I've had some requests lately to provide updates about what's been happening with desalination stocks. And, frankly, I can't say there's been too much.
You see, desalination has been around for quite some time. Long enough, in fact, that the big boys have had time to buy up nearly all emerging technologies and companies. Conglomerates like Dow Chemical (NYSE: DOW) and General Electric (NYSE: GE) are now some of the biggest desalination players in the market.
That said, let's take a look at exactly what technologies are out there and see whether there's still a legitimate angle for playing desalination stocks and the sector as a whole.
Desalination Technologies
The most common method for desalination is reverse osmosis. Using this method, water is forced through a series of semi-permeable membranes using increased pressure as the pores in the membranes become smaller and smaller.
I had a chance to see a membrane, cut in half, at the International Water Conference a few weeks ago. The best comparison to it is a cigarette filter--layers and layers of fibrous material. The one I got to see had actually been used, and if you ran your fingers along the fibers you could feel the remnants of a salty white residue.
That particular membrane belonged to Dow, and I was hard pressed to find another manufacturer at the entire conference--a clear indication of a tightly controlled market.
The second most common method of desalination (even though it produces about 85% of desalinated water annually) is multi-stage flash distillation. In this process, saltwater is sent through a series of low-pressure chambers where it is flash-boiled into steam. The steam is then condensed on rows of heat exchangers, with the excess heat sometimes used in cogeneration plants for the production of electricity.
Using excess heat and steam for electricity production can reduce the overall cost of desalination by up to two thirds. However, in the Middle East, where most of the world's desalination plants are located, oil is abundant and most of their plants are fired that way.
Desalination Hurdles
In a nutshell, desalination is simply still too expensive. For the same cost as desalination, fresh water from other sources can be pumped to an altitude of 6,000 feet or transported a distance of nearly 1,000 miles. Even in certain areas of the US, desalination still costs five times more than other sources of fresh water.
And then there's the massive amount of energy that these plants consume. Typically, it takes 4 kWh of electricity to desalinate one cubic meter of water. So a 15-million-gallon per day facility would use around 228,000 kWh of electricity. At an average electricity cost of $0.10/kWh, that plant would be spending $28,000 a day just to run. That doesn't include the cost of transporting the water and disposing of saline waste, or the ever-increasing price of carbon emissions.
In my opinion, a plant in Perth, Australia has one of the best solutions. There, they power their desalination plant with renewable energy from the Emu Downs Wind Farm. And a soon-to-be-built plant in Sydney will be run entirely by renewable resources. But using renewable energy--even though it drastically reduces carbon emissions--still adds to the initial capital costs of a desalination facility. And while some communities are willing to sacrifice the additional money for clean energy, the economics, and therefore the investment possibilities, are not good.
So for now, with exception of wealthy coastal countries, widespread use of desalination as a main supply of fresh water is still a pipe dream.
Desalination Stocks and How To Invest
The best way I've seen to invest in desalination stocks is through a medium-sized water desalination company operating mainly in the Caribbean. The company, which I've written about before and included in the Green Chip Water Index, is Consolidated Water Co. Ltd (NASDAQ: CWCO).
Consolidated Water, together with its subsidiaries, engages in the development and operation of seawater desalination plants and water distribution systems in the Cayman Islands, Belize, Barbados, the British Virgin Islands and the Bahamas. The company processes and supplies water to various customers, including public utilities, commercial and tourist properties, residential properties and government facilities.
Consolidated Water is up over 25% for the year and should continue to thrive as the economics of desalination become more affordable. For now, though, this company will continue to make the bulk of its profits from its utility business, providing risk relief from investing solely in a desalination company. And when desalination really takes off, you'll already have a stock position in your portfolio.
For more advances in the desalination industry, and to learn how we're investing in water, stay with Green Chip. And, if you're not already, consider becoming a premium subscriber.
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Until next time,
Nick
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