A Systemic View on Circular Economy in the Water Industry: Learnings from a Belgian and Dutch Case

Abstract

Water is fundamental to our existence and has increasingly been put under pressure by soaring population growth, urbanization, agricultural farming and climate change; all, of which impact the quantity and quality of our water resources. Water utilities (WUs) are challenged to provide clean, safe drinking water when faced with aging, costly infrastructure, a price of water that is not reflective of its true value and the need for infrastructure to remain resilient in a time when threats of floods and droughts are pervasive. In the linear take-use-discharge approach, wastewater is treated only to be returned to waterways and extracted again for treatment before drinking. This can no longer sustain our water resources as it is costly, energy-intensive and environmentally unsound. Circular economy (CE) has been gaining attention in the water industry to tackle this. It follows the 6Rs strategy of reduce, reuse, recycle, reclaim, recover and restore to keep water in circulation for longer and reduce the burden on natural systems. The aim of this study is to determine what the economic and operational system effects of CE are on WUs, informing them of CE’s potential to change their business operations and business model while highlighting its associated challenges. Based on a review of literature, input from expert interviews (Q4 2019) and case studies, an economic view of the urban water system is qualitatively modeled, on top, of which a circular water economy system is designed using a causal loop-diagramming system mapping tool. Digitalization, water reuse and resource recovery were determined to underpin circularity in water, providing operational benefits through efficiencies and diversification of revenue streams. However, issues of investment and a missing enabling legal framework are slowing the rate of uptake. On this basis, CE represents both a challenge and an opportunity for the water industry.

1. Introduction

As a basic human right and public good fundamental to life, the importance of water cannot be overstated. Water underpins all drivers of growth—be it agricultural production, energy generation, industry or manufacturing. Its roots in social, environmental and economic dimensions anchor it at the core of sustainable development. When not well managed, competing interests for water has the potential to cause wars and leave sectors economically vulnerable, especially those that provide basic services. Water scarcity has been detrimental to crop yields and quality; and has threatened thermal power station output due to insufficient water for cooling [1]. The global thirst for water has been exacerbated by the compounding effects of population growth; increased agricultural activity; urbanization, which has seen 75% of Europe’s population living in cities and urban areas; and erratic weather caused by climate change. The greenhouse gas effect of climate change has disrupted the hydrological cycle through elevated moisture, evaporation and temperature, leading to melting snow, rising sea levels and an uneven distribution of rainfall patterns [2,3]. The hydrological cycle is evidence that water is circular; however, anthropogenic activities over the last hundred years have disrupted the circulation of the earth’s water stock [3].

1.1. Background

The World Economic Forum (WEF) has consistently highlighted water as a global crisis, ranking it the fourth greatest risk by impact and the ninth greatest risk by likelihood in 2019 [4]. Prior to this, in 2015, the United Nations (UN) drew much attention to water in its sustainable development goals (SDG) with SDG 6: clean water and sanitation. The SDG 6 is concerned with improving water quality and water-use efficiency, as well as integrating water resources management.

Agriculture accounts for roughly three-quarters of global freshwater withdrawals, and agriculture-related nutrients are polluting watersheds. Additional pressure on our renewable freshwater resources (groundwater, rivers, lakes and reservoirs.) stem from energy production and mass tourism, which consume 15% and 9% of resources, respectively, while water leakages can contribute up to 60% of distributed water loss [5]; representing gross operational inefficiencies and potential for savings.

Water demand across Europe is unevenly distributed [6]. The European Environment Agency (EEA) estimates that around one-third of the European Union (EU) territory is exposed to water-stressed (1000–1700 m³/year per capita of available water resources) conditions, either permanently or temporarily and not only limited to places like Portugal, Spain and Greece but also in more Northern countries, such as Germany, the United Kingdom and Belgium. The decreasing trends in water abstraction observable in Western and Northern Europe can be attributed to improvements in water efficiency and management of water supplies yielding a 19% decrease between 1990 and 2017 [6].

In order to continue the decrease in water withdrawal levels required to level out pressures on water reserves, circular economy (CE) offers a path in reshaping how water systems operate. The conventional linear take-make-dispose approach for materials is mirrored in the water sector as take-use-discharge. This linear approach, which is prevalent in the majority of water basins today, is short-sighted and inherently unsustainable given today’s climate. The concept of CE was first introduced by Pearce and Turner in 1990 [7] and developed further in 2010 in various sectors by the Ellen MacArthur Foundation. The principles of CE are founded on designing out waste and pollution, where today’s waste becomes tomorrow’s resources that yield economic, social and environmental benefits [8]. It follows the 6Rs strategy: reduce, reuse, recycle, reclaim, recover and restore, which keeps water in circulation for longer to reduce the burden on natural systems and encourage regeneration. The goal of CE is to decouple economic growth from negative externalities on environmental systems and resource use [9].

The aim of the study is to investigate the economic, environmental and operational effects of a CE on WUs by systematically mapping out cause and effect relations in a qualitative model. The model provides an economic view of an urban water system. The urban water system (UWS) is subsequently augmented with circular economic practices to create a successive model—a circular water economy system (CWES). By drawing on literature, case studies and conducting qualitative research to gain insight into expert views on the water industry and the role that CE can play in it, the paper sets out to demonstrate the effects of CE on water quantity, water quality, and operational practices of WUs. This study supports WUs by informing them of CE’s potential to change their business operations and business model while highlighting its associated challenges.

1.2. Context and System Boundary

The system boundary is set in the context of a European urban water system. Cities are homes to many of the challenges faced by WUs, such as surface water pollution and flooding caused by built-up concrete areas as well as poor drainage, providing great opportunities for cities to meet their sustainable goals.

Figure 1 presents a simplified view of the components of a municipal water system, which are more complex in reality with more connections and interfaces with other systems. However, it sufficiently highlights the interfaces and industries incorporated in the modeling and therewith the system boundary. Combined sewer overflowing (CSO), specified in Figure 1, is the legacy infrastructure that is essentially a discharge pipe that releases both stormwater and raw sewage during times of peak flow directly to waterways. Separate sewer systems are alternative systems that decouple stormwater from sanitary sewers. In this study, CSOs are considered. WUs are the focal point of the systemic analysis, with only localized impacts being considered and, therefore, does not go as far as to account for changes to the macroeconomy or broader society. For example, job creation is not considered as a result of the growing demand for third-party water solutions companies.

1.3. Organization of Paper

The paper is structured as follows: Section 2 provides a review of the literature to establish a knowledge base of prominent themes integral to the models. The methods used in the study are described and reasoned in Section 3. Then, the interview findings and the models are presented in Section 4. Section 5 critically discusses the results before drawing conclusions in Section 6 and highlighting limitations and suggestions for further research.

2. State-of-the-Art in Circular Economy and Water

This section highlights CE strategies for the urban water system and addresses the issues surrounding the price of water. CE has a literature base cutting across various topics, from fashion [11] to manufacturing [12], supply chain management [13] and electronics [14]. The scholarly work regarding CE in water is relatively nascent. This study contributes to that growing body of literature by integrating CE in the urban water system and qualitatively mapping out its resulting systemic effects from an operational, economic and environmental standpoint.

