Today, that centralized water system has caught the West in a Gordian knot of huge sunk investments and behemoth government agencies. Untying that knot will be a defining challenge for the West in the next decade. As California grows and water supplies dwindle, the West has no choice but to pioneer new approaches to water management. Water built the West, and how we deploy water innovation will define our future.

More than 50% of U.S. municipal water and wastewater infrastructure is nearing the end of its useful life, with over 240,000 water main breaks per year. Federal funding for water utilities has fallen from $16 billion in 1976 to $4.3 billion in 2014, passing the burden of maintaining water infrastructure onto states, municipalities, and ultimately to ratepayers. Residential water prices have risen by 6%, and sewer bills have increased 20% annually since 2000, but they’ve failed to cover the costs.

Market analysts are predicting a $532 billion boom in US infrastructure investment over the next decade to address deteriorating piping networks, combined sewer overflows, and rising population demands for new water supplies. However, it’s unclear where our cities will find the money for those investments.

To survive, California must do more than stretch the limits of engineering and science; it needs to deploy new financial models, new policy and integrate water with energy infrastructure.

We need to decide what parts of the Western tradition of monumental water engineering we’re going to tap into, and what parts we leave behind. Even with an arsenal of proven technology solutions, we need a new vanguard of leadership to redefine water in the West.

Is there an upside to California’s water crisis?

There is a big, exciting upside to California’s water challenge. Our woes present an unprecedented technology investment opportunity. The world’s largest investment funds– sovereign wealth funds, endowments, pension funds– are struggling to find technology-driven water investments. These funds look to preserving wealth over decades and centuries, and they see water scarcity looming as a major risk to their investments. Many blue chip stocks, like Intel and Coke, rely on water-intensive manufacturing. For every dollar invested in semiconductors or food, investors are more vulnerable to the risk of water scarcity. Norway’s $877B sovereign wealth fund, which holds an average of 1% of every publicly quoted company in the world, has identified water supply as a risk to 11% of its portfolio companies.  According to the Carbon Disclosure Project, two-thirds of the world’s largest companies are reporting exposure to water risks that could generate a substantive change in their business.

How do we untie the knot?

With such urgent problems and looming economic risks, why has it been so difficult for advanced technologies to gain momentum?  Simply put, water is too cheap to pay for itself today, and in the US, it’s not ever going to get very expensive. In the US, providing clean, healthy, affordable water to communities and to businesses is a basic responsibility of government. With water so cheap, most property owners and cities can’t justify the upfront capital investment to retrofit their onsite water systems, even when they can see a trail of long-term savings.

Even more, distributed infrastructure needs more than finance, people in the US want the same kind of utility oversight that they have enjoyed with centralized water systems. CA water utilities need to evolve with the systems to ensure that they provide healthy water and sanitation.

Financial innovation to deploy proven water tech

Where our existing municipal finance structures have funded centralized water over the last century, a new breed of investments is unlocking the market for distributed water. Among the most promising of these are third-party finance vehicles adapted from rooftop solar.

Finance vehicles group a series of smaller distributed projects into single investments of $20M or $100M. These distributed projects partner with utilities to offer water infrastructure as a turnkey service to property owners. Many of the most promising opportunities for “Infrastructure as a Service” pay for themselves based on energy savings or even energy generation.

A proposed series of wastewater thermal energy projects in Washington DC provide one early example of how finance vehicles could bridge the gap between centralized water infrastructure and tech-driven distributed water projects. Wastewater thermal energy generates a source of resilient renewable energy, and earlier this year, the District of Columbia has recognized WWTE within its Renewable Energy Portfolio Standard. A series of onsite projects would provide wastewater geothermal energy to replace conventional heating and cooling. Using third-party finance vehicles,  DC Water would be able to charge for the use of the thermal capabilities of its system, generating revenues to supplement its operating budget.  Property owners, such as DC elementary schools, would acquire this low-carbon HVAC as a service for no money down, paying as they saved energy and water as compared with conventional HVAC. DC Water projects that it can generate 200 MW of power through the existing sanitary sewer system to replace energy and water-hungry heating and cooling, in schools, hospitals, offices and commercial sites.

Distributed water can do more than help us survive in a drier, more crowded future; it can fuel growth, create jobs and build new global leadership.

Distributed water will create jobs where they’re needed most

Distributed water projects require project developers– skilled hands-on workers. By leading the US in implementing distributed water solutions, California can nurture water tech companies, just as it drove the solar industry in the state. Over the past decade, California’s climate policies have driven nearly $48 billion in investments in renewable energy, energy efficiency, transportation and other climate projects.  Those policies have helped create more than 500,000 jobs, according to 2016 California Advanced Energy Employment Survey conducted by Advanced Energy Economy.  Advanced energy employs three times as many Californians as the motion picture, TV, and radio industry (145,000); more than agriculture, forestry, and fishing (475,000); and approaching construction (750,000).  This new wave of water jobs and businesses will favor smaller towns with more supportive local leaders.  For places like California’s Central Valley, where unemployment has been consistently 3% – 5% higher than the rest of California, local support for water project developers could help them build a business that grows to export those services to larger cities.