Consolidated Water has expanded into Asia with plants to convert seawater into fresh water

Pat McKeough responds to many personal questions about specific stock advice and other investment topics from the members of his Inner Circle. Below is an excerpt from a past answer to a member’s question on Consolidated Water and its operations that convert seawater into fresh water. We’re re-sharing this past post to highlight our weekly Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

In this past answer, Pat explains the process of desalination and the advances the industry has already made. He also examines the future prospects for this process and whether the demand for fresh water will lead to strong growth for Consolidated Water.

Q: Hi, Pat. Can I have your thoughts on desalination (seawater into fresh water) and a stock called Consolidated Water? Thanks.

A: Desalination is the process of removing excess salt and other minerals from seawater. It’s also used where saltwater has entered underground freshwater aquifers.

Right now, there are more than 14,500 desalination plants operating in over 120 countries. In all, these facilities produce more than 45.4 billion litres of fresh water a day. About three-quarters of these plants are in the Middle East. That’s because desalination plants are very expensive to build, so they’re only really cost-effective where there is no fresh water. When fresh water is available, it can be pumped up to 1,600 kilometres and still cost less per litre than water from a desalination plant.

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One of the world’s largest desalination plants is the Jebel Ali Desalination Plant in the United Arab Emirates. Converting seawater into fresh water, this facility can produce 829 million litres of water per day. By comparison, one of the largest desalination plants in the U.S. is in Tampa Bay, Florida. That plant can produce 94.6 million litres of water per day.

The most common method of converting seawater into fresh water (now used in around 85% of desalination plants) is flash distillation. In this process, saltwater flows through a series of low-pressure chambers, where it is flash boiled into steam. The steam then condenses on rows of heat exchangers and forms water. Cogeneration plants sometimes use the excess heat from this process to generate electricity. That can cut the overall cost of desalination by up to two-thirds.

Another method, now used in most new desalination plants, is reverse osmosis. This process pressurizes saltwater then forces it through membranes that separate the salt from the water. Reverse osmosis uses less energy than flash distillation. As a result, it has become a more popular means of converting seawater into fresh water as energy costs rise.

Consolidated Water expands to Asia with new project in Bali

Consolidated Water,  symbol CWCO on Nasdaq (www.cwco.com), develops and operates reverse-osmosis seawater desalination plants and water distribution systems where naturally occurring supplies of drinkable water are scarce or nonexistent. Consolidated Water is based in the Cayman Islands and pays no income taxes.

The company owns and operates water production and distribution plants in the Cayman Islands, Belize, the British Virgin Islands, the Bahamas and Bermuda. It also holds a majority ownership of NSC Agua, a Mexican company that is developing a 100-million-gallon-per-day desalination plant near the Mexico-California border. This facility would provide water to southern California and the Baja Peninsula.

The Bahamas is home to the largest projects that Consolidated Water has completed to date. Its Blue Hills plant, which was built in 2005 and expanded in 2013, is the largest diesel-based reverse osmosis desalination plant in the western hemisphere. It has worked closely with the Water and Sewerage Corporation of the Bahamas to develop solutions to improve the availability of potable water for residents in Nassau. The expansion of that facility has eliminated the need to bring water to Nassau in barges in order to meet the growing demand.

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members.

Are you willing to invest in a process that is still under development and not widely profitable, like desalination or wind or solar power? Have you had success with any stocks like this?

Have you had any experiences that would discourage you from investing in a similar stock in the future? Let us know what you think.

This article was initially published in 2013.