Much potential is expected from CE, more so in the water industry because it is viewed as being at the heart of CE, a catalyst for transitioning away from the linear model on a global scale [15]. CE solutions are expected to reduce the EU’s virgin material requirements in conjunction with boosting gross national product and jobs [16]. The European Commission is financing a new wave of EU Horizon 2020 projects (ULTIMATE and NextGen) whose findings will inform the development of an EU roadmap for broader uptake circular solution in water.

In a narrow sense, circularity applies to any one or some of the 6Rs defined in

Table 1. Definition of 6Rs pertaining to water. Adapted from [22].

Rs	Definition
Reduce	Freshwater consumption decrease
Reuse	The use of wastewater in its crude form (i.e., without prior treatment or processing) for various purposes inside or outside the loop.
Recycle	The use of treated wastewater within the same loop or in the same process
Reclaim	Treatment of wastewater and its use outside the loop
Recovery	Extraction of valuable resources (e.g. energy, material) present in wastewater
Restore	Replenish water resources through artificial interventions (e.g. rainwater harvesting, managed aquifer recharge, rejuvenation of water bodies)

. Whereas full circularity is holistic in that it applies all 6 Rs in order to close the water, energy and nutrient resource flows by integrating the relevant sectors that create mutual benefit along the extended value chain. In the literature, this is often portrayed as the water–energy–food nexus [17,18,19]. Some authors have argued more emphasis should be placed on the accompanying organizational, social and regulatory evolution needed for the successful implementation of these technical changes [20,21].

2.1. Decentralized Solutions

There is some discussion surrounding the benefits of decentralized solutions as a complementary alternative to the current centralized infrastructure for urban areas on smaller scales, such as individual households, neighborhoods or districts. Decentralized water systems are often regarded as more sustainable than centralized systems because they increase the potential for water conservation and reuse, increase the resiliency of the water infrastructure network, and reduce the cost of infrastructure replacement [23]. Decentralized water production and WW treatment for circular redevelopment in a metropolitan area demonstrated that although local treatment of graywater is sufficiently safe, local water production comes with higher risks and costs [24]. Yet the financial burden of maintaining and upgrading water networks increases the appeal of alternative infrastructures.

Green infrastructure (nature-based solutions) tends to be decentralized, and their role in providing water services is well understood, although undervalued. Rainwater harvesting in Mexico’s urban sprawl can play a pivotal role in CE, reducing the cost of damages caused by floods, demand for water and water production costs [25]. Investing in the vitality of a watershed through forest management and wetland restoration are highly successful circular solutions [26]. Green infrastructure can unlock the potential of the natural environment in providing:

• Natural water treatment (through filtration);
• Storage (e.g., aquifers);
• Buffering (i.e., flood protection through reduced stormwater run-off);
• Recreation (e.g., green spaces).

They support a cost-effective, resilient approach to managing the increased floods and droughts that come with global warming that gray infrastructure is not designed to handle [27].

Desalination is a niche in circular water practice best suited to coastal communities or islands. It is a way of augmenting the water supply of these communities for greater water security. As a non-conventional water source, next-generation desalination of seawater requires leaps in technological innovation to deliver autonomous, resilient, modular, and electrified systems that reduce costs, improve performance, and enhance the resilience of nontraditional water reuse systems [28].

2.2. Digitalization

Digitalization is a springboard for optimizing the gains circularity offers. The term digital water or smart water refers to water that is sensorized for information regarding flow, quality, contents and temperature generating large volumes of data in a high variety of formats from different sources. Namely pressure sensors, flow sensors, quality sensors, smart meters, smart pipes and SCADA systems all in real time [29]—This constitutes the starting point of digitalization. Building on this, ICT aids in the connectivity of those assets to create a networked intelligent system—a smart water grid. It is this connectivity that appears to provides a wealth of benefits [30,31]:

• Reducing energy consumption;
• Avoiding unnecessary water losses;
• Minimizing resource consumption;
• Better monitoring and reporting on quality, quantity, reuse of water, extreme events (floods and water-scarcity), and aids informed decision-making;
• Engaging the end consumers in sustainable behaviors making them aware of individual water consumption patterns.

The water sector has been sluggish when it comes to technology adoption for numerous underlying reasons that can be attributed to industry conservatism, as well as intolerance for infrastructure downtime, which extremely limits the prospects of carrying out reliable field trial tests on water networks [29]. Furthermore, water ICT systems remain a significant challenge regarding the total cost of ownership. The increased ICT costs are compounded by the scarce higher skilled personnel required in addition to the lack of standardization. To combat the problem of standardization, the water industry is working towards the development of international standards for hardware and software platforms that allow interoperability through the seamless integration of data generated from sensors of a number of sensor providers [31]. This will serve to break through the fragmented way of doing business in silos and allow for a high degree of connectivity between networks and necessary knowledge exchange. Lastly, it remains yet to be seen how data can tangibly be valorized in a responsible manner without infringing on EU data privacy law and at the same time ensuring consumer data protection given the cybersecurity issues that can ensue as a result. From the citizen’s point of view, it needs to be made clear how data sharing can enhance or benefit their day-to-day life [29].

2.3. The Economics and Value of Water

The price of water is not reflective of its true value [32]. Although water itself is effectively free as a public good, the provision of water services is not and is of economic interest [33]. (Water services as defined in Article 2 (38) of the Water Framework Directive: “all services, which provide for households, public institutions or any economic activity: (a) abstraction, impoundment, storage, treatment and distribution of surface water or groundwater, (b) wastewater collection and treatment facilities, which subsequently discharge into surface water.” [34]). Water pricing refers to assigning a price to water, including elements, such as utility tariffs [35]. In this study, water pricing means monetizing the abstraction, use, and pollution of water. The increase in the price of water is a political hurdle met with resistance from stakeholders and users, suggesting that in some cases, this resistance originates from lack of information, social issues or the fundamental belief that water is a human right and thus any price increase is socially unjust [35].

With a mandate from the EU’s Blueprint to Safeguard Europe’s Water Resources, the EU is looking for new policies to help align the prices of resources, such as water that is not appropriately valued on the market [36]. The public is in charge of setting price limits, regulating and approving water tariffs proposed by water operators. Some member states (e.g., Austria, Czech Republic and the United Kingdom) use subsidies to support cost recovery, complement funding for investment, or support vulnerable customers [33,37]. In some cases, price controls and subsidies are policy failures that have been known to cause mispricing. Market failure can be traced back to mispricing as the price of goods and services do little to reflect either the full costs or full benefits [35]. Mispricing has an undesirable effect of preventing WUs from achieving their cost recovery objectives.

