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5 Desalination Companies That Could End California's Once-in-500-Years Drought

President Obama, touring the Californian dust bowl in February 2014. Image source: Wikimedia Commons.

This article was updated on Aug. 17, 2015.

California is in crisis.

Halfway through another year of heartbreaking drought, pundits are predicting an El Niño storm system could arrive this winter, bringing heavy rains that might help to save the state -- and we  hope that's true. Residents say their state has been so parched for so long that they need 20 inches of rainfall just "to get to normal."

But even if it is true, El Niño is still months away. And once it passes, you know what happens next: Drought season returns.

And so do wildfires.

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.

The view from Marine One, as all of California's greens turn to brown. Image source: Wikimedia Commons.

Yet with 92.36% 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. Experts estimate this year's losses could top $2.7 billion.

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.

Carlsbad Desalination Plant in California, circa 2010. Image source: Bovlb via Wikimedia Commons.

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 late 2015, 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 companies 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.

Further 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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This is what California looked like in the drought that hit six years ago. Absent a solution, it's only going to get worse. Image source: Wikimedia Commons.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2014, at 6:27 PM, davidlamb12 wrote:

    While I understand that this article is written for the public investor, there are other companies (not yet public) that can provide some much better alternatives than these traditional companies focusing on membrane technology. Inland water desalination (agricultural runoff, oil produced water treatment) can be best treated via economical thermal processes. Startup companies such as WaterFX ( employ both energy-saving technologies as well as renewable energy to provide the best solutions available for CA water crisis -- providing new water resources without brine discharge to the ocean.

  • Report this Comment On June 26, 2015, at 3:18 PM, jargonific wrote:

    Let's hope Brown and others in CA chose a solid US company to create water purification systems. US Millipore sold the reverse osmosis tech to Israel years ago after co developing it with the US Navy -- your tax dollars at work. We should benefit from the technology, but to buy it from a foreign company doesn't make sense (especially as we had it years ago, many US citizens made sacrifices for it..) Look up the history. It was originally created for military medical sites and navy vessels.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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