In California, What Price Water?

At the moment, the seawater is being diverted from the ocean to cool an aging natural-gas power plant. But in three years, if all goes as planned, the saltwater pulled in at that entryway will emerge as part of the regional water supply after treatment in what the project’s developers call the newest and largest seawater desalination plant in the Western Hemisphere.

Large-scale ocean desalination, a technology that was part of President John F. Kennedy’s vision of the future half a century ago, has stubbornly remained futuristic in North America, even as sizable plants have been installed in water-poor regions like the Middle East and Singapore.

The industry’s hope is that the $1 billion Carlsbad plant, whose builders broke ground at the end of the year, will show that desalination is not an energy-sucking, environmentally damaging, expensive white elephant, as its critics contend, but a reliable, affordable technology, a basic item on the menu of water sources the country will need.

Proposals for more than a dozen other seawater desalination plants, including at least two as big as Carlsbad — one at Huntington Beach, 60 miles north of here, and one at Camp Pendleton, the Marine Corps base — are pending along shorelines from the San Francisco Bay Area southward. Several of these are clustered on the midcoast around Monterey and Carmel.

The San Diego County Water Authority has agreed to buy at least 48,000 acre-feet of water from the plant each year for about $2,000 an acre-foot. An acre-foot equals about 326,000 gallons, roughly enough for two families of four for a year. The authority has made a long-term bet that those costs — now double those of the most readily available alternative — will eventually be competitive. But it still means the authority will pay more than $3 billion over 30 years for only about 7 percent of the county’s water needs.

As Sandra Kerl, the deputy general manager of the authority, said in a recent interview, “There’s a lot of eyes on this.”

The technology used in the Carlsbad plant, known as reverse osmosis, was developed decades ago. It involves pushing the water through a series of microscopic sieves rolled up into larger cylindrical filters. The energy-intensive process separates pure water from both salt molecules and impurities. The filters, some of which are made locally, are cheaper and more durable than they were a decade ago, industry accounts say, bringing down the overall price of the plant and its operations.

In the Western United States, where the complexities of water law and heavily subsidized federal and state water projects have complicated the economics of water delivery and hamstrung any widespread development of water markets, the Carlsbad plant offers a peek into a future when water prices reflect the actual cost of procurement and delivery. David Moore, a managing director of Clean Energy Capital, financial advisers to the San Diego County authority, said the water authority had “made the call that over time this water is going to be more affordable than other sources. That was the fundamental risk of the transaction.” The price of water the authority now gets from the Metropolitan Water District of Southern California is about $1,000 an acre-foot.

The bet on this technology was not an obvious one; the recent history of desalination in the United States and Australia has been mixed, at best. Some recently constructed Australian plants are flourishing while others stand idle some of the time. In this country, technological missteps, delays and bankruptcies dogged the first big plant, which finally opened in Tampa in 2007.

“Tampa was a buzz kill for the sector,” Mr. Moore said.

So the Carlsbad plant is being watched not just for its performance or its effect on the local marine environment, but for its financial architecture.

Mr. Moore and other financial advisers are trying to make investors and bondholders comfortable with the technology by mimicking the financial approach of a merchant power plant — for instance, substituting a “water purchase agreement” for a “power purchase agreement,” to show that Carlsbad’s water has a guaranteed market.

In California, What Price Water?