This article was updated on April 1, 2015.
California is in crisis.
The "rainy season," which runs from October through March most years, has come to a close. And you know what comes next: Drought season. Wildfires. Newspaper headlines featuring words like "global warming."
Already, California is bracing for the (dry) storm. Pool-filling restrictions are in effect. Water sprinklers are getting shut down. It's why, in the restaurants, the waiters have been told not to bring you a glass of water... unless you ask for it.
And this matters to me ... why?
Meteorologists say there hasn't been a drought this bad in California in 500 years. If you live in the state, this is already painfully obvious. But in case you live outside, here's a quick rundown of why California's drought is important to you: More than half the fruit and vegetables sold in America are grown in California's Central Valley. California grows 99% of our pistachios and almonds, and 96% of our tomatoes. Lemons -- 89%. Carrots -- 86%. Lettuce -- 49%. And that's just the start of the grocery list.
Yet with 93.44% of California experiencing "severe to exceptional" drought conditions, these fruits and veggies are getting harder -- and given the need to irrigate, more expensive -- to produce. California produced $44.7 billion worth of fresh produce in 2013 One year later, $1.5 billion of that had withered on the vine.
But here's something that might fix the problem
Faced with a Mother Nature increasingly stingy about parceling out rain, but sitting right next door to a huge bowl of water, aka the Pacific Ocean, many Californians wonder whether desalination is the answer to their problems.
Desalination is the process of taking ocean salt water and forcing it through a membrane to filter out salts through "reverse osmosis" -- thereby creating fresh water. It's hardly a new technology, yet only a handful of desalination plants operate in California today -- mostly for private use by industrial companies such as Pacific Gas & Electric.
15 new plants are at various stages of planning, though -- and therein lies the opportunity for investors.
We're from Israel, and we're here to help
One desalination plant destined for public use is the $1 billion, 50 million-gallon-per-day Carlsbad Desalination Project. Now under construction by privately held Poseidon Resources, in partnership with Israel Chemicals (NASDAQOTH: ISCHY ) subsidiary IDE Technologies, Carlsbad aims to produce enough water to supply 7% of the city of San Diego's drinking water needs.
When completed in 2016, it will be the largest such plant in the Western Hemisphere. Should all 15 remaining desalination plants be built to similar scale, this would produce enough water to take a city the size of San Diego (population 1.36 million) out of the loop, releasing its water needs for use in irrigation.
Help a bit closer to home
A second company with the potential to slake California's thirst is publicly traded Consolidated Water (NASDAQ: CWCO ) . Currently focused on the Caribbean, Consolidated Water not only builds but also operates multiple reverse osmosis desalination plants in the Bahamas, Belize, Bermuda, the British Virgin Islands and the Cayman Islands. While not currently operating in California, it clearly has the technical know-how, and is a logical choice for investment should California move ahead with plans to build more desalination plants.
Bring in the big guns
Two firms with even more financial heft could also come to California's aid -- France's Veolia Environnement (NASDAQOTH: VEOEY ) and America's own General Electric Company (NYSE: GE ) . Veolia boasts of having "more than 100 years of experience ... in desalination" in 108 countries around the globe. These include the huge desalination plant in Sydney, Australia, that currently supplies 15% of that city's water, and Iraq's largest desalination plant, located in Basrah.
GE is nearly as puissant. The world's second biggest equipment supplier in the field of water treatment, GE helped set up Africa's largest desalination plant, in Algiers, Algeria, in 2008. It took GE only two years to get the plant up and running "on time and on budget," and it's now supplying Algiers with 53 million gallons of drinking water per day.
Meanwhile, defense industry giant Lockheed Martin (NYSE: LMT ) says it has developed an entirely new technology for desalination that's capable of filtering water "at a fraction of the cost of industry-standard reverse osmosis systems."
Which is the best investment?
Everything depends on whether California decides to act to solve its drought problem by leveraging its position by the Pacific into an inexhaustible supply of clean water through desalination. For now, Israel Chemicals is the only "clear" winner from this crisis, having a construction contract in hand and work under way.
Farther out though, GE and Veolia could certainly play a role in building California's desalination infrastructure. The biggest opportunity of all would be if a smallish company like Consolidated Water decided to get in the game. At Carlsbad, project managers aim to produce about 50 million gallons of water a day -- which equates to 153 acre-feet of water for irrigation. With San Diego contracted to pay $2,000 per acre-foot for water from the Carlsbad plant, that should work out to about $307,000 per day in revenues for a Carlsbad-size facility -- or $112 million annually.
By way of comparison, according to S&P Capital IQ, all of the revenues Consolidated Water generated in 2014, from all of its Caribbean plants combined, was barely half that amount-- just $65.6 million. One single contract from California would triple the size of its business.
That is, it could, if California gets serious about fixing the problem. For now, that's the biggest "if" of all.
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