Barriers to full cost recovery contribute to the ailing business model of WUs; meanwhile, threats posed by the linear model can act as drivers of CE. Aging water infrastructure; water leakages that worsen as a result of aging; and infrastructure expansion that requires more energy for pumping water; collectively contribute to the growing cost in providing water services. Given that profit margins for water companies are meager, some water companies can cover costs with a profit but have limited extra funds available to handle potential renewals and/or replacements of existing infrastructure [35]. Water infrastructure is underfunded, and according to McKinsey Global Institute, an estimated $11.7 trillion must be invested globally between 2013 and 2030 for repair, replacement and expansion [38]. The poor condition of the water network in part owes to the fact that water infrastructure is obscured, underground and far from decision-makers. Moreover, the cost of losing water remains cheaper than repairing the pipes causing the leakages. With infrastructure designed to last for between 25 and 60 years, it begs the question: how can change be brought about against a backdrop of an aging infrastructure?

As a human right, the affordability of water is a core issue that cannot be overlooked. Strong proponents of a less heavily regulated, more market-based pricing scheme for water tariffs want the value of water to be more accurately reflected in its price by accounting for the environmental externalities associated with the supply, treatment and disposal of water fundamentally because there exists a direct causal connection between mispricing and unsustainable development [32,35,39].

Under the current linear economic model, WUs have struggled to fully recover their costs with revenue from pricing instruments, such as water tariffs, taxes and charges (i.e., payment related to services, such as WW collection and treatment, but also applied to levies on emissions/discharges and for water supplies) [35]. Even though in 2010 under Article 9 of the Water Framework Directive (WFD), it was established that water prices must allow for the (adequate) cost recovery of water services, including environmental costs (i.e charging water polluters for the purification of their WW, for the untreated pollution discharged in surface waters, and for activities, such as discharges, abstractions, impoundments and engineering that affect the quality of aquatic ecosystems.) and resource costs (forgone opportunities of alternative water use); and water pricing policies must provide adequate incentives for users to use water resources efficiently. The translation of these principles into real water pricing policies applied in the EU Member States remains unclear. The approaches and calculation methods for internalizing external (environmental and resource) costs into pricing are still a debatable subject [35]. The EEA concluded that the WFD has failed to change pricing policy; at best, some EU member states have managed to attain cost recovery, however paying little to no attention to pricing policy incentives and the recovery of environmental or resource costs.

There is still ground to be covered when it comes to an understanding of the economic benefits of water circularity. Reference [37] assessed the economic impact of linking wastewater (WW) treatment, crop production and bioenergy value chains by reusing treated municipal WW and sludge based on a cost/benefit analysis in Braunschweig, Germany. Between 935′000 EUR and 1′831′000 EUR in costs were avoided from discharge fees, sludge incineration and sludge dewatering. Instead, the plant operator incurred costs for agricultural sludge utilization at 70% of 935′000 EUR. Reference [39] estimates the opportunity cost inherent in not replacing the current linear economic model in Jordan’s water industry with a circular model by means of a cost–benefit analysis and shadow price approach. The latter is used to estimate the market value of the resources recovered from WW, given that they have no real market value by estimating their avoided costs or environmental benefits. The findings show that when the price of WW is increased by 2.3%, the financial and environmental benefits of CE outweigh the costs. The cost incurred from closing the loop amounts to 1 USD/m³, which represents the average shadow price (i.e., avoided cost associated with discharging undesirable products into the environment (i.e., environmental benefits) associated with the environmental externalities. In European terms, given that the average residential water price is 3.37 euros/m³, the “closing the loop charge” in this instance amounts to about one-third of the average price of water [33].

CE brings to the foreground the issue of water mispricing and with it the need to internalize externalities; without, which will remain a barrier to transitioning because CE will certainly incur additional costs that will serve to increase the costs that WUs need to recover.

3. Methodology

Qualitative methods are employed given that the research question being investigated is theoretical and exploratory, although the study aims to support the practical application. Furthermore, the nature of the data gathered is incongruent with the data required for quantitative methods.

Figure 2 illustrates that primary information gathered from interviews with five water professionals, water conference proceedings, in addition to literature and case studies, serve to inform and, in some cases, justify the causal relationships contained in the economic view of the urban water system (UWS) model. Moreover, those resources extend and update the UWS model with circular practices for the development of the Circular Water Economy (CWE) model. Analysis of the UWS model highlights opportunities for intervention (i.e., levers), and evaluation of the CWE model gives insight into systemic effects.

Desktop research serves to characterize the system and provide operational insight into WUs and the potential for CE. The interviews are carried out with two WUs (in Belgium and the Netherlands), an HYDROUSA Horizon 2020 EU project coordinator, a water-as-a-service company and a WU solutions expert to describe and contextualize the situation surrounding utilities and explain resulting phenomena. They were conducted in Q4 2019 in a semi-structured manner, with five water industry experts from WUs, academia and companies that service the needs of WUs. They were selected as having responded to emails requesting their participation even though a broader multi-stakeholder view was solicited to take part in the interviews from water managers in water-intensive companies, water solutions companies, nonprofit organizations, researchers and water policy experts. Their participation would have added value to the outcomes of the analysis by challenging the status quo. The interview questions were sent beforehand to allow participants to know ahead of time the kinds of questions that would be asked and to confirm that they have knowledge of the subject matter. The interviews conducted were audio or visual online interviews lasting approximately 40 to 60 min each, consisting of six broad topics. Depending on the expertise of the interviewee, the emphasis was placed on some topics more than others; or in instances where questions of a particular topic were asked, and the interviewee expressed their lack of knowledge in that area, the questions under that topic were not asked further. Transcription is done intelligently– excluding any stuttering, pauses or emotion whilst involving some slight paraphrasing of what was actually said for the clear conveyance of the message– and thematic analysis identified 22 key themes. The cases provided information on the kinds of circular economic practices available to WUs to adopt and their outcomes, confirming some of the cause-and-effect relationships used to build the CWE model.

To explore and understand the complex dynamics currently driving and threatening the urban water system, the study makes use of a system mapping tool called causal loop diagramming. Kumu is the relationship mapping software used to develop the CLDs in this study. Causal loop diagramming is a qualitative approach that can be applied as a precursor to developing quantitative system dynamic models [40]. Causal loop diagrams (CLDs) are very helpful in assisting non-expert stakeholders in developing a better understanding of important interconnections in a complex system, shedding light on feedback loops and connections that may otherwise not be apparent. They can, therefore, lead to a better understanding of the system behavior without a built quantitative model. They thus have a desirable effect of breaking conventional silo-thinking—a well-known problem faced within the water industry.

Table 2. Elements of a causal loop diagram. Adapted from [42].

Notation	Description	Example
	Change in A, causes change in B in the same direction. If A increases/decreases, B also increases/decreases.
	Change in A, causes change in B in the opposite direction. If A increases/decreases, conversely B decreases/increases.
	Reinforcing or positive feedback loop, if it contains an even number of negative causal links
	Balancing or negative feedback loop, if it contains an odd number of negative causal links
	Delay the system when the system’s resonse lags

describes the elements and notation used in CLDs and uses examples to illustrate cause–effect relations. Essentially it demonstrates that with node A being the cause and B the effect, they are related in one of two ways: by either a positive (same direction) or a negative (opposite direction) relation. The former meaning that an increase in cause A results in an increase in effect B. Or a decrease in cause A results in a decrease in effect B. Conversely, the latter means that an increase in cause A results in a decrease in effect B. Or decrease in cause A results in an increase in cause B. The behavior of a system’s dynamics can be in a circular form called Feedback loops. A feedback loop is a closed chain of causal connections that can be reinforcing or balancing [41]. Reinforcing (positive) feedback loops are self-enhancing, leading to exponential growth or to runaway decay over time, whereas balancing (negative) feedback loops are equilibrating or goal-seeking structures in systems, which are both sources of stability and sources of resistance to change [41]. Delays are an essential notation in CLDs, especially for quantitative modeling; they are strong determinants of system behavior because changing delay length may significantly change the behavior of a system.

