By Nick Hodge

Everyone Pays, You Profit

It’s been some time--over two months--since we discussed the water industry, and I figured it was time we dove back into it.

Right now, there’s a story erupting in California that brings increased validity to what I’ve been telling you would happen to the world’s supply of freshwater. It’s disappearing.

In California, just inland from the San Francisco Bay, the Sacramento Delta is facing increased pressure to remain the state’s natural purifier of water. It’s where the freshwater from California’s rivers meets the salinity of the Pacific Ocean, and where more than 55% of Californians get at least some of their drinking water.

But, according to geologist Jeffrey Mount, “The delta of today is not sustainable even under today’s conditions, never mind climate change.” His quote is referencing rising sea levels that are threatening to turn the delta’s lush freshwater system into a salty fen, while flooding out its residents and farms.

Basically, what’s going on is a phenomenon I discussed in the article Investments in the Water Sector, called saltwater intrusion. It happens when rising seas push saltwater inland to areas that traditionally house freshwater. And since the Sacramento Delta rests below sea level, protected only by levees, this is happening at an alarming rate.

If nothing is done, engineer Jay Lund thinks, “The levees will fall down, the saltwater will come in, and you will not be able to pump water from the delta.” That would leave at least 20 million Californians without part of their freshwater supply.

To fix the problem, either the sea has to stop rising or the levees have to be lifted. Both options would present legendary investment opportunities, but only the latter is even potentially feasible at this time.

Mount says, “Just to raise the levees one inch in this delta would cost you more than $100 million in materials.” And there are situations like this around the globe, making for a multibillion dollar investment opportunity.

And what makes this situation particularly interesting is that measures have been proposed to solve it for over 25 years. The most prominent proposed solution is the diversion of freshwater before it even reaches the delta through a series of so-called peripheral canals. But that plan has been perpetually struck down in votes because northern Californians view it as giving their water away to the south.

Plus, that plan would only solve the freshwater issue, not the flooding issue. And with so many players involved in this water game--agriculture, urban water districts, land developers and environmentalists--it would be a miracle if anything gets done at all.

Maybe they should take note what’s happening across the pond in Africa.

Integrated Water Resources Management

In Arumeru, in the Arusha district of Tanzania, the economic value of water is being promoted for the integrated management of resources. That was the proposal after the Arusha Urban Water Supply authority began to take water from Arumeru with no compensation and sell it to other towns for a fee.

With water in such high demand in Africa, all parties involved in the debate had a strong stance. Villagers from the town whose water was being taken wanted compensation for it, since the cost of preserving the water source fell on their shoulders.

The best solution to the spat came in the form of Integrated Water Resources Management, a scheme originally put forward by the Inter-American Development Bank and already in use by the Umbeluzi River Basin, which includes Mozambique, Swaziland and South Africa.

Per the Inter-American Development Bank website, Integrated Water Resources Management is “directed toward supporting water resources planning, policymaking and management through development of a Bank strategy that considers several issues associated with the core problem of developing multiple sources and managing multiple uses (municipal, industrial, irrigation) of water so that, over time, more efficient water resource supply systems and use patterns emerge, while maintaining or improving ambient water quality.”

A complicated synopsis, I know. But it essentially boils down to everyone paying for their impact and use of water resources. Citizens must pay their part for water and wastewater treatment. Farmers must pay not only for the water they use, but also for how their operations affect water resources by way of fertilizer and waste runoff. You get the idea.

The end result is increased sustainability--both economic and environmental. And as we see this more and more, not only in Africa but in other places where water tensions are high, like California and the US Southeast, we’ll also see increased investment in water-related businesses.

More and more, we’ll see that increased investment go to companies besides water utilities. Companies that control purification, desalination and preservation technologies will see intensified business and revenues.

With time for just one quick example, I’ll choose one on the preservation side. Qonnectis Plc (LON: QTI), a data communications specialist for water and energy utilities, recently unveiled a device that detects leaks in water systems and reports them either to the homeowner or to the utility.

The device is called Leakfrog, and as water becomes more and more commoditized the use of it is bound to increase. Since releasing this product for sale on December 20, Qonnectis’ stock has jumped 30%. Take a look at the chart:

Opportunities like this are going to continue to appear. The water crisis is only in its infancy, but is starting to gain traction. For more in-depth analysis on ways to profit from Integrated Water Resources Management, keep tuned to Green Chip Stocks.

Until next time,

Nick
http://www.energyandcapital.com/