Seven Bay Area recycled water projects could pave the way for a wave of new investments in the growing sector if the Consolidated Natural Resources Act of 2008 is ratified by the president. The measure authorizes the U.S. Bureau of Reclamation to defray up to 25% of the projects’ construction costs.

The extra government push could be just what the staid water sector has been looking for: An opportunity for local startups to dive right in and begin reaping the rewards of a cleantech field with a lot of room to grow. Two projects in Santa Clara County, which would provide recycled water for landscape irrigation and industrial use, would each receive an estimated $15.25 million.

Other areas that would benefit from the government’s largesse include Redwood City, Palo Alto, Mountain View and several others. The projects will make around 12,205 acre-feet of water available annually in the short term, and up to 37,600 acre-feet in the long term. With water supplies growing tight, these reservoirs, whose water will not be at the mercy of the weather or changing climate, will allow 17 Bay Area cities to free up large volumes of potable water for other, more lucrative uses.

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Unbeknownst to most, water is a critical resource — not only for drinking, but also for the manufacture of everything from chemicals and construction materials to light bulbs. This is what’s known as embedded, or virtual, water — the amount that is used up during all aspects of a product’s life cycle. And while most companies still take it for granted, the quantity of embedded water — in projects and products of all sizes and shapes — is only expected to grow larger, and more expensive, over time.

Possible government policies to reduce water consumption, such as marginal pricing, would be especially painful for the heavily water dependent construction industry. Companies that design systems to manage and optimize water use throughout a product’s lifecycle — for the both consumer and industrial use — would certainly gain some traction in this market.

Because water is still relatively cheap, there is an opportunity for an ambitious startup or two to capitalize on the coming shortages by developing cheaper, more effective water recycling technologies. The Palo Alto Research Center (which Dean Takahashi visited a few days ago), for example, is working on particle manipulation technologies that could be scaled up for applications like desalination and membrane-free filtration. Other technology categories that could see some growth are: energy efficiency of treatment and distribution systems, waste minimization/recycling and better identification/capture of new sources.

Miox and Purfresh are two firms that have seen their fortunes rise with the increased global demand for purification equipment and services. Having already racked up a large volume of sales in the U.S., both are aggressively expanding their operations overseas, particularly in developing countries which lack advanced water treatment infrastructure.

With a recent EPA report highlighting the need to recognize and address the threats posed by global climate change on dwindling water resources, it seems likely that the federal government will continue to provide the necessary financial incentives for companies to innovate, and profit, in this sector.

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