When viewed from a systems approach, water is a subsystem of “system of systems”, which includes, among others, municipal systems (the focal system of this study), the environment, agriculture, industry and energy, as depicted in Figure 1. Systems thinking allows for the identification of CE opportunities that exist within the water system as well as associated systems. A systems approach will enable the assessment of intended and unintended consequences, thereby confirming whether CE can create added value to the UWS.

A limitation in the methodology lies in the modeling process, given that there is a clear element of subjectivity in how the causal relations and feedback loops are structured and created. For example, if the modeler builds the system by first defining individual causal relations before identifying feedback loops, it can result in a different system than when a modeler first creates feedback loops before creating interlinkages between them. Therefore, reproducibility given the same input data are not guaranteed. It is thus important to note that the UWS and successive CWE models reflect the authors’ current thinking about the underlying patterns and interactions that drive tensions and imbalances in the system. The model is viewed as a work in progress that evolves as learnings are incorporated as feedback.

4. The Urban Water System Analysis

The human-managed urban water system model in Figure 3 takes on an economic view of an integrated water utility (a combined water supply and wastewater company). Parts of the model are expounded on in this section. The system’s ultimate goal is to maximize freshwater resources and water quality. However, given that it consists of double the number of balancing loops than reinforcing loops, the system is skewed towards change resistance. Refer to Appendix A for the variables (nodes) used in the model and their descriptions. All things being equal, the blue lines represent a direct positive relationship between two nodes and a red line represents an inverse relationship. In the following sections, words in italics indicate a reference to node names that exist in the model.

4.1. Water Quality

Water quality is largely affected by heavy agricultural (diffuse pollution) and industrial (point pollution) polluters in addition to the contaminants carried in water during flooding. The risk of flooding and the issue of contaminants in water are amplified in an urban built-up area environment where there is little opportunity for nature to filter and absorb excess water. CSOs add to deteriorating water quality; hence the trend towards green stormwater management (introduced to the CWE model in Section 6.1) which is used to mitigate this and, as a result, drive down treatment costs. During periods of heavy rainfall or snowmelt, the WW volume in a combined sewer system can exceed the capacity of the sewer system or treatment plant. For this reason, combined sewer systems are designed to overflow occasionally and discharge excess WW directly to nearby water bodies. Overall, the poorer the water quality is, the greater the expenses incurred for raw water treatment and thus the greater the O&M costs become as shown in Figure 4.

4.2. Cost Recovery

Water and sanitation subsidies serve to simultaneously decrease the water services charged to consumers and improve the recovery cost of WUs for the sake of affordability. Figure 5 shows the factors affecting what consumers pay for water services that contribute to the WU revenue. The interrelation between water services charged to consumers and customer affordability is one that if a country has a higher national income average, they can afford higher water service charges; however, the higher the service charges are, the fewer customers are able to afford them, creating an Affordability balancing loop that limits the revenue potential of WUs and necessitates subsidies to recover some of the missing money—a tradeoff for affordability.

Cost recovery is referred to as cost recovery discrepancy, i.e., missing money—the difference between full cost recovery and actual cost recovery as depicted in Figure 6. It arises from the true value of water being naturally factored into the cost of providing water services, but not in the regulated water price, which is artificially suppressed by water and sanitation subsidies for more affordable water services charged to consumers. If the water price were to increase matching the true value of water, it follows that water service charges passed on to consumers would be equivalent to the actual cost of water services and thus close the cost recovery discrepancy. How great the cost recovery discrepancy affects the economic development and sustainability of the business. A water tariff increase resistance limits the water price and contributes to an unlucrative, unattractive investment climate.

4.3. Economies of Scale Loop

Economies of Scale (EoS) underpins the business model for water production. It has a stabilizing effect on water production due to its balancing feedback loop. Financially it is in the interest of WUs to supply greater volumes of water at a marginal cost per cubic meter for greater revenue because EoS drives down per capita operation costs and increases revenue that can be used primarily for infrastructure maintenance and water infrastructure investment. Both of which remedy water leakages and thus reduce water production that would have been required to supplement water losses (non-revenue water). The concept of EoS is featured in the balancing loops shown in Figure 7 and Figure 8.

4.4. Overheads Loop

Aging infrastructure makes up a considerable portion of the cost structure, becoming increasingly costly over time as more maintenance is required to mitigate leakages, counteract inefficiencies and improve the longevity of the infrastructure itself. Maintenance, as well as infrastructure investment, can be used to mitigate leakages to reduce non-revenue water, thereby reducing water service costs and boosting revenue. Figure 9 showcases these loops of opposing polarity: the cost of aging infrastructure (R1) dampening revenue and maintenance mitigated water leakages supporting revenue (B4).

Additionally, the depreciation of investments further dampens revenue, as in Figure 10.

4.5. Resilience Investment Loop

Figure 11 is made up of two reinforcing resilience loops that indicate investing in infrastructure resilience to withstand either extremely wet or dry weather ultimately supports water revenue generation. In periods of flood, infrastructure resilience mitigates urban drainage flooding and its costly impacts of water pollution and thus O&M costs. In periods of drought, investing in resilience supports water security to meet continuous demand.

5. Interview Findings

Table 3. Summary of interviews.

