First published in the Quoted Cleantech Newsletter August 2010. Copyright Cleantech Investor Ltd 2010

By Jon Mainwaring

While the world’s governments currently wrestle with problems concerning increasing energy usage and dwindling energy supplies, another major issue that they will have to deal with during this century is water scarcity. According to the United Nations, water use increased six-fold during the 20th century, more than twice the rate of population growth. And this problem will only get bigger.

In 1995, it was estimated that around 1.8 billion people (out of a total global population of 5.7 billion) were living under severe water stress. By 2025, the UN predicts around two-thirds of the world’s population will be living in areas facing moderate to severe water stress. This is somewhat alarming when one considers that there are already 1.1 billion people around the world who lack access to safe drinking water. Some governments in areas of current water scarcity are already exploring innovative ways to deal with the problem of ensuring safe freshwater supplies. And one company that is playing its part is the UK firm Modern Water.

Modern Water is an AIM-quoted company focused on desalination technologies that are designed to produce large volumes of freshwater at low cost, in an environmentally responsible way. The firm also owns a range of other water-related technologies, including wastewater treatments.

Modern Water’s flagship technology, ‘manipulated osmotic desalination’ (or MOD), resulted from original research carried out at Surrey University’s Centre of Osmosis Research and Applications. Osmotic desalination extracts pure water from seawater by using a second, concentrated liquid to draw the water through a semi-permeable membrane. Modern Water’s process then has to separate the water from the second solution, but the firm claims that the overall process uses less energy than existing desalination techniques.

The world’s first MOD proving plant was completed by Modern Water at Gibraltar in 2009, when it began supplying water directly into the local potable water distribution system. The plant operates alongside an existing traditional desalination plant, so allowing Modern Water’s technical team to closely monitor the cost and energy savings of its technology. Eventually, the plant is expected to produce up to 100 cubic metres of freshwater per day.

This year, Modern Water established a second, and larger, MOD-based desalination plant at Al Khaluf in Oman. The firm is now working with the Omani Public Authority for Electricity and Water, which has been providing water to remote areas for several years through traditional reverse osmosis technology, to extend the use of the MOD technology in the Sultanate.

Of course, the Middle East is a key water-stressed region that Modern Water is targeting with its MOD technology. But Mediterranean countries, Australasia and the Caribbean are other areas on which the firm is also focusing.

According to estimates from Global Water Intelligence, the worldwide desalination industry is forecast to grow 140% between 2005 and 2015, with capital expenditure on desalination expected to total $56.4 billion by the end of 2015.

Modern Water’s MOD technology is not limited to the desalination market and can be deployed across a number of industries and applications. For example, the technology can be used to reduce power consumption in cooling towers.

Another desalination technology owned by Modern Water includes a pre-treatment for multi-stage flash (MSF) thermal desalination plants. This allows an increase in top brine temperature of the plant, so raising output by 25%. The technology also reduces chemical dosing requirements and decreases energy consumption.

Other technologies owned by Modern Water include:
•    Cymtox. A continuous toxicity monitoring system for water and wastewater applications that provides real-time information on the quality of the water being monitored.
•    AguaCure. Electrochemical water treatment solutions that remove dissolved and suspended contaminants from water while eliminating bacteria and viruses. These technologies are actually owned by AguaCure Limited (a 54%-owned subsidiary of Modern Water).
•    Wastewater treatment. The firm owns a technology that enables seawater to be used for toilet flushing by treating the resulting effluent to European discharge standards. This technology, says Modern Water, reduces the domestic requirement for freshwater by up to 30%.

Modern Water plans to target the Middle East as a key market for these wastewater-related technologies. Annual capital and operating expenditure on water and wastewater across the region is expected to rise from $31 billion in 2009 to $52.3 billion in 2016 (source: Global Water Intelligence).

In March this year, Modern Water reported its results for 2009. The firm, which raised £30 million when it floated on London’s Alternative Investment Market in June 2007, still had £23.1 million cash at the end of last year and no debt.

Revenue came in at just £56,000 (2008: none), while the company’s operating loss was £4.3 million (2008: £4.1 million loss). The pre-tax loss was £3.7 million (2008: £2.4 million loss) – the difference being mainly due to £849,000 in interest on the firm’s cash deposits.

For this year it is estimated that revenues will increase to £830,000, while the pre-tax loss is expected to rise to £3.8 million.

Like many cleantech stocks, Modern Water’s shares have fared badly during the past couple of years. Having traded as high as 142p a few days after the flotation in 2007, the shares reached a low of 28.5p each in February last year.

Since then, investors have become more optimistic about Modern Water’s prospects, with its share price nearly hitting 90p last December. And just last month, Robert Clarke, a non-executive director, bought 50,000 shares at 66.5p each.