Digital Asset Management: Dynamic Use of Relative Re-Investment Budgets

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Over the past 25 years, Nordic water experts have taken a proactive approach to digital asset management and data-driven decision making that U.S. utilities can learn from to optimize CAPEX spending, reduce OPEX, and ensure efficient and resilient service.

By Ulrich Borup Hansen & Andreas Julskjær Pedersen

In a digital world, nothing is static anymore. This new reality indeed also applies to the methods and approaches historically used to plan and maintain our critical infrastructure.

In the coming years, water and wastewater utilities will be forced to not only replace network infrastructure in unprecedented scale, but also modernize operations with data analytics to leverage smarter, predictive, and cost-effective technologies. According to Bluefield Research, the U.S. and Canada digital water market is expected to scale at a 6.5 percent annual growth rate from $5.4 billion (USD) in 2019 to $10.8 billion in 2030, overtaking more traditional sub-segments of the municipal water and wastewater industry.

In the Nordics, we already see a significant shift in the introduction of data analytics and new decision paradigms used in water and wastewater utilities today. Moving away from the classic static and traditional project evaluation to a more proactive way of thinking, where digital asset management is a leading driver for smart budget allocation and increased focus on optimization. This approach is by some referred to as “Water Industry 4.0” – whereby utilities are facing increasing customer, partner and stakeholder pressure to make a real change. As an example of smart data use, The World Bank is leveraging data more frequently to maximize various investments connected to water projects. By reusing and combining data from both public and private sources, and applying modern analytical techniques, merged data sets can cover more people, more precisely, and more frequently.”

The Pressing Need for Investments in Aging U.S. Water Infrastructure

According to the American Society of Civil Engineers, the average U.S. water network pipe is 45 years old, with some cast-iron pipes more than a century old. Water pipe replacement programs are expected to peak in 2035 at 16,000 to 20,000 miles of pipes replaced per year – four times the current annual replacement rate of 4,000 to 5,000 miles, according to the EPA.

The EPA also estimates that it could take an investment of up to $839 million per year to replace and monitor the 9.7 million to 12.8 million lead service lines that are currently in use in the United States. The pressing need for investments in the aging U.S. water infrastructure is a well-known speaking topic among water professionals. Recently, the U.S. Environmental Protection Agency (EPA) issued a memorandum on March 8, 2022, to guide collaborative implementation with state, local, and Tribal partners of $43 billion in water infrastructure funding through the Bipartisan Infrastructure Law. The single largest investment in water the federal government ever made, but how can that investment contribute to more digitalization in the water space?

In a McKinsey & Company 2021 article written under the headline, ‘U.S. water infrastructure: Making funding count,’ the investment needs and financial gaps of the U.S. utility market are once again highlighted, with emphasis on making a more efficient use of capital by having a strategic focus on asset management. The McKinsey article notes, “effective capital planning begins with effective asset management – understanding critical assets, assessing their condition, and identifying any upcoming regulatory commitments and requirements. The utility can then prioritize allocating operations and maintenance capital to the highest-risk and most critically needed assets to reduce long-term costs.”

Digital Asset Management for Horizontal Assets/ Dynamic Use of Relative Re-Investment Budgets

Digital asset management is a process that leverages data to manage long-term planning for the purchase, deployment, and decommissioning of infrastructure assets.

Predictive analytics is a tool used in digital asset management – and this tool relies on data that is analyzed through machine learning, modeling, and functional analysis to understand and forecast diverse scenarios. These planning frameworks clarify challenges and opportunities that may arise as utility decision makers weigh lifecycle costing and value engineering.

The key here is the availability of valid data, something we see present in the majority of utilities. With the utilization of the data already at hand, utilities today can therefore work much more dynamic and make more use of their re-investment budgets.