	Findings	Description
Barriers to CE	Outdated legislation	Disincentives CE: Nutrient recycling is made difficult in those countries requiring permits The legal status of waste hinders reclaimed water or recovered phosphate fertilizers from entering the food industry
	Health and safety risks	Hamper social acceptance
	Fluctuating fertilizer quality that cannot always be guaranteed with varying concentrations in WW	Hampers market acceptance
	Social acceptance	Strong psychological effect in society against direct waste recycling
	Expensive technology	Such as online meters (e.g., E. coli, N2O probes) increase overheads for organizations
	A high-level of IT readiness and capability for handling big data	Increases overheads for organizations
	Prioritization of investments	Between large-scale infrastructure and decentralized systems because this ensures that the massive 50-year investment made in centralized infrastructure does not become redundant as a result of a complete shift to decentralized systems.
	CE remains a concept	Making it difficult for companies to adopt practically
The price of water	The price of water is not reflective of the true cost of externalities	Increasing the price of water is not considered a viable solution by two respondents.
	The cost of closing the loop will need to be socialized
	There is a need to redesign tariff structures, i.e., alternative billing	Charge for water is to factor in the associated costs into the tariff cost structure using a rising block banded system. Ensures that water remains affordable, but at the same time disincentivizes irresponsible usage An “extreme method” is to not only base charges on the quantity consumed on the supply side but also on the quality discharged on the collection side, similar to a polluter pays principle, but for all consumers. This motivates hospitals and industry to improve the quality of water discharged even if it means they need to include an additional process step locally before discharging. Eventually, the desired effect would be that heavy polluters end up paying less as a result of the additional treatment step prior to discharge because it should cost less than the charge for heavily polluted water. The quality of water discharged to wastewater treatment plants (WWTPs) would improve, making CE easier to implement and the costs of treatment less for WWTPs. Fluctuating water prices for all sectors based on seasonal availability. In periods of drought, the tariffs would be higher. Currently, time-based tariffs in the water sector are a “thinking experiment”
Infrastructure	Infrastructure is a financial burden	Very large investments that depreciate over the next 30 to 50 years are supposed to be funded by water sales revenue
	Centralized infrastructure is a deterrent to circularity	Large-scale utilities find themselves stuck with the technology and infrastructure they have for decades without the opportunity of rapidly adapting the network or directly investing in and implementing new technologies CE requires
	Decentralized systems are an alternative to avoid the burdens of centralized infrastructure	In Flanders, Belgium, decentralized systems are looking to be deployed; financially, it makes sense to install them in new builds, cities and districts. A complete shift to decentralization will not occur, but rather decentralized systems will complement centralized treatment to form a hybrid network
	Decentralized systems are not expected to be very lucrative for WUs	They do, however, promise a less capital-intensive outlay of investment; make it easier to shift more rapidly to new technologies because the scale of investment is smaller; and create a demand for water solutions companies to build, operate and maintain decentralized systemsA Flanders WU is carrying out a pilot on decentralized systems and expects a return on investment between 8% and 12%, with a payback time of 10 to 12 years
	In the Netherlands, a WU is strategically deploying decentralized systems	At specific points, pollution sources, such as hospitals, where a decentralized water solutions company, Pharmafilter®, is the owner and monitor of such systems. WW is being treated before being discharged to the WWTP, and the (medicinal) waste is being recovered for reuse by Pharmafilter®
	An EU Horizon 2020 project, HYDROUSA (Figure 12), is focused on local decentralized circular solutions in the Greek Islands	Local supply chains that recover water, energy and materials are being developed for valorizing at the local level for the benefit of the local communityHYDROUSA is focusing on providing low-cost, nature-based solutions, which require less operational costs than conventional activated sludge processes for the treatment of WW
Circular Practices	Water-as-a-service company practices water reuse for irrigation	Reclaimed water, originally from desalination on island nations in the Americas, is predominantly used for irrigation. The sewage is given to farmers for free due to legal complications hindering nutrient recovery prospects Alternatively, the WW is treated for potable use
	Salt recovery from desalination	For the water-as-a-service company, the business case for salt recovery is suboptimal, with salt being a cheap commodity and the surface area required for evaporation being substantial For the HYDROUSA project, nature-based desalination with the help of mangrove tree roots and the recovery of salt sold to the local community is being demonstrated. It is yet to be seen whether this nature-based form of salt recovery is financially viable
	Production of biogas and biomethane from anaerobic digestion of dewatered sludge	In Flanders, the experience has been that unless a sizeable amount of organic matter is available, meager energy yields are sufficient for only heating the reactor for the digestion process. They are thus looking to improve energy yields by integrating the food waste network with the sewage network to increase the organic content for biogas production. Prior to this, the legal obstacle hindering the network merger must be overcome. In the Dutch case, the biomethane cheapens WW treatment by a few cents per cubic meter, where it is injected into the gas grid and is found to be a worthwhile business case. The Dutch WU and HYDROUSA are producing biogas for transportation.
	HYDROUSA is attempting to close the water loop and, in turn, the nutrient and energy loops for full circularity	This involves: digesting and drying sludge for compost and fertigation of agro-forestry and herbs for essential oils production using nature-based infrastructure to purify WW effluent destined for irrigation and households rainwater harvesting and storage
	Recovery	The Dutch WUs send their sludge to a third-party company with the aim of producing phosphate fertilizer, bioplastics and treating the sludge for final disposal. Further aspirations for circularity include treating and reusing the WW effluent for recreational water bodies designated for swimming instead of discharging into the sea and, in so doing, effectively storing water for drier periods
Digitalization	HYDROUSA is deploying many low-cost sensors	To evaluate the water quality by measuring pH, temperature and conductivity to determine the salt content of water in case any seawater has seeped into the groundwater
	HYDROUSA is deploying energy meters	To determine the energy efficiency of the systems
	The utility in Flanders is in the development phase when it comes to smart meters	Online data would be shared with the families, informing them of the presence of leaks and providing daily consumption data for comparison with other households in order to create awareness about their water consumption
	In the Netherlands, smart water meters have been rolled out	Consumers are updated regularly on their usage patterns. Due to privacy issues, the consumption data of other consumers cannot be shared. If end-users are exceeding their usual consumption levels, the utility passes on tips for conserving water
	In Flanders, online flow meters are being used	To monitor the network efficiency and to detect leaks using district metered areas (DMAs). DMAs can locate and identify leakages with automated online data analysis using statistics to define where the leakage is and for how long it has been there.

summarizes the key themes arising from the interviews. Refer to Appendix B for the extended version of the findings and Appendix C for the interview transcripts.

Drawing from the experiences in the HYDROUSA project, the critical success factors to circularity have so far demonstrated to be anchored in:

• The bankability of projects to draw in investor interest;
• Knowing the needs of the end consumers of the products recovered to ensure a market demand. (This was accomplished through intentional stakeholder engagement with methods, such as co-creation workshops, hackathons, summer camps, local seminars, and demonstration events where end consumers provided feedback that helped develop the design of the project)
• Legislation being an enabler of circular practices.

Figure 12. HYDROUSA project.

Figure 12. HYDROUSA project.

Figure 13 shows the holistic approach to smart water, supported by three dimensions: smart design, which pertains to the physical and legal infrastructure used to deliver smart water; smart use is determined by the methods used to minimize and eliminate waste known as the 6Rs (preconditions to CE), and smart control refers to digitally-enabled practices that optimize operational efficiencies as well as convert data into information forming the foundation of innovative solutions. Most cases partially employ some of the 6Rs and some form of digitalization, but hardly any embody this holistic approach.

6. The Circular Water System

The CWE system depicted in Figure 14 builds on top of and modifies the economic view of the UWS found in Figure 3. It focuses on areas of intervention that leverage circularity, their expected consequences and improvements that can support the business model. It consists of an equal balance of reinforcing loops to balancing loops suggesting less resistance to change when compared to the UWS.

6.1. Alternative Water Billing

In contrast with the UWS, where the customer affordability loop is a determinant of the water services charged to consumers, under the CWES charges are based on a redesigned tariff structure that rewards water efficiency by assuming a purely volume-based tariff structure with a rising block structure, as shown in Figure 15 (for illustrative purposes only). With each successive band of water consumption crossed, an increasing cost is charged to the consumer. The prices assigned to the price bands are variable in order to reflect seasonal availability.

