Desalination plant developer Poseidon Water received an apparent boost in January, when its proposed Huntington Beach, Orange County, desalination plant turned up on a list of infrastructure projects favoured by the new US president Donald Trump.
Presidential backing for the project that California regulators are putting through its paces before deciding whether to grant permission to build, appeared to signal that it may receive a boost through the permissions process.
Carlos Riva, chief executive of the developer that has won plaudits for another southern California desal project, the Carlsbad desalination plant in San Diego County, is playing down the significance of the president’s endorsement.
“That is still evolving, and is not yet a policy. Things are moving around,” he says. “I am not 100 per cent sure what the meaning of it is and where it stands.”
Given what is shaping up to be a tumultuous time ahead for the US Federal environmental regulator, the Environmental Protection Agency (EPA), under the administration of Trump appointee and climate change sceptic Scott Pruitt, Riva does not expect a change in approach by California state regulators to Huntington Beach.
“Permitting for seawater desal is going to be challenging and rigorous, and there
aren’t going to be any shortcuts.” Carlos Riva, Poseidon Water chief executive
“States such as California that have been very rigorous, I don’t see that changing. They are people who are passionate about protecting their environment,” he says. “Permitting for seawater desal is going to be challenging and rigorous, and there aren’t going to be any shortcuts. Anyone who wants to get involved in this business is going to have to roll up their sleeves and do all the hard work of very in-depth studies, and prove that their impacts on the environment generally, and in the marine environment especially, are going to be de minimis.”
The idea he takes confidence from is that Carlsbad desalination plant has set a positive precedent for projects of this type in California, and potentially beyond.
“It is the largest and most technologically advanced, energy efficient and environmentally friendly seawater desalination project in the western hemisphere. We are very, very proud of that. It has concluded its first year of operation and has had a very successful operating year,” Riva says.
Particularly, he points to the number of community and water industry visitors who have taken time to look around the site and to engage with its story. “We have had literally thousands of visitors, from students to local residents, other parties from around the state and folks from around the country who are interested in possibly developing other seawater desal.”
And although Riva says that neither Carlsbad nor Huntington Beach was conceived as a direct response to drought — instead, he positions them as providing reliable and local sources of water as opposed to imported sources that are potentially subject to interruption — the public perception of Carlsbad has benefited from it reliably providing water against a backdrop of ongoing drought in southern California during 2016.
“California has been through a multi-year drought of very significant scale. The last couple of months there has been lot of precipitation, there is snow in the Sierra Mountains, and there has been rain; and that has relieved the drought situation,” says Riva. “But these projects, Carlsbad and Huntington Beach, were begun well before this most recent drought. The fact that we’ve had a couple of wet months doesn’t really change anything.”
He sees Carlsbad as a “very important symbol” of what public-private partnerships in the water sector can achieve. “A lot of people from water districts in other states that are interested in doing either desal or public-private partnerships for assets in their area, have come to tour the plant and to speak with our partner San Diego Water Authority, to learn about the experience. They’re asking, ‘Why were they comfortable with allowing a private entity to do this?’, and ‘How they were able to interact and to make sure that the project was built to their standards and specifications?’
The same holds true for environmental concerns. “Here you have a facility that’s operating that people can come and kick the tyres if you will, and make decisions based on facts, rather than hyperbole,” says Riva.
“People are emotional about water, and so you need a different mindset.”
Carlos Riva, Poseidon Water chief executive
As a private entity working in the water sector, Poseidon has evolved a capability particularly around managing relations with the local communities that it serves. “From the private developer’s perspective, it’s important to appreciate that the partnership is between a private entity and a community. And it may be a public agency but they are representative of the community, and so you need to keep that in mind,” he says. “We spent a lot of time attending the public meetings.”
The developer has learned to operate with a high degree of transparency in its process, and lots of involvement by the community through their water agency. “People seem very emotional about water supply, and so it takes a different mindset, you need to understand that and to adjust your approach accordingly,” says Riva.
One aspect of community relations is managing perceptions around the cost of water. As a developer, Poseidon provides capital to build, and arranges the debt to finance, its projects, and bears the construction and operating risks. This means that it typically wants to reap a relatively higher return earlier in the water contract in order to service debt, but over time that the debt burden should ease off. “You have to compare the price to the alternatives that the communities have. If you build one of these projects you’re importing less water. So you compare the cost of this water to the cost of imported water. In the first year of operation, the water from this new plant is more expensive than imported water, but you’re talking about a 30-year contract,” Riva says. The rate of increase in water prices over time is expected to be lower from the desalination plant compared to imported water.
“When the agencies did their analysis, they concluded that at some point within the first 10 years of operation, the water from the desalination plant becomes less expensive, and when you look at it over the 30-year period, this water should be cheaper than the cost of imported water, if history is any guide to the potential escalating prices,” says Riva.
Unlike other participants that are building similar size projects in the water sector, Poseidon doesn’t have a proprietary technology. ”We select what we think is the best technological solution, and then hire process providers to engineer that, build it, and operate it on our behalf. We have the skills and the domain expertise to be able to put these projects together. We have expertise in finance, permitting and contracting in order to assemble a project that can then be moved onto the engineering design, and construction phase,” says Riva.
So where, beyond the Huntington Beach project that continues to wend its way through permitting, are the opportunities for just such a desalination developer in the years ahead?
“Mexico and Brazil have come on our screen again more recently, and we are starting to prospect, particularly in Mexico,” says Riva. And there is the growing market in the US for water reuse projects, including in Florida and Texas, which Riva considers Poseidon particularly well-placed to develop.
“Reuse is one of these areas that suits a private developer, because there’s a high degree of complexity and expertise needed. A lot of public agencies have those skills, but a number would rather not take on projects of that complexity and the risks associated with them. They want to pass off those kinds of risks to a private sector developer that has a track record in doing this,” he says.
Poseidon is “quite bullish” about opportunities generally in the US, and elsewhere. While it’s not necessarily the case that experience of the permitting process in California will be directly applicable elsewhere, the skills involved in bringing projects forward to construction stage are highly transferable.
“Reuse in the US is definitely an opportunity for growth because the biggest impediment to it has been public acceptance. Studies show that’s changing over time. People are gaining greater confidence in the ability to clean up the waters, and from a technical standpoint it’s clearly doable, and we think that increasingly you will see communities that want to do that,” says Riva.
With 20 years experience in the bag, and markets seemingly in need of its particular combination of capabilities, this water project developer has much to look forward to.
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