Desalination equipment maker sees rapid growth

SAN FRANCISCO (Reuters) - Energy Recovery Inc, which makes equipment for desalination plants, sees the industry that converts sea water to fresh water growing as much as 25 percent annually and is looking to expand its operations through the acquisition of new technologies.

“It’s an exciting place,” said G.G. Pique, president and chief executive of Energy Recovery. “We see it growing at 20 percent to 25 percent per year for a long time.”

Energy Recovery produces equipment for desalination plants that cuts energy use by 60 percent.

Desalination needs pressure about 40 times higher than from a tap at home, which requires a lot of energy to create. The Energy Recovery product transfers pressure from the waste stream of brine to the incoming seawater.

The primary method of desalting water is reverse osmosis, which pushes water under high pressure through fine membranes that separate out the salt.

Pique said that costs of desalinated seawater had become competitive for many urban users because of fast-rising rates for other water sources. He said desalination plants today could produce water for about 72 cents per cubic meter.

That would be about $1.09 for the 400 gallons per day an average U.S. household of four would use. California municipal water rates are generally $1.10 to $1.20 per cubic meter, he said.

Many other sources may still be cheaper, though. Preliminary results of a study by the public policy group Los Angeles County Economic Development Corporation put the cost of ocean desalination at slightly higher than Energy Recovery and said that water conservation and stormwater capture and groundwater storage were all significantly cheaper options.

Energy costs account for about 40 percent to 50 percent of the cost of desalination, which has given it a reputation for being expensive as well as bad for the environment in a world focused on carbon emissions from energy.

But energy costs for producing desalinated water in southern California are comparable with costs for transporting water to the region from major sources in the north of the state and the Colorado River, he said.

“That’s mind-blowing,” he said, adding that high water costs and an improving financial sector are changing the picture for state desalination. “California is coming alive.”

Most of the world’s high-capacity desalination projects are in the Middle East, though a handful of relatively small desalination plants operate in California now.

Advocates of desalination tout its potential for limiting the strain on scarce water supplies and easing the environmental consequences of diverting freshwater from rivers and streams and pumping it long distances to urban centers.

Many promising technologies, particularly desalination membranes developed by nanotechnology, aim to further reduce the cost of producing drinking water from sea water by reducing the amount of energy used in the process.

Such technologies could potentially reduce the use of energy in the process by 20 percent, Pique said

Pique said Energy Recovery is interested in investing in new membrane technologies, especially promising nano technology membranes.

“We follow all the technologies,” he said, adding that the company has $80 million cash and could also use its stock as currency for any acquisition.

The company, which made $550,000 on revenue of $9.5 million during the third quarter, expects to make a profit of as much as $4 million for fiscal 2009.

Energy Recovery expects to book as much as $48 million in revenue for the year and has forecast its net revenue will increase by 25 percent in 2010.

Pique said the company sees a lot of potential in India, where a large percentage of the population doesn’t have ready access to fresh water.

“India is our busiest place right now,” he said.

San Leandro, California-based Energy Recovery has said it has more than 50 percent market share for global desalination plants and has grown more than 40-fold in the past seven years.

Reporting by Peter Henderson and Poornima Gupta, editing by Gerald E. McCormick and Matthew Lewis