The introduction of such a tariff system would readjust the revenue earned by WUs because low consumers would potentially pay less and high consumers significantly more. However, the polarity of a causal relation cannot be made explicit between redesigned tariff structure–> water services charged to consumers as this requires knowledge of quantification. Essentially the tariff structure is designed to encourage efficiency and not to specifically increase water service charges passed onto consumers, hence the connection between redesigned tariff structure and efficiency of water usage in Figure 16. Ultimately, the new tariff structure helps to recover the missing money because the charges are shown to reflect externalities in the direct connection between the cost of water services and water services charged to consumers, a connection not existing in the UWS.

This would eliminate the need for subsidies to recover the missing money freeing up government funds for supporting WUs in other more constructive ways, such as green financing for green infrastructure. Green infrastructure has shown to be a cost-effective way of preventing flooding and with-it water pollution from surface run-off contaminants, which is typically the case in an urban environment. Figure 17 shows how the resulting effect on the WU is that the water quality of water sources is improved and therefore the operational costs for water treatment are reduced and revenue increased over time. Green infrastructure also has been shown to avoid investment in gray infrastructure and flood protection; however, because this is very specific to the context depending on the flood intensity and whether or not the existing infrastructure calls for reinforcements, this is not included.

6.2. The Effects of Water-Performance Based Charges

Figure 18 maps ways in which encouraging water efficiency can affect different consumer sectors. By encouraging water efficiency, heavy consumers in an industry unable to economically sustain the increase in prices attributed to their excessive usage would be forced to invest in means of reducing consumption. One such option would be to recycle their water with decentralized water treatment systems. A mushrooming market for decentralized systems creates a demand for water solutions providers for maintenance, monitoring water quality and, depending on the industry, recovering resources in the water that can be reused in the business processes.

Not only would the industry have the option of using decentralized systems to curb consumption, but WUs could take the opportunity to consult companies looking to achieve still deeper cuts in their water consumption for financial savings or improving their discharged water quality. Water management consulting together with digital consumption data services, water savings device sales and infrastructure sharing make up the suite of additional services WUs could offer in support of revenue generation at the expense of encouraging water efficiency. Efficiency can also be seen to encourage high consumers within the residential sector, who find that installing equipment for harvesting rainwater and/or water savings devices endorsed and sold by WUs reduces their water bill.

Important to note is that when the water price is low, it kills any prospects of a market for reclaimed water as there is no financial incentive to consume it when consuming freshwater is more cost-effective. This is depicted in the positive relations: water price–> water services charged to consumers–> reclaimed water consumption. Centrally and decentrally produced reclaimed water ease pressure on freshwater resources from industry and farmers as well as promote water resource efficiency.

Despite the potential reclaimed water has, push back from society can limit WW reuse and thus requires efforts to guide and mold perceptions. As addressed in an interview, capitalizing on bad weather conditions (floods and droughts) can have the desirable effect of awakening society to the need for robust water security measures, thus providing a platform to openly communicate and inform society on the crucial role water reuse has in supporting water security. This, in turn, can increase society’s perceived benefit of water reuse in favor of water reuse, as shown in Figure 19.

With infrastructure investment lagging, resistance to increasing water tariffs and long payback periods that bring about low financial rates of return work to create an unfavorable investment climate. It was suggested that bankable projects should be used to showcase to investors the viability of circular projects, such was the case for Ostara, a nutrient management solutions company based in Vancouver, Canada. Additionally, legislation has been pointed to as a vital means of creating an investor-friendly climate sending signals to investors that their inclusion is needed and highly desirable. Figure 20 depicts the key relations surrounding investment attractivity.

The circular paths for sludge explored in Figure 21 are not exhaustive as not every possibility can be captured without compromising on complexity and understanding. In reality, not all options are at the disposal of WUs for any number of reasons; hence the circular options are limited to those explicated in the interviews. Sludge is the feedstock for biogas, while heat energy is recovered as a byproduct of the anaerobic digestion process. Both can supplement the plant’s energy demand, thereby reducing operational costs and greenhouse gas emissions. Any excess heat recovered can be supplied via district heating to greenhouses, for example, to support food production. The sludge can be treated in order to mine organic soil conditioner and struvite for phosphate fertilizers, both supplying the agricultural market in support of food production.

6.3. Digitalization Loop

Water infrastructure investment in digitalization improves revenue generation on two fronts: through consumer awareness and predictive maintenance. There is strong support for WUs to share consumption data with residential consumers and possibly with data of their neighbors to cultivate a stronger sense of awareness regarding how much water they consume based on their usage patterns over time and comparison with neighbors. This is thought to give consumers the drive to want to improve or change habits that noticeably spike consumption.

Given that under the CWES, the business model does not depend on EoS but instead on a redesigned tariff structure, the WU supplies less water, and fewer operational costs contribute to the cost of water services.

It is important to note that under the CWES, revenue is stacked through multiple means; therefore, because water sales no longer form the cornerstone of the business model, there are no loops exhibiting EoS with revenue supporting maintenance and infrastructure.

Furthermore, unlike the UWS, the CWES has no direct connection between infrastructure maintenance alleviating water leakages but rather digital infrastructure investments supporting timely water leakage detection and early pump failure detection that reduces the need for infrastructure maintenance. In Figure 22 and Figure 23 are loops consisting of digital infrastructure investments and data supporting informed decision-making in two ways: water leakage detection and early pump failure detection moving in the direction of preventative maintenance; and avoidance of combined sewer overflows (untreated wastewater overflow) and water pollution. Both help to ease operational costs through reduced infrastructure maintenance costs and raw water treatment costs, respectively.

Early detection of water leakages creates a reinforcing loop that feeds back into digitalization, as exhibited in Figure 24. Investment in digitalization leads to cost savings from less non-revenue water production and operation and maintenance costs that support reinvestment.

6.4. Cost of Digitalization Loop

Investing in a digitalized infrastructure has so far shown to create reinforcing loops that yield a return on investment by aggregating cost savings through operational efficiencies. However, there are costs regarding cybersecurity, data storage and maintenance associated with digitalization that must be factored into the cost of water services as shown in Figure 25. This gives rise to balancing and reinforcing loops of competing strengths that, without quantification, the dominant behavior cannot be identified. Hence, digitalization can be understood to render eco-efficiencies, but to what degree is highly dependent on the financing conditions (e.g., interest rates), how the technology is exploited regarding what gains it produces, and the maturity and cost of the technology used, etc.

7. Discussion

The road to a circular water economy can take on many forms. Crucially, it can offer alternatives to freshwater sources, protecting our water sources from rising perils whilst forming new streams of revenue [43]. The water industry is grappling with the practical application of circular economic practices in part because it is still somewhat a theoretical construct, which requires more concrete guidelines and measurability for mobilization. With an already ailing business model, WUs stand to benefit from WWTPs reinventing their role from waste removers to bio-factories, consultants, research partners, energy providers and infrastructure service providers inter alia. For water suppliers, the binary system of dirty water in and clean water out is more nuanced, with multiple incoming water sources of different quality levels matching the customers’ prescribed purpose. For this to happen, a paradigm shift is necessary and political will is imperative for CE to start to take root and have lasting implications. Despite gainful steps having already been made legislatively, for example, with the Water Reuse Regulation as part of the CE Action Plan, significantly more needs to be done, e.g., setting quality standards of recovered resources destined for different sectors [43].

