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Desalination meets data in $1.5bn California development

The Monterey Bay Regional Water Project nearly has enough commitments to move forward with a scheme that can generate multiple revenue streams from desalination and data centre cooling.

A California firm is nearing financial close for an initial round of fundraising for a project combining ocean water desalination and data centre cooling.

Deepwater Desal is in negotiations with investors to reach the $20 million mark for its first round of fundraising to pay for the permitting and design of a $1.5 billion project that desalts ocean water while cooling a 150MW data centre in the Salinas Valley, according to the company's strategic and financial advisor, Thomas Schumann. He said the project has received $11 million so far from individual investors and Deepwater's founding partners.

The Monterey Bay Regional Water Project is “pretty customised” to the Salinas Valley community, Schumann said, an area in central California 75 miles south of the Silicon Valley tech hub and one that is facing an acute water scarcity. The project will desalinate ocean water to be used by the local community and will also cool the data centre operating at its facility.

“The beauty is that you have several profit centres,” Schumann said. “You have so-called water offtake, water supply agreements, and then you also have the data centre, which is a profit centre in itself.”

It will also provide an injection of capital into a region Schumann described as California's “richest poor” city. The Monterey and Salinas Valley areas are close enough to feel the effects of the booming San Francisco region but it struggle with high unemployment and crime.

After the initial round of fundraising completes, Schumann said Deepwater is aiming for a $535 million financial close, 80 percent debt and 20 percent equity, by 2019 for the second tranche of the project that will build the water infrastructure. An $800 