The Desal Boom

February 2020

“Thirsty world must wake up to water crisis,” runs one of an increasing number of headlines in recent years. According to the New York Times, 17 countries around the world are currently under extremely high water stress, while according to the Rockefeller Foundation, 1/3 of humanity and is water-stressed every year or season. Whether countries and/or regions are arid to begin with, whether aquifers are being overdrawn due to growing populations or economies, whether fresh water sources are being polluted, or whether climate change is making extreme weather patterns – drought or excess rainfall – more common, it is clear that the issue of water availability is affecting more people and more areas than ever before. The problem is getting worse, and the consequences are getting worse: the World Bank has written that climate change will be the biggest factor increasing the pressure on water supplies in the future, while former Nigerian Finance Minister Ngozi Okonjo-Iweala states that in 2017 water played a major role in conflict in at least 45 countries, particularly in North Africa and the Middle East.

In some places, desalination looks like the answer to this crisis. Desal is definitely booming: the number of plants around the world has quadrupled in the last three decades to over 20,000, and global desalination capacity in operation is up 500% since 2000. More than 300 million people around the world now get their water from desalination plants. As a recent review in Wired notes, for decades, the vague promise – since the first large-scale desal plants were built in the 1960s — that one day oceans of salt water would turn into fresh and quench the world’s thirst has not been matched by much reality. But now several factors have started to change the picture: on the supply side, the costs of desalination have been declining, dropping by more than 50% since 1990; on the demand side, with population booming in many water-stressed places, including big economies such as China, India, South Africa, and the American West, and droughts occurring more frequently, many more places need new solutions. Dry Saudi Arabia produces the most desalinated fresh water of anyone, a fifth of the world’s total, and desal makes up an estimated one-half of total water consumption in the Kingdom. Australia and Israel are also large producers. The industry has now seen somewhere over $300 billion in investments, with an estimated $15-20 billion in annual new capacity investment (author’s estimates).

JONES ET AL/ SCIENCE OF THE TOTAL ENVIRONMENT, 2019

Desalination plants have also become a favorite of many institutional investors. The large capital costs (California’s current wave of plants under construction run to around $750 million each, while Melbourne’s flagship plant was recently completed at a cost of over $3 billion). That level of capital plants makes water utilities more interested in finding private capital to help build projects, and in turn provides the large ticket size institutional investors look for in infrastructure assets – in this case along with stable revenues. In one example the Carlsbad, California, plant changed hands in 2019 from its private equity investors (Brookfield and Stonepeak) to Aberdeen Standard for over $1 billion.

What does the future look like?

In the near-term, current growth trends look likely to continue. California plans to double its capacity in the coming few years, and most of the places that are building new plants today will not see any improvement in their other sources of fresh water. For the industry, that’s good news. The longer term outlook is less clear. The market today is limited to where people are rich, and the cost of building desal plants, while it has come gradually down as producers move down the experience curve and plants get larger, remains prohibitive for low income countries – with no imminent technological breakthroughs on the horizon to produce the kind of plunging capital costs which telecommunications and renewable energy have experienced in the past few decades. Externalities are also significant – in terms of the high energy-intensity of the process and the toxicity of the brine produced, as noted in last October’s New York Times article on the topic — The World can make more water from desalination, but at what cost? And water, unlike electricity and data, remains difficult and expensive to transport over significant distances, limiting almost all consumption to relatively nearby to plants, and in turn sources of sea water. So while this has become a much larger and more attractive market than what is was at the end of last century, and water stresses will increase, we wouldn’t expect either a significant broadening of geographies turning to desalination, or double-digit annual growth rates in desalination going forward – maybe even a plateau in the level of new installations before long. Desalination infrastructure, while new to the party, will also face the same problem as much coastal infrastructure is beginning to face – sea level rise from climate change. As covered previously by Infrastructure Ideas, coastal cities are looking at big bills in the not-very-distant future for either protecting, or moving, infrastructure assets away from rising seas and increased flooding – and it is on these vulnerable coastlines that practically 100% of the world’s desalination plants sit.

The water crisis will continue to loom – and indeed to be present – for many parts of the globe in the coming decades. Desalination will help – expensively – in some places. The answers to the problem for many other places remain unclear, though there are examples of approaches worth following. An instructive example is Cape Town, which two years ago faced its widely-publicized “Day Zero” water crisis [infra ideas], but evaded disaster and got itself in a better position. Cape Town used a mix of water conservation and data management a(diverting some water from intensive agricultural users, a 30% reduction in municipal government use, and restricting car washing and the refilling of swimming pools), and some basic technology (a new water pressure system) – a set of tools in reach of many more water-stressed cities than desalination plants. Better water use and conservation – recycling wastewater, reservoirs, wetlands conservation – ultimately look like more economic and accessible solutions than desalination for much of the world. Inland desert cities – like Tucson and Pheonix in Arizona, pioneers in water conservation and management approaches – may be better models for the developing world than coastal California and Saudi Arabia. And one new technology may help more than desalination: a handful of utilities have begun to experiment with miniature submersible drones. Small underwater machines that are today mostly used as toys may not sound like a big deal – but equipped with GPS and cameras, these drones can help utilities locate water leaks at a tiny fraction of the cost, and in a tiny fraction of the time, of traditional methods – meaning less digging, faster repairs, and dramatically reduced water losses. That could be a very big deal.