Microsoft co-founder and former CEO Bill Gates is backing a company that has created a process to generate power and drinking water from human waste and sludge. That's both amazing and kind of gross at the same time. But it lines up with an investment theme Gates has been following of late: turning human trash into something valuable. While you can't invest directly in everything Gates is doing, there are a couple of places where you can follow his lead.
Why drink human waste?
The OmniProcessor, which is the name of the treatment plant that transforms waste , was funded by the Bill and Melinda Gates Foundation and designed by the privately run Janicki Bioenergy. Some of the key benefits of the system are that it produces more electricity than it uses and it can be remotely monitored. And it clearly shows the general logic of Gates' thinking about human waste of all types.
Turning "fecal sludge" into drinking water and power is, obviously, a pretty complex process. However, according to Janicki Bioenergy,
The heat from combustion within a fluidized sand bed is utilized to generate high pressure steam that is expanded in a reciprocating piston steam engine connected to a generator, producing electricity. The exhaust from this engine (process heat) is used to dry the incoming fecal sludge. The water that is evaporated out of the sludge is then treated to meet clean drinking water standards.
That's a lot of work for clean water...
In the United States, blessed with vast natural resources, getting clean water to drink isn't all that big a deal. In most cases, you just turn on a faucet. In less developed countries, however, finding clean water can be a daily ordeal. Think of parts of India and Africa -- if you could take wastewater and "other things" and use them again, in effect recycling, you wouldn't have to worry as much about finding new clean water. Being able to pair that with power generation is an added bonus, since electricity is also a scarce commodity in some parts of the world. The remote monitoring feature, meanwhile, will allow the systems to be placed in remote locations without the need for highly specialized staff to run them
Getting in on the act
If it were just this one investment, you'd think it was unique. But Gates also owns roughly 25% of Republic Services (NYSE:RSG), the country's second-largest trash hauler. While Republic's main business is carting human solid waste away, that's not all it does. For example, the company is increasingly involved in recycling.
Republic also uses its landfills to generate natural gas. Of the nearly 200 landfills the company owns or operates, about a third have landfill gas operations, in which the company traps naturally occurring gases from decomposition and turns them into usable fuel. No wonder Gates likes Republic, it's right in his wheelhouse.
It's not a shabby investment, either. The company's dividend has steadily risen for a decade. While the current yield of about 2.75% isn't huge, it's better than the 2% yield offered by the S&P 500 index. And now that Allied Waste has been integrated into the company, and the 2007 to 2009 recession is, well, in the rear-view mirror, the top line is moving higher again after being stuck in a tight range between $8.1 billion and $8.2 billion from 2009 to 2012. Revenues hit $8.4 billion in 2013 and are expected to be around $8.8 billion in 2014. Earnings, too, appear to have broken out, going from the $1.55 a share area in 2011 and 2012 to $1.62 in 2013 and expectations of over $1.90 for 2014.
More than just trash
But this isn't the only waste Gates wants to turn into gold. He is also backing a company called TerraPower that is working on a nuclear reactor that reuses spent nuclear fuel -- essentially making power from nuclear waste that would otherwise have to be stored somewhere for thousands of years. Although this isn't the only company working on such a project, General Electric has a similar reactor in the works, TerraPower is the one on Gates' radar. This is, again, all about Gates looking for ways to reuse the things we now view as little more than waste. But, as with Janicki Bioenergy, you can't invest directly in TerraPower.
You can, however, buy into TerraPower's partner on the project, Babcock & Wilcox (NYSE:BWXT). To be fair, Babcock isn't as pure a play on Gates as is Republic. It is a fairly large company, with operations in various sections of the power industry. It is also a major government and military contractor, working on programs including nuclear submarines for the U.S. Navy. Industrial powerhouse GE, for the record, isn't any more of a pure play.
However, success with TerraPower's system could help Babcock take a lead role in bringing the new technology to market. The company's yield is a relatively stingy 1.4%, but earnings have more than doubled since it became a stand-alone company in late 2010. The nature of its business, particularly working with government contracts, can lead to lumpy top- and bottom-line results. That said, Gates clearly sees this nuclear expert as a valuable partner. That could make it a valuable investment, too, if you share Gates' big-picture view of recycling.
Money to spare
Bill Gates has plenty of money to invest in things you and I might consider outlandish. ("No, thanks" to drinking out of the toilet bowl until I really have to.) But that doesn't mean you should not take a close look at the trends he is following, including recycling. Republic and its power from trash and Babcock on the nuclear front are two good examples worth considering.