How The Rooftop Solar Financing Model Can Alleviate “Water Poverty”

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Celebrities have had a bit of a rough news cycle this week, but earlier this month came a feel-good story about actor Jaden Smith providing money to help Flint, MI residents get “The Water Box”, a relatively small-scale drinking water treatment system.

FILE – In this March 21, 2016 file photo, the Flint Water Plant water tower is seen in Flint, Mich. Michigan will close the last four locations where Flint residents have been getting free bottled water, filters, replacement cartridges and testing kits because the city’s water quality has been below federal action levels for lead for nearly two years. (AP Photo/Carlos Osorio, File)ASSOCIATED PRESS

We shouldn’t have to rely upon the generosity of celebrities to make sure everyone has access to clean, safe drinking water. And yet, nevertheless, here we are. While we’re all probably at least a little familiar with pictures of villagers in developing countries facing scarce water supplies, the problems exist right here in America as well, and they’re getting worse.

This isn’t a problem isolated to Flint, despite all the media attention there. Recently 21 cities and towns in New Jersey learned they have elevated lead levels in their own tap water. There are an estimated 240,000 water main breaks in the United States each year, and degrading water infrastructure in the country is expected to cost businesses $147B in losses from 2013 through next year. And meanwhile, there are few signs that at the Federal level, policymakers are about to get serious anytime soon about the hundreds of billions of dollars of investment deemed necessary to fix our crumbling drinking water and sewage infrastructure.

This leaves residents in rural and urban communities with drinking water issues high and dry. And the lack of a reliable water/wastewater infrastructure further impacts these communities because it becomes a major reason why key industries don’t want to open up new manufacturing and processing facilities in those same hard-hit communities.

Nevertheless, as the Jaden Smith / Flint example shows, these actually aren’t hard problems to solve, technologically. The Water Box apparently uses off-the-shelf components. As an investor into this sector, my firm has seen dozens of companies offering similarly low-tech water solutions just over the past year alone. Many of these are “local” solutions, each system perhaps bigger than The Water Box itself, but similarly enabling distributed water solutions that avoid having to rely upon crumbling centralized infrastructure.

So it’s not technology that holds back the availability of safe drinking water and sewage in many of these communities suffering from “water poverty”. It’s financing. There are only so many Jaden Smiths willing to donate these systems charitably. Someone needs to figure out how to enable bringing billions of dollars of capital to work, to roll out these water assets across the broader economy.

Fortunately, there is indeed a model that has worked analogously in the past: Third-party capital for solar. Even as costs came down for solar during the last decade, adoption was still held back while homeowners and businesses were asked to mostly pay cash up front for the systems. Especially in lower-income communities, this had a major impact on adoption. But when third-party capital was introduced, along with business models that enabled “no money down” offerings, suddenly the market exploded. Total solar power generating capacity in the United States at the end of 2018 was approximately 75 TIMES what was installed at the end of 2008.

The application of this financing model to water and wastewater is easier said than done, however, for several reasons. For one, people still expect their water to be super low-cost (one reason why infrastructure investment has been held back, because no one wants to pay more on their water bill to pay for it), and in areas with water poverty the ability to pay is limited as well. For another, you can’t just take deal documents from a solar financing structure and superficially throw them at a small-scale water project and expect Wall Street banks to throw money at it. Proof points are needed, along with new revenue models (a water subscription? a per-gallon fee?) and customer credit backstops.

A few small firms (disclaimer: including my own) are working to establish appropriate financing structures in the distributed water / wastewater market. Many of them have to start in specialized areas of the market where industrial customers have acute needs for these solutions, and thus are willing to pay for it. It’s how the financing model must be introduced, if it is to be robust and scalable.

But once these models are more established in the market, they can also be “borrowed” by more substantial philanthropic and local government efforts, perhaps alongside mainstream bank financing, to roll out these systems much more rapidly than any one well-meaning celebrity could ever do by themselves. And once established in the U.S., the applications for emerging economies are even bigger, with platforms like WaterHealth International, OffGridBox and Zero Mass Water looking to introduce small-scale, standalone drinking water systems in areas that have never seen any centralized water infrastructure at all.

Bringing third-party capital models, alongside philanthropic and government dollars, to help accelerate the deployment of localized drinking water and wastewater treatment systems to areas suffering from water poverty is now possible. It won’t be easy. But it holds great potential for saving billions of dollars, establishing an entirely new investment category, and helping millions of residents and business owners, both in the United States and around the globe.

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