Last week, I got a stark reminder of the connection between energy and water.

After days of rain here on the East Coast, I awoke last Wednesday to a few inches of water in my basement. The switch in my sump pump went bad, so when water pushed the float up and it should've kicked on. . . it didn't.

The pump wasn't getting the energy it needed to move the water. This is the embodiment of the energy-water nexus, a topic I've covered here, but which you'll soon be hearing much more about.

The Energy-Water Nexus

What happened in my basement is a microcosm of the larger relationship between water and energy.

In the U.S., 4% of all electricity used is to transport and treat water. In California, where dense population and scant water resources prevail, that number jumps to 19%, with 31% of the state's natural gas use also going to the ongoing supply of freshwater.

And the nexus works conversely.

It can take up to 168 gallons of water to get one barrel of oil from oil sands. And 800 gallons are required to generate one megawatt-hour of electricity from traditional resources.

The fact that we can't make or destroy energy or water makes this a zero-sum game. There's a finite amount of each, and demand for water only rises. If Las Vegas increases its withdrawals from the Colorado River, less water is available to be drawn for Las Angeles.

And if you want to get it from somewhere else? Be prepared to work out the exorbitant costs of moving water long distances.

Adding to the Zero-Sum

Conservation adds nothing to a zero-sum game. It only means using less so someone else can use more. And while it's a great idea worthy of pursuit by everyone, it's not very profitable.

This is the very core of the problem. . . and the reason billions have already been made by trying to change the energy and water equations.

Burning coal, oil, and natural gas today means less coal, oil, and natural gas for tomorrow. That's why there's been a massive (and profitable) push toward renewables. . . they change the energy equation by harvesting resources that replenish themselves rather than harvesting resources that don't.

And it's why renewable energy has been and will continue to be lucrative. It's the solution to the energy part of the nexus.

As a member of Green Chip, you don't need to be reminded about the disruptive effect this is having on the energy market...

But what about water? Where's the game-changer there?

Like solar and wind, the answer to the water problem is extracting it from the most abundant resource there is: our vast oceans.

The only problem? Between 50% and 80% of the costs for desalination are for energy to pressurize or heat water. That means the use of desalination only exacerbates the problem of the energy-water nexus.

Until now.

Recent developments are driving down the energy costs of desalination. As these costs continue to fall — and the costs of traditional energy and water continue to ascend — desalination will emerge as a game changer.

It will allow the extraction of water from the most abundant resource there is.

And the early profits will be similar to the solar and wind gains of the past few years. . . when companies like Vestas (VWS.CO) and First Solar (NASDAQ: FSLR) were gaining hundreds, even thousands of percentage points.

I'll be covering this topic in depth as it continues to evolve. For now, I've posted a new piece in the 'Reports' section about water desalination investments.

It's a great tool to learn more about the potential of desalination, both for clean water supply and as an investment catalyst. Use it as a backdrop to get a leg up on this emerging industry, and keep an eye out for related articles going forward.

Call it like you see it,

Nick