The Poseidon Adventure: California Embarks on Desalination

In Carlsbad, California "more than 300 construction workers are digging trenches and assembling a vast network of pipes, tanks and high-tech equipment" for a new desalination plant being developed by a private venture.  When completed in 2016, this $1 billion project will provide 50 million gallons of drinking water a day for San Diego County.

Here's the San Jose Mercury News: 

Fifteen desalination projects are proposed along the coast from Los Angeles to San Francisco Bay. Desalination technology is becoming more efficient. And the state is mired in its third year of drought. Critics and backers alike are wondering whether this project ... is ushering in a new era.

From the private developer's website: 

Poseidon Water is a project development specialist that partners with water agencies to deliver water infrastructure projects. Our primary focus is on the development of large-scale reverse osmosis seawater desalination plants. At the end of 2012, Poseidon reached financial close of the Carlsbad Desalination project, which, post-construction, will be the largest seawater desalination plant in the Western Hemisphere.

The completed plant is expected to deliver approximately seven percent of the City of San Diego's water supply by 2020.  Construction cost is reported to be about $560 million.  The San Diego County Water Authority has committed to purchase a minimum of 48,000[1] acre feet of water per year for 30 years at a price from $2,014 to $2,257 an acre foot for the water, depending on how much it buys. With that guaranteed annual revenue stream of $101 million per year, Poseidon and its investors were able to sell bonds to finance the project. The company will be guaranteed a rate of return between 9 and 13 percent, depending on operating costs.

[1] An acre foot is approximately what a family of five uses for a year.  So the 48,000 acre-foot commitment will be sufficient for a bit over 60,000 households.  

Here is Poseidon's description of their public-private-partnership elements:

For large-scale desalination projects the features of a Public-Private Partnership include:

• Long-term water purchase agreement
• High service quality and statutory requirement adherence
• Timely construction and project implementation
• Energy consumption and price increase allocation
• Performance-level guarantees for operator
• Fully-insured, turnkey, fixed price and date-certain engineering, procurement and construction contracts
• Adequate return on investment for debt and equity investors

Poseidon seeks to partner with water agencies, investors, project operators and contractors in order to structure projects where all parties receive project benefits commensurate with the risk of their project contribution.