Everyone knows that the next great commodity is going to be water–production, desalination, purification, recycle, transmission, distribution, consumption, and disposal. And increasingly water markets and market prices are likely to emerge. These are all economic and technological activities, and using ArrowHead, clients can gain a profound understanding of the multifaceted range of challenges, developments, and environmental factors that may affect this new frontier—empowering them to chart a course for their businesses and investments in a way that's both environmentally responsible and financially sound.
A Comprehensive View of the Future of Water as a Commodity
To assess a company's true worth in the evolving landscape of water as a potential future commodity, ArrowHead adopts a meticulous market-based valuation approach. By accurately appraising each asset at prevailing market rates, the company calculates its collective value, recognizing that a firm's overall value is the sum of its individual assets. This methodology, rooted in bottom-up market analysis, offers a unique perspective based on a fundamental microeconomic framework and complemented by traditional metrics like comparable company analysis, income multiples, and intangible assets, ensuring precision in the valuation process.
ArrowHead consultants employ their specialized models to compute crucial water commodity prices and quantities across the desired decision timeframe. We tailor the models to align with our clients' preferences, utilizing either our assumptions or theirs. These models are easily adaptable to incorporate various conditions and events relevant to the water commodity sector. We represent the full range of supply chains throughout the water system from surface or subsurface supply through purification or desalination through transmission through reservoir storage through distribution and into consumption. We calculate a microeconomic market clearing solution for an entire water system, understanding price, quantity, and capacity addition forward in time through every level of the water system, offering precise insights into water market dynamics and effectively integrating calculations for diverse probabilities.
Developing water resources as a potential commodity requires a forward-looking analysis that delves into the market dynamics set to impact the water sector once the infrastructure is operational. The development and financing of water assets involve evaluating the prospective profitability of various projects, considering a multitude of market variables and assumptions. This evaluation serves as the foundation for gauging a project's feasibility and identifying the most strategically aligned development pathways aligned with business objectives.
In a potential water commodities market, trading will carry inherent risks similar to other commodities. To stay ahead, companies will need precise probability distributions for water prices and their drivers. Objective assessments are crucial for analyzing water market risks, which involve complex dependencies between water prices and influencing factors. ArrowHead models accurately represent these dependencies, enabling reliable evaluations of price and quantity. Informed water market decisions rely on understanding future scenarios, and our models develop probability distributions, helping companies assess their price dependency and make confident trading and hedging decisions.