & customer management) drives a larger base of U.S. & Canada utilities to adopt data management solutions. Total information management spend falls to US$1.8 billion in the Failure to Launch scenario (US$1.1 billion less than in Steady Flight, and US$2.5 billion less than in Digital Liftoff).

− Annual information management market value expands at a 21.5% CAGR in the Digital Liftoff scenario, from US$98.6 million in 2019 to US$838.0 million in 2030. Under Failure to Launch conditions, information management expenditure grows at a more modest 7.3% CAGR, reaching only US$213.3 million by 2030, as limited adoption of other digital water, wastewater, and stormwater management technologies reduces demand for data management.

Exhibit 51: U.S. & Canada Information Management Market Forecast by Forecast Scenario, 2019-2030


0

200

400

600

800

1,000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

US

$ M

illion

s

Data Management Digital Liftoff

Failure to Launch


5.8 Emerging Digital Water Technology Segments

In addition to the 19 technology segments included in Bluefield’s municipal digital water market outlook, Bluefield has identified 7 other emerging solution types which have not yet seen sufficient uptake by U.S. & Canada utilities to forecast in detail, or feature business models which are not conducive to standalone forecasting and analysis:

Exhibit 52: Emerging Digital Water Technology Segments


Technology Segment Technology Category Representative Vendors Segment Details Est. 12-Year

Market Value

Mobile Workforce Management (MWM)


Clevest, Sedaru, Apple, Freeance, UtiliSync, Cityworks, Trimble, Esri, Confluence Group, RedEye, FieldForce4

• Hardware & software for dispatching, scheduling, and monitoring mobile field staff, as well as facilitating mobile data access & entry

• Well-established market segment, but many leading vendors offer MWM applications for free as part of larger EAM/CMMS or GIS software packages

US$1 billion‒US$2.5 billion

Asset Performance Management (APM)


Atonix Digital; Plutoshift; Space-Time Insight; Bentley Systems; Schneider Electric; ABB

• Predictive analytics software applied to real-time asset operations data in order to optimize asset maintenance, health, performance

• Limited uptake among North American water & wastewater utilities to date

< US$250 million

Asset Investment Planning (AIP)


SEAMS, Assetic, PowerPlan, Decision Lens, Copperleaf

• Software for optimizing capital investment plans based on asset condition data, regulatory requirements, service targets, and operating constraints

• Limited uptake among North American water & wastewater utilities to date, though well-established in other markets (e.g. U.K., Australia)

US$250 million‒US$500 million

Network Water Quality Monitoring

Network Management

Hach, S::CAN, Aqua Metrology Systems, Analytical Technology Inc., Real Tech Inc., KETOS, KANDO

• Hardware & software for monitoring real-time conveyance network water quality, and generating alerts

• Limited market traction among North American utilities, following a flurry of initial adoption driven by post-9/11 water infrastructure safety & security concerns


Network Event Management Network Management TaKaDu, Baseform, Trimble

• Software for analyzing real-time network operational data (pressure, flow, quality) in order to detect main breaks, pressure transients, and other events

• Limited uptake among North American water & wastewater utilities to date, though well-established in other markets (e.g. Europe, Australia)

< US$250 million

Plant Optimization Plant Management Veolia, Suez, EMAGIN, EmNet, IntelliFlux Controls, Aqueduct

• Hardware & predictive analytics software for analyzing real-time plant operations data and optimizing performance (e.g. energy & chemical consumption)

• Limited uptake among North American water & wastewater utilities to date


Cybersecurity Information Management

Owl Cyber Defense, Mocana, Dispel, BAE Systems, Claroty, Fox IT, Waterfall Security

• Hardware & software for securing utilities’ IT & OT systems against cyberattacks

• Moderately well-established market segment, but project & contract data kept private due to security concerns

US$2.5 billion‒US$5 billion


Section 6. Breaking Down the Competitive Landscape: Digital Water Market Leaders & Potential Disruptors

6.1 Rise of the Platform Players

Bluefield has identified over 200 vendors active in the U.S. & Canada digital water market, the majority of which are point solutions providers targeting one or more closely related technology segments.

In the U.S. & Canada, 20 firms have emerged as digital water platform players, which Bluefield defines as companies that—either directly, or through subsidiaries—offer a wide portfolio of digital water, wastewater, and stormwater management solutions across numerous utility siloes and technology categories. These 20 platform players can be further segmented into five groups according to their core competencies, strategic positioning, and degree of exposure to the water sector:

Exhibit 53: Digital Water Platform Players by Company Type

Note: Firms’ strategic exposure to municipal water & wastewater utility sector increases from top to bottom Source: Bluefield Research

At a high level, the 20 platform players have built their digital water solutions portfolios in one of two ways, reflecting differences in initial market positions and core product offerings.

