Summary of Key Points
The wastewater treatment industry has moved from a phase of aggressive expansion to one of cost competition, where companies focus on improving efficiency within existing operations. With near-saturation of treatment capacity, prices below costs, and delayed financial subsidies, the room for revenue growth is severely limited. Meanwhile, increasing emission standards drive up operational costs, forcing companies to cut expenses to maintain profitability. However, whether these cost-saving efforts translate into actual profits depends on the pricing mechanism. If a "cost monitoring and adjustment" system is used, any savings made will likely be reclaimed by the government during the next pricing round; in contrast, a "standard cost pricing" approach (as piloted in Guizhou) allows companies to retain the benefits of cost reduction over the long term. The core of future competition in this industry will revolve around who gets to keep these cost-saving gains.
I. The Industry Forced Within Its Own Limits: Revenue Stagnant, Costs Rising
Over the past two decades, wastewater treatment companies could generate profits by securing projects and expanding their operations. But now that's no longer possible:
- Revenue Growth Blocked on All Fronts: The national urban wastewater treatment rate has reached 98.93%, leaving little room for growth from expanding infrastructure (which is a Band-Aid solution rather than a lasting fix). On the price front, the average charge in 36 key cities is only 1.02 yuan per ton, slightly above the minimum of 0.95 yuan per ton for residents and below the industry average cost of 1.15 yuan per ton (resulting in a situation where costs exceed prices). Financial subsidies are also slow to arrive and often come at the end of local spending priorities, with pricing hearings taking several years to conclude.
- Rising Costs: Emission standards continue to rise (a ratchet effect), such as the upgrade from Class A to quasi-Class IV, which increases costs by 0.13 yuan per ton just for carbon sources. Energy consumption has also increased over time (from 0.292 kWh per ton in 2011 to 0.38 kWh per ton in 2018) due to the need for more energy and chemicals in processes like aeration and advanced treatment.
Under these pressures, companies can only look for ways to save costs within their existing facilities—this is what's meant by "competition within the boundaries of existing operations."
II. The Focus of Internal Cost Reduction: Saving Energy and Chemicals
In the total cost of wastewater treatment, depreciation (the annual expense associated with asset wear and tear) is fixed, leaving room for optimization in three main areas: energy, chemicals, and labor:
- Energy: The Biggest Factor: Energy consumption accounts for 71%-85% of operating costs, with aeration and lifting processes consuming the majority. For example, a plant with a daily capacity of 100,000 tons could save 6,000-8,000 kWh of electricity per day by reducing energy consumption from the industry average of 0.38 kWh per ton to a more efficient level of 0.32 kWh per ton, resulting in annual savings of 1.3-2 million yuan (or 4-6 cents per ton of treated water).
- Precise Chemical Use: Precise dosing of chemicals (such as carbon and phosphorus removal agents) can further reduce costs by 1-4 cents per ton. Together, these two measures can save up to 10 cents per ton of treated water, which may not seem like much compared to the total cost of 1.19 yuan per ton, but every penny counts when revenue is static.
III. The Biggest Puzzle: Who Gets the Savings?
While reducing costs is easy, whether the savings remain with the company depends on the pricing mechanism:
- Cost Monitoring and Adjustment (Most Old Contracts): The government periodically reviews actual costs and adjusts prices accordingly. If a company saves 1 million yuan this year, it may face price cuts next year, rendering the effort futile. This discourages companies from investing in long-term improvements (such as energy management contracts) because the payback period could exceed the review cycle.
- Percentage-Based Pricing (Few New Contracts): Service fees are adjusted regularly based on indices like CPI, with any savings above the industry average going to the company. This provides a clear incentive for cost reduction.
- The Conflict Between New and Old Rules: National regulations from 2024 state that cost-saving benefits should go to the companies, but many old contracts contain clauses specifying otherwise, exempting them from these new rules.
IV. A Breakthrough in Guizhou: The Standard Cost Approach
In 2023, Guizhou introduced a "standard cost system" that clarifies who gets to keep the benefits of cost reduction:
- Pricing Shift: The basis for pricing has shifted from "actual costs" to "industry-standard costs." Companies that reduce costs below the standard (e.g., from 1.2 yuan per ton to 1.0 yuan per ton) can keep the difference as profit.
- Capacity Utilization Restrictions: For plants operating for less than three years, if their treatment capacity is below 60% of designed capacity, costs are calculated based on 60%; for those over three years, if it's below 75%, costs are calculated based on 75%. This turns the temporary nature of cost-saving efforts into a long-term reality, motivating companies to invest in technological upgrades.
V. The Future of the Industry: Competition in "Ownership" and Details
The future competition among wastewater treatment companies will focus on:
1. Cost Reduction Details: Optimizing every aspect of operations, such as energy usage and chemical dosing.
2. Pricing Mechanism Negotiations: Trying to replace the current "cost monitoring" system with "standard cost" or percentage-based pricing in old contracts.
3. Policy Advantages: Following the lead of provinces like Guizhou, companies will seek more favorable pricing rules.
In essence, the optimization of costs in environmental projects is not just a technical issue; it's about who gets to keep the savings generated. Only by ensuring that these savings belong to the companies can the industry achieve sustainable development.
(The entire analysis is presented in plain language to make it accessible to non-financial readers, explaining the current situation and future trends of the wastewater treatment industry.)