Governments will look increasingly towards the private sector for water and wastewater upgrades, according to Standard & Poor’s, as the US seeks to close a $1 trillion funding gap for water facilities over the next 30 years.
“The water sector is primed for a shake-up in the way that it approaches financing,” an S&P report on the sector concluded. “While the market for P3 and P3-water bundling is still nascent in North America, we've observed that investors as well as municipalities and utilities have expressed greater interest in alternative financing approaches.”
Projects undertaken with public sector financing have benefited from the tax-exempt municipal bond market, which has generally kept initial costs lower than PPPs, S&P said. Around 88 percent of water systems and 98 percent of wastewater systems in the country are currently owned by local or regional municipal governments, according to EPA data cited in the report.
But many municipal, utility, commercial and community stakeholders – about half of those asked in a recent survey – are open to private investment under the right circumstances.
Asset bundling, or packaging multiple projects together to increase scale or credit strength, could be increasingly considered for water projects, particularly if new government rules are implemented impacting a specific region or if rapidly declining water quality in a certain area requires the quick construction of several new facilities.
The report also highlights the dire state of US water infrastructure, pointing to the crisis in Flint, Michigan as well as EPA data reporting 15,000 health-based drinking water violations in 2015. Canada’s water infrastructure is in better shape, but still in need of some C$100 billion ($80 billion; €68 billion) in investment over the next two decades.