− Established water sector equipment & services providers have sought to add higher-margin, recurring software offerings to their product portfolios primarily via M&A and strategic venture investments, leading to well-rounded, but in some cases poorly-integrated, digital water solution stacks.

− Software-first players have built markets in the water industry largely by applying enterprise solutions and capabilities developed for other industry verticals (e.g. power, municipal government) to water & wastewater utilities, giving some such firms less focused, more opportunistic strategic positions within water.

− Xylem leads the pack with nine digital water acquisitions since 2015, building up a range of capabilities across the metering & customer management, network management, and work & asset management technology categories.

− Bentley Systems is somewhat unique as a software pure play that has continued to scale its digital water portfolio via both regular M&A and internal R&D.

− Trimble’s 2015 acquisition of datalogger vendor Telog Instruments, and its 2019 purchase of CMMS provider Cityworks, have rounded out its portfolio of work, asset, and network management offerings across the asset lifecycle, building on Trimble’s existing strengths in mapping, surveying, and construction hardware & software.

− Innovyze, another software player backed by private equity firm EQT, made its first purchase in December 2019, adding EMAGIN’s artificial intelligence capabilities for plant & network management.

− With support from recent private equity backers Laurel Solutions, U.K.-based SCADA & telemetry provider Servelec Technologies branched into leakage management—and developed a foothold in the U.S. & Canada utility market—by acquiring leak detection hardware & software vendor Primayer in August 2019.

Big Water

Infrastructure Tech

Industrial IoT // SCADA

Metering & Communications

Industrial IoT

Big Tech

Selected Company Positions Bluefield Takeaways

• Cloud-based asset & customer management providers• Outsiders looking in, leveraging existing enterprise

management systems developed for other industry verticals

• Diversified hardware, software players seeking to extend heavy industrial IoT capabilities to critical infrastructure

• Water ancillary to other infrastructure sectors (e.g. power)

• SCADA provides jumping-off point for higher-value offerings (e.g. asset, plant, & network management)

• Software players with expertise in asset management across infrastructure markets (e.g. water, power, transportation)

• Building out horizontal platforms of solutions across asset lifecycle (design, build, operate), including network & information management

• Strategic access to utility customers via metering, billing• Seeking higher margins via data management & analytics,

providing IoT communications backbone for other network management use cases (e.g. leakage, overflow monitoring)

• Water-focused companies leveraging in-market experience (e.g. equipment, engineering, utility operations)

• Scaling diversified portfolios of digital water solutions via M&A (e.g. Xylem) and venture investments (e.g. Suez)


− Oracle’s 2016 acquisition of Opower enhanced its customer engagement offerings primarily for the power utility sector, but with potential applicability in water.

Exhibit 54: Digital Water Platform Player M&A Activity, 2015-2019


6.2 Platform Disruptors Set Sights on Digital Water Expansion

In addition to the 20 established platform players active in the U.S. & Canada digital water market, Bluefield has identified 12 potential platform disruptors, which could emerge as platform players in their own right—or be absorbed into existing platform portfolios via M&A—in the future.

− Six potential platform disruptors are classified as Sector Incumbents, in that they have established strong competitive positions in specific digital water equipment & services segments, but have not yet sought to leverage their scale to expand into other technology categories or utility siloes. These players have largely focused on organic growth in their core digital water markets, or have relied on M&A to consolidate existing supply chains rather than to expand into new markets (e.g. Badger Meter).

− Another six potential platform disruptors are considered Aspiring Startups, in that they have entered the market with broad digital water software platform offerings touching on multiple technology categories or utility siloes. These firms may represent potential acquisition targets for larger incumbents or market outsiders seeking to expand their digital water capabilities (e.g. aspiring startup EMAGIN’s recent acquisition by Innovyze). They may also lack the scale to withstand the inherently slow pace of the municipal utility sales cycle, as was the case with aspiring startup Fathom, which went bankrupt in November 2019.