A great example is the innovative Norwegian utility – Nordrefollo – which jumpstarted the process of adapting digital asset management by simplifying the complex in a three-step process that has provided the utility with a clear overview of their assets. In short the utility has a new data structure in place, which:

  1. Captures data;
  2. Analyzes data; and
  3. Enhances those data insights.

Making the data available on a digital asset management platform Nordrefollo reached the ability of making data-driven re-investment decisions in only a few months, since the platform chosen was capable of reducing a data validation process from expected 12 months to 2 months.

In the Nordic countries, data-driven decisions have increased utility efficiency substantially. In Denmark, for instance, strict regulation has made it one of the most efficient and resilient in the world over the last 25 years by compelling the water sector to adopt leading-edge technology. Recently, the Danish sector progressed from simply benchmarking operating costs into intelligently developing a total financial benchmarking model (TOTEX). This approach includes both OPEX and CAPEX to compare the utilities on financial efficiency.

As an example, Danish utility ‘Herning Vand’ has taken a proactive approach to Digital Asset Management and partnered up with APX10 in 2018 to get a more dynamic utility overview. With results from data|APX Herning Vand is today able to predict, forecast and validate all assets and has been allocated significantly more funds by the board of directors to maintain the critical water infrastructure in the municipality.

“We have been able to convince our board of directors of a budget increase of 30 percent based on our asset management approach and results from data|APX,” said Benny Nielsen, Head of Department, Herning Vand.

Digital asset management and predictive analytics in the water space represent two subsectors of the crucial transformation towards smarter investment (dollar for dollar); however, many in the sector are still unaware of the true value set existing in their network. Using digital software tools and already existing data, it is possible today to combine continuous assessment of the condition of assets and prioritize investment decisions based on more and relevant data sources. A very important data point in this matter is the capitalized investment relative to alternative pipeline projects.

Digital asset management platforms allow for utilities to balance the relative importance of investment levels against core service challenges such as pipeline condition and consequence to consumers as well as more sophisticated issues related to environment or climate. Such balanced views – analyzed in a dynamic digital context – improve rehabilitation and reinvestment decision making significantly since the real ROI of each dollar spent has to make up for a limited budget that does not meet future renewal rate demands. These decisions will improve by being able to prioritize based on data and facts.

Considering a water and wastewater historic annual renewal rate of 1-2 percent as we have seen in the Nordics, we can conclude that the 2 percent has been opt-in based on classic, age-based and event-driven decision-making. The dynamic approach, now heavily used in Nordic utilities, allows for a relative analysis, including the capitalization, and looks carefully at the 98 percent that was opt-out as well.

In a game where priority is getting harder, arguing and documenting what you opt-out is more relevant than ever; But enabling decision making to operate dynamically will give you an edge.

A lot of the industry comes from a world where they make five or 10-year forward plans for their investment. All the variables influencing these plans are now dynamic, so the plan itself also has to be dynamic, and that’s where having access to a platform with a strategic investment overview will help them.

In the Nordics, it is consensus that a simple and intuitive approach to asset management among water professionals is required to update and scale operations. There are too many fragmented spreadsheets, personal know-how, and data silos that would instead benefit from a holistic platform that allows for better-supported management decisions. A platform like data|APX has dynamically involved Nordic water utility leaders in the development of the solution to assimilate their best practices. U.S. utility leaders are then able to utilize the utility know-how from the various Nordic countries, regardless of geography.

By leveraging existing data like GIS, CCTV data, SCADA data or other available data streams, a utility can generate the savings with the right tools like those widespread in the Nordics. These tools build upon deep understanding of utility data and can serve a fundamental role in the data-driven transformation and ROI of drinking water, wastewater, and stormwater utilities and systems in the United States.

Ulrich B. Hansen is the CEO of data analytics company APX10. He has been responsible for establishing and accelerating the company from a lean startup to a sustainable and international business. He is based in Silkeborg, Denmark.

Andreas Pedersen is head of projects and communication with APX10. He has worked at the Danish Export Association (DEA) for the last five years and has recently he has been spearheading DEA’s network of Danish water tech companies at Danish Export–Water.

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