Digital water, water reuse, and resource recovery are the tools foundational to creating sustainable integrated water management that incorporates CE, although each is accompanied by its own set of barriers [43,44] . Most noticeable and common to all three is the lack of financial resources available for WUs, along with legislation, which has a pivotal role in supporting a coherent framework and fostering their uptake. Specific to nutrient recovery and water reuse, limited awareness of potential benefits among stakeholders; public perception; health concerns; and marketability challenges are causing sluggish wider uptake in the EU.

Different from the other areas where legislation has been lacking, legislative provision has been made for the pricing of water on the EU-level, calling for member states to recover costs, reflect resource costs and environmental externalities in the water price. However, failure to execute it on the national level appears to be the underlying cause of the undervaluing of water, where unclarity lies with how to value externalities. The EEA [35] drafted a blueprint for pricing systems to reflect local or regional circumstances for WUs to follow, suggesting that:

• A substantial part of the water bill be variable (charged per cubic meter);
• Volumetric or increasing block (banded system) rates be used;
• Rates are high enough to enable water service suppliers to invest in (efficient and environmentally sound) improvements, innovation and expansion;
• Affordability be addressed by separate, social measures, and not by interventions reducing water price incentives (such as reduced VAT rates);
• Regional variations in water-scarcity and other relevant conditions are to be reflected in water prices;
• Different water users are treated on an equal footing;
• Differences in water prices are related to differences in water-use characteristics and not to the sector in question.

The volumetric redesigned rising block tariff suggested (Figure 15) aligns with the EEA’s proposal, which relies on studies indicating that volumetric variable pricing mechanisms are most effective at maximizing water-use efficiency in urban areas [45]. With flat rates still widespread in the EU, the adoption of a volumetric tariff structure will bring meaningful change to consumer behavior across all sectors. A model of the rising block tariff without circular practices revealed that although higher more expensive consumption blocks reduce the water price for lower blocks, enhancing economic stability for WUs and affordability for consumers, an adverse effect over time is that demand elasticity causes some consumers to drop to lower blocks leading to revenue shortfall [46]. This makes a case for debt financing; reinforcing the need for alternative revenue streams from CE and external finance sources. Larger price differentials between consumption blocks were seen to lead to greater revenue reduction [46].

A more extreme tariff structure that is not only volume-based but also based on water quality discharged was suggested in order to taper heavy point source pollution and over time improve water quality and costs for WWTPs. It is also the belief of the authors that this would do well to not only disincentivize pollution but also more closely capture associated treatment costs. This, however, requires high-resolution data to provide water quality parameters at the building level as opposed to the district level and will take longer for WUs to attain because of the sophisticated technological efforts required not yet commonly used. Going one step further into the future, the authors propose basing water charges on yielded productivity (i.e., economic output per cubic meter of water), which would undoubtedly bring reform to the pricing system. In Flanders, drinking water costs (€2.10/m³) less than WW (€2.40/m³). Under this proposed tariff system, the converse would be true, where water consumed would theoretically have the greatest charge attached to it, compared with gray water, which would be the cheapest, as shown in Figure 26. This is because water consumed and not returned to the system will not provide added value downstream. In contrast with WW, graywater is greater in volume relative to blackwater and less polluted making it easier to treat for reuse and gain revenue from; hence it would create a greater economic output. Moreover, it has a higher energy potential given that it has higher excess heat to be recovered closest to the source. Therefore, it has a relatively lower cost to income ratio that justifies its lesser charge. Blackwater, on the other hand, would need to cost more to treat per cubic meter than graywater due to its high pollution concentration. Although it has a high potential for biogas production and nutrient recovery, biogas production requires a reactor to be heated to 37 degrees Celsius, which reduces its energy yield potential; and recovered struvite has an unattractively low market value of €50/ton. Taking this into consideration, the cost to income ratio is distinguishably higher in blackwater than gray water. Granted, this tariff system calls for advanced stages in CE to be reached first with standardized, streamlined processes and well-defined loops in order for WUs to calculate the typical productivity of gray water destined for a particular use, such as cooling blood banks. The productivity-based tariff system charges water according to its utility while crucially incentivizing consumption of reclaimed water provided that reused water would become cheaper than freshwater. Maximizing the utility of water has the potential to create a medium profit potential [47].

Considering the overall system behavior, the most influential variables introduced to the CWE model can be reduced to those shown in Figure 27. These variables offer either operational cost savings or new income streams, creating a more robust business model with diversified income, efficient resource processes and resource productivity of recovered and reused resources [44,48]. Sewage management constitutes a significant portion of WW treatment costs that can be reduced by new WW treatment methods, such as nutrient recovery, because they reduce the sewage quantity as a whole and improve the quality [44]. For a utility whose asset costs can spiral out of control over decades and struggle to generate sustainable revenue, this provides an attractive alternative to business as usual. Water and sewage companies should verify their existing business models in order to carry out activities that increasingly align with the circular model [44].

On the opposite side are investment costs, a black–box, an unknown deciding factor in the system behavior with respect to its magnitude when stacked against the cash flows attributed to cost savings and new revenue streams over time. The economic viability of a project is context-specific, with the financing source conditions and self-financing ratio being influencing factors. It was proposed that governments divert water subsidies towards financially supporting WUs in their transition, but only when full cost recovery for WUs is ensured through more cost-reflective pricing. Full cost recovery by definition should include water service costs as well as the cost of externalities as integral parts of the water price rather than the latter being accounted for as taxes. This will ensure a direct form of revenue for the total costs incurred by WUs. Governmental support could be in the form of innovation technology subsidies, green bonds or loans with attractive rates [39]. Meanwhile, the European Commission has called upon member states to encourage private sector investment in resource-efficiency [9]. Whether this is sufficient to drum up more investment opportunities and create more public–private partnerships, for financing water infrastructure is unclear especially given that the investment climate still needs to be made attractive for investors. Key requirements for this are the price of water, legislation and return on investment.

WUs are generally not in the position to finance basic technology, such as sensors and smart meters, to begin taking the necessary steps towards digital water; therefore, it is reasonable to conclude that the total cost of ownership for digital water poses a great financial hurdle for WUs [44]. To shed some light on costs, in Spain in order to meet the required quality standards defined in legislation, the upfront investment on water reuse can vary widely between extremes of 5 €/m³ produced/day for basic filtration to 736 €/m³ produced/day for the advanced chemical treatment suitable for potable reuse. Operational and maintenance costs may vary from 0.04 €/m³ to 0.45 €/m³ produced/day [49], 1–13% of the average water price in Europe. There is a sizable gap required for financing at this cost rate, and water reuse remains an unattractive costly option with low returns on investment when the price of water remains low and the abstraction of freshwater resources is more cost-effective. Cyprus handled this by subsiding water reuse tariffs by 33–40% of freshwater rates to gain water reuse acceptance [49]. It is unclear whether this is short-term or long-term; however, this method of incentivizing water reuse does little to address the fundamental issue of the true value of water that has the power to change societies’ perceptions on how it is used.