Exhibit 55: Digital Water Platform Disruptors by Product & Market Focus


0123456789

10

Num

ber o

f Acq

uisi

tions

2015 2016 2017 2018 2019

Equipment & Services Focus Software Focus

Software

Div

ersi

fied

Infr

astr

uctu

re F

ootp

rint

Equipment & Services

Strategic Water Focus

Aspiring Startups

Sector Incumbents


6.3 Financial Players Build Digital Water Positions

As demand for digital technologies and data-driven operating models has grown in the water & wastewater utility industry, a number of financial players—PE firms & VC investors—have taken positions in the municipal digital water market, hoping to capitalize on the sector’s higher rates of growth relative to conventional water, wastewater, and stormwater management solutions.

Since 2000, Bluefield has tracked US$801.4 million worth of PE & VC investments in early-stage municipal digital water solutions providers, generated across 151 deals and roughly 200 individual investors. Though many of these investors are first-time participants in the digital water market, a number of financial players have emerged as key supporters of the digital water startup community, with multiple positions across digital water.

− Switzerland-based VC firm Emerald Technology Ventures has participated in six funding rounds for four digital water companies active in the U.S. & Canada municipal water industry (Pure Technologies, Optimatics, Librestream, TaKaDu), with a total disclosed investment value of US$25.2 million between Emerald and its co-investors.

− U.K.-based water technology investment firm Apsara Capital has participated in six funding rounds for two customer engagement software players: Valor Water Analytics and WaterSmart Software. Apsara and its partners have made a total of US$14.1 million in disclosed investments in these two digital water providers.

− Canadian water industry VC & PE investor XPV Water Partners counts five active municipal digital water solutions providers among its portfolio companies: Metron-Farnier, Aquatic Informatics, SmartCover Systems, Metasphere, and Mobiltex. Fathom, another of XPV’s digital water portfolio companies, went bankrupt in 2019.

− U.S. PE firm Warren Equity Partners has made five digital water acquisitions, either directly or through subsidiaries, since 2016, including leak detection service provider Hydromax USA and work & asset management player SSP Innovations.

− Swedish PE player EQT Partners set a new benchmark for digital water investment with its US$270 million (16x EBITDA) acquisition of network

modeling firm Innovyze in March 2017, rolling Innovyze up with competitor XP Solutions, another of EQT’s digital water portfolio companies, soon thereafter.

6.4 EPCs Dig in as Digital Water Gatekeepers

As municipal water & wastewater utilities increasingly incorporate data-driven digital water technologies into their operating, planning, and decision-making workflows, the water sector’s leading engineering, procurement, and construction (EPC) consultancies have refocused their business development strategies accordingly, looking to capitalize on new growth opportunities and mitigate losses stemming from the digital disruption of their traditional service offerings and business models.

− Several EPCs have augmented their internal capabilities by acquiring software startups in municipal water or related industries, including Arcadis (SEAMS, 2018; EAMS Group, 2019), SNC-Lavalin (Data Transfer Solutions, 2017), Jacobs (Blue Canopy, 2017), and TetraTech (Indus Corporation, 2016). More recently, EPCs have leveraged M&A to build out their cross-disciplinary cybersecurity software and services offerings (e.g. Jacobs’ acquisition of KeyW and TetraTech’s acquisition of eGlobalTech, both in April 2019).

− Other consultancies have sought to maximize value from proprietary digital tools and internal software engineering teams by spinning off standalone digital water software providers, including Black & Veatch (Atonix Digital, 2017) and MWH Global/Stantec (Innovyze, 2017).

− EPCs such as Brown and Caldwell have doubled down on their established roles as gatekeepers of water & wastewater utilities’ third-party technology procurements. Brown and Caldwell launched BC Blue in October 2018, a technology-agnostic service focused on planning and implementing utilities’ digital roadmaps.


Exhibit 56: Select EPCs’ Strategic Positioning in Digital Water


6.5 Will Big Tech Make a Big Water Play?

In addition to the established competitors active in digital water (e.g. incumbent and emerging solutions providers, financial players, and EPC consultancies), a host of potential entrants sit at the margins, with significant ability to disrupt the digital water market landscape. One such group of players consists of the big tech powerhouses dominating the North American and global digital economy, such as Google, Amazon, Microsoft, and Apple. These firms have tangential exposure to the digital water sector—through cloud services offerings (e.g. Amazon Web Services, Microsoft Azure), mobile hardware (e.g. Apple iPads & iPhones, Google Android devices), etc.—but have not made concerted efforts to enter the digital water market with dedicated, water-specific product offerings.

