NEWS RELEASE September 2023
Where is the Trillion Dollar AWE Market Going?
The Air, Water, Energy industry should grow at a faster rate than GDP. There is ample opportunity for unique solutions to unmet needs. On the other hand, the market is vulnerable to policies of governments around the world.
Sugar cane growers are involved in many aspects of air, water, and energy. They make sugar with the help of liquid filters. They can make ethanol and use residual waste to generate energy. They employ air pollution control systems to ensure clean operations.
Cane sugar is primarily produced in a few countries such as India and Brazil. So, sugar from cane is a microcosm of a very international industry investing heavily in rotating equipment, filtration, separation, drying, mixing, and combustion.
The market is international
The first principle in predicting the AWE market future is to understand that it is about as international as any market could be. The big coal producers are not the big iron producers who are not the big copper producers. This has resulted in international companies who are the purchasers of AWE products.
Not surprisingly it takes international companies to best serve these international customers.
Power plant scrubber firms have been on a 40-year world journey. There was a $10 billion/yr. market in the U.S in the 80s followed a few years later in Japan. By 1990 Europe was the major purchaser. China was the big purchaser in the 2005-15 period. Now India is peaking, and the growth is in S.E. Asia.
The environmental orientation drives internationalism
The AWE industry both is the cause and solution for CO2 emissions to the atmosphere.
Asia is adding more coal fired boilers than are being retired in the U.S. and Europe. But these plants could be greener than wind or solar by burning biomass and sequestering the CO2. Environmentalists now realize that BECCS achieved by converting coal plants is the only economically feasible carbon negative option.
A very attractive carbon neutral option is to generate power in remote areas through solar or other renewable means and then use it to convert water to hydrogen. This hydrogen in a liquid form or converted to ammonia can then be shipped anywhere.
AWE companies are so international that the corporate location can be misleading
It is a mistake to think of ABB as a Swiss or European company when it is comprised of very successful subsidiaries around the world. Neway is a Chinese valve company but due to acquisitions has a strong presence in the U.S. and Europe. Many U.S. companies have set up manufacturing plants in China. The products are offered locally as well as to other countries in Asia. Export of components to the U.S. is also common.
Isolationist policies hurt the AWE industry
Policies such as the tariffs on Chinese imports may be good or bad for the U.S. generally but they are clearly bad for the AWE industry. They simply have added to the price of AWE products purchased in the U.S.
Support for the war in Ukraine is obvious for an international industry which benefits when territorial boundaries are respected.
Incentives to increase R&D needed
The U.S. tax policy which for a few years allowed companies to expense R&D rather than amortize it is expiring. This is particularly detrimental to the AWE industry.
Industry EBITDA is around 15% but should be 30%. It is an industry with rapidly evolving needs and therefore should be served by companies willing to take some risks to seize the opportunities. In general government subsidies for AWE research have failed. Instead, success has come from small industry efforts such as the successful development of hydraulic fracturing of shale.
The conclusion is that the expensing rather than capitalizing of R&D will be a step in the right direction.
The future of the AWE industry should be bright if not dimmed by government policies.