Utility and markets

When I started my career at IE Singapore, I worked in a team that deals with companies in the ‘Environmental Solutions’ space. We were broadly looking at companies that deals with 3 big broad topics: Power, Water and Waste. They interact with one another in the environment but companies tend to focus on some aspects of the trio which leads them to be classified one way or another.

In terms of the maturity of these different markets, they are vastly different. Power tends to be a national, regional sort of market where electrons literally zip around at the speed of light. Water moves around in pipes at far slower speed, water networks are expensive to build and maintain so they operate at a more local level. Waste is an even more local market since they cannot be easily conveyed around through pipes. Product logistics plays a big role in the reach of a market.

And so do product uniformity. Electricity takes on a single form, whether it is consumed by households or industries. Maybe the industries require high voltages but that can be dealt with more easily. Water is a bit tricky as water quality requirements differ even within households; potable water versus water for flushing. And with industries, some require ultrapure water, others just distilled water, and the wastewater produced are also of different quality so treatment is different. Waste takes even more forms.

Demand structures are also different. Energy generally enjoy network effects. And some kind of feedback loop. The introduction of electricity can bring about more productivity which buys more electrical equipment and encourage higher electricity demand.

I once stepped into a market in Ghana Central region and saw a vendor selling a charcoal iron beside the Philips electric irons. I found it strange why they would be peddling such a primitive gadget when the modern version is available. I subsequently realised that there were significant number of villages and households which were not electrified and of course they would ask for the charcoal iron. Yet the electrical iron is superior in terms of weight, convenience, and productivity. It was something to aspire towards. So when people around you use more electricity and bring in products that use more, it can encourage you to adopt them too.

Water does not have such demand loops. There is only this much water each person can use. And new devices are designed generally to use less water than the older versions of them. Beyond certain per-person consumption, it’s almost pure wastage. Water is a more fundamental need than power so it keeps us alive rather than give us much more productivity.

Waste is of course far behind in both the supply and demand structures. Understanding these bottlenecks in markets help us appreciate why certain technologies can solve some problems and not others. Why some business models work better in some markets.