Water shortages have recently captured headlines here and abroad. Yet despite the enormous challenges and opportunities with managing and monitoring drinking water, it’s an area that doesn’t attract a great deal of venture investment. In the last quarter of 2007, water and waste water investment was only $22.7 million, which was double the previous year’s total of $11.8 million, according to the Cleantech Investor Forum.

That area of investment could benefit in the next year from the $8 million Environmental Protection Agency (EPA) pilot study, called the Water Security Initiative. The project is going to involve using cutting edge early warning contaminant monitoring and detection systems. The $8 million EPA grant will be matched by a $3 million investment by the San Francisco Public Utilities. New York City also recently received a similar grant, announced last month.

The underlying technologies will center on the following online systems: Online water quality monitoring, public health surveillance, sampling and analysis and security monitoring and consumer compliant surveillance.

Water quality monitoring is viewed as one of the big opportunities in water technology. The water sector, broadly defined, should reach $475-$500 billion in sales this year, with industrials in the sector reaching roughly $100 billion, according to Jeffries and Company. But there are few startups focused on the monitoring opportunity; one is Checklight, an Israeli company, which earlier this year received funding commitments for $3.5 million from Whitewater, an investment fund in that country.

“We’re going to see water in certain locations begin to pass energy as a priority,” said Thomas Rooney, water expert and managing director at RCI Consulting. Australia’s sudden focus on significant investment in a variety of water-supply solutions, including desalination, illustrates the future for many developed countries, such as the U.S., Rooney said.

The bigger picture of water investment revolves around water infrastructure and security, which involves water monitoring technologies. The American Water Works Association estimates U.S. water utilities will need to invest $250 billion over the next 30 years to replace aging pipes. Once the technology costs are factored alongside security and treatment methods, the price is estimated to reach $500 billion.

As is the case with other sustainable-technology investment opportunities, one leading venture capitalist noted, water technologies only see strong interest from customers when they can generate a 30 to 50 percent advantage over incumbent solutions.

Perhaps that’s why early-stage investment in water tech by venture capital funds rather than individuals is virtually unknown outside the U.S. and barely happens in the U.S. Groups that are investing in water outside the U.S. include high-net-worth individuals, universities and corporations. The exceptions include Israeli investment companies Elron, which has invested in four water-related startups, and Whitewater and Emerald Ventures, both part of Sustainable Asset Management in Switzerland.

There is also a variety of funds that invest in public water companies more from a value-investing perspective, like Summit Global, AquaTerra and Pictet.