Politicians have a duty to address such loopholes. Environmental legislation can be a key driver to accelerate the recycling and recovery of resources where the additional associated costs are against it [50]. Whenever the costs to the economy for collecting and reprocessing a product, component or material, are lower than the linear alternative (including the avoidance of end-of-life treatment costs), circular systems can be economical [51].

WUs are also not powerless to initiating change in the way they choose to invest. Instead of more of the same capital-intensive investments, they can respond by investing strategically by tending to low-hanging fruits, prioritizing and diversifying their investments that result in operational efficiencies and cost savings. Moreover, paying attention to the growing trends of sustainable investment lenders. In addition, by joining forces with academia in research projects, the results could be used to support an investment proposal and reap the rewards. The mobilization of a blended package of funds sets a solid base for meeting financing needs.

A shift to decentralized systems and green nature-based infrastructure can improve water quality and reduce centralized water treatment costs, thus reduce O&M maintenance costs. Predictive maintenance, made possible by digitalization, should make up an increasingly bigger portion of the O&M budget as this requires large resources to set up and maintain; however, in the long run, it should reduce infrastructure maintenance costs. Optimization through leveraging big data, automation, and remote sensing; improved performance and efficiency have medium profit potential [47]. It is the belief of the authors that existing and new WUs should be managed differently. For new utilities, CE should be considered at the onset in the design of plant processes and infrastructurally; with the creation of a smart water grid; where newly built neighborhoods, districts and point source polluters deploy decentralized systems with source separation on the building level for gray and blackwater collection; and hybrid gray, green and blue infrastructure.

With the endless possibilities of digitalization and data management being the springboard for innovative solutions, digital water is best capitalized on when used first to optimize and improve daily operations (e.g., leakage detection) and second, as an add on to broaden areas of activity (e.g., valorize information data services). It can be used to reach greater heights in operational efficiencies providing returns on investment that foster further deployment. The upfront and operational costs are expected to be substantial, but through increased system performance, they can be recouped. Not all technologies will reduce costs, many may improve performance, and some may over time bring change [47]. It is also reasonable to expect that the learning curve will have a decreasing effect on the operational costs over time. Although the concept of how to monetize data are still in some respects vague, monetizing data are set to incentivize uptake.

With the water industry being highly fragmented, digitalization offers opportunities for interoperability and a higher degree of collaboration, which will certainly be needed for setting up cybersecurity defenses. Such is the case in the Nordic Water Association, where their success in finding smart water solutions has come off the back of close collaboration with technology vendors, manufacturers, software companies and academia, inter alia. Dutch water authorities meet together weekly. These WUs have experienced the value in creating links to bridge the gap between knowledge and practice and create valuable exchanges. As more advanced water industries, these should be viewed as models to learn from and adopt. Another lesson to be learned from the Nordics is their willingness to share data, making it open-source for software developers to use, find meaning from and spark innovation to create value out of smart solutions. Therefore, the collaboration also entails WUs being willing to be transparent and open to data sharing.

A key part of Article 14 in the Water Framework Directive requires all member states to genuinely engage with the people who live, work and play in a catchment area. Therefore, it is critical that local communities are involved in the management and decision-making related to protecting and, where necessary, improving their water resources. An expert stated that WUs need to refrain from letting water treatment be a black–box and communicate openly with citizens regarding how and why treatment is done the way it is. In Italy, at the Milano Nosedo WWTP, they have open days to present their activities to the general public and to farmers in order to encourage acceptance [49]. It was a government-led ad campaign that helped Singapore overcome community concerns over effectively “drinking toilet water” when implementing a direct potable water reuse scheme. Smart water is a holistic approach not achievable single-handedly or in one go. A stepwise roadmap to tackle the different aspects is recommendable. Important to note is that there is no “one-size fits all” approach as the feasibility, impacts and economics can only be assessed on a case-by-case basis [43]. This study offers just one route out of many options that are viable for specific contexts.

Summing up, CE in the water industry is anchored in digitalization, water reuse and resource recovery bringing resource efficiency and productivity to the business processes of WUs in the quest for water security while in turn enabling resource security and energy sufficiency. Many possible paths can lead to the utopic state of closed water, energy and nutrient loops, but this is not without cost and collaboration. WUs need to view their role in society as more than water service providers but also through a multidimensional lens. The potential to cultivate a water-wise and water-conscious community can be made possible through new cost reflective water tariffs bringing awareness to consumers about their consumption; engaging with the public about the value of water reuse, and educating the public about storm drains needing to be kept free from anything other than water. Without strong political will and leadership, CE will suffer setbacks because regulatory policies have the power to accelerate the transition. Whether or not utilities have the appetite for this paradigm shift and be ahead of the curve in anticipation of the evolving legislative and regulatory environment is yet to be seen.

8. Conclusions

This study explored the economic and operational system effects of a CE on WUs. Based on interviews with water industry experts, case studies, conference proceedings and literature, it was found that three core tools that engender circularity are digitalization, water reuse and resource recovery. It was found out that they have the potential to yield lower operational costs through network efficiencies and boost revenue generation through new service offerings and cascading of reused water and secondary resource products.

By qualitatively modeling an economic view of the urban water system, a circular water economy system was subsequently modeled, to which amendments were made to incorporate forms of digital water, water reuse and nutrient recovery. It was determined that the non-cost reflective price of water is crucial to solving the current issues of partial cost recovery that WUs experience, in addition to ushering in the successful implementation of circular practices. A redesigned rising block volumetric tariff structure incorporated into the circular model has the potential to induce water-efficient consumer behavior that lowers operational costs. Digital water is seen to be particularly helpful in transferring water network data into knowledge for informed decision-making that supports predictive maintenance and avoidance of combined sewer overflows. Reclaimed water, as an alternative water supply, eases pressure on freshwater resources resulting in lower operational costs. In contrast, resource recovery has the potential for generating multiple revenue streams when sewage contents are treated and sold to receiving markets. Underpinning all three is the need for investment funding and an enabling cohesive legal framework to smooth out impediments and catalyze circular activities. Aging infrastructure places an increasingly heavy financial burden on WUs and slows down the adoption of new technology. Diversified investments in a less-capital intensive hybrid infrastructure of centralized and decentralized systems and more nature-based solutions reduce this burden.

The findings of this study reveal that CE is a means by which WUs can maintain water security through reduced water consumption and protection of water quality. It sheds light on water pricing policy and advocates for the need for full cost-recovery that accounts for environmental externalities and resource costs that send positive signals to investors, maintains a sustainable business for WUs and frees WUs from financial incapacitation that hinders them from self-financing new investments for CE. Looking into the future, it proposes a water tariff structure based on the productivity water yields in a loop, appropriate for more advanced stages of circularity. In an upcoming paper, the authors will present a circular business model for WUs and discuss the intended and unintended consequences of circular water on people, the planet and prosperity.