While the market opportunity for digital solutions targeting municipal water & wastewater utilities at present may be too small to attract the likes of Apple or Amazon, these firms could enter digital water via adjacent non-municipal channels

(e.g. residential, smart home solutions). Startup activity in residential digital water—hardware & software for tracking household water consumption and detecting leaks—has been robust in recent years, buoyed by broader consumer interest in smart home technology. Residential players represent 25% of all digital water startups founded since 2015, and have claimed nearly 25% of the more than US$1.0 billion in total early-stage digital water funding that Bluefield has tracked since 2012.

Smart home water management providers are well-positioned to disrupt both municipal utilities and digital water vendors operating in related technology segments, such as metering & customer engagement. By targeting consumers directly, residential-focused firms bypass the lengthy and onerous municipal procurement cycle, and benefit from a less risk-averse, technologically conservative end-user base.

The residential digital water market has been dominated to date by home solutions providers (Resideo, Watsco), insurance companies (Aviva), and consumer electronics firms (Belkin International), but could be a logical extension for big tech players like Google and Amazon, which have already established leading brand positions in the broader smart home market (e.g. Nest, Ring, Alexa).

Developed Internally

Spin

-Out

Acquired

Man

aged

Pr

oduc

tPr

ofes

sion

al

Serv

ices

‘aaS’, Software, M

anaged Services

Digital &

Cyber

Consulting

CSO

MOATA


Exhibit 57: VC & PE Investment by Company Type, 2012-2019 YTD

Note: Non-municipal includes residential, commercial & industrial, and agricultural Source: Bluefield Research

6.6 Winners & Losers on the IoT Communications Battlefield

Major telecommunications providers in the U.S. & Canada are also positioning to take more prominent roles in the digital water market, as demand continues to scale for data communications & connectivity options across multiple utility use cases (e.g. smart metering, network monitoring, fixed leak detection, remote automation & control). The development of low-power wide area network (LPWAN) communications protocols, which are optimized for remote, battery-powered Internet-of-Things (IoT) devices, has opened a new front on the telecommunications battlefield.

U.S. telecoms giants are lining up on opposing sides of the drive to establish a network standard for the IoT market by deploying competing LPWAN communication protocols. Cable provider Comcast Corporation has placed its bets on the open, unlicensed-spectrum LoRaWAN protocol, planning an initial commitment of US$50 billion to stand up LoRaWAN networks in key urban markets across the U.S. Meanwhile, the “big four” U.S. cellular carriers—AT&T, Verizon, T-Mobile, and Sprint—have all invested in licensed-spectrum cellular LPWAN

protocols like LTE-M & NB-IoT, leveraging their existing 4G LTE wireless network infrastructure to scale up LPWAN coverage quickly and inexpensively.

The municipal water industry is a key strategic battleground in this effort, as it represents one of the strongest business cases for smart city LPWAN deployment. Water utilities are top revenue generators for U.S. municipalities, and with their extensive networks of meters and other remote IoT devices, they enable LPWAN providers to spread network rollout costs across a wide asset base. In addition, municipal AMI and other digital water investments often set the terms for other smart city initiatives, as municipalities seek to ensure interoperability across systems and sectors. Several telecoms providers have thus established initial footholds in the water utility industry via partnerships with digital water solutions providers, such as smart metering & AMI, leak detection, and irrigation firms.

Exhibit 58: Digital Water Activity Timeline for Select U.S. Telecoms Firms, Q3 2016 to Q3 2018


0

50

100

150

200

250

2012 2013 2014 2015 2016 2017 2018 2019 YTD

VC

/ P

E F

undi

ng (U

S$

milli

on)

Municipal

Non-Municipal

Joint solution with Neptune

LTE-M pilot (Badger, Capstone)

machineQlaunch

Launch of IoT professional services (Badger a key client)

machineQcoverage reaches 12 U.S. markets

NeptunePartnership

Badger joins Smart City Alliance; U.S. NB-IoT network announced

Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018

Comcast

AT&T

Verizon

Joint solution with Neptune

U.S. LTE-M network rollout

Telecom Company


ABOUT BLUEFIELD RESEARCH Global companies across the value chain are developing strategies to capitalize on greenfield opportunities in water —new build, new business models, and private investment. Bluefield Research supports a growing roster of companies across key technology segments and industry verticals addressing risks and opportunities in the new water landscape.

Companies are turning to Bluefield for in-depth, actionable intelligence into the water sector and the sector's impacts on key industries. The insights draw on primary research from the water, energy, power, mining, agriculture, financial sectors and their respective supply chains.

Bluefield works with key decision makers at utilities, project development companies, independent water and power providers, EPC companies, technology suppliers, manufacturers, and investment firms, giving them tools to define and execute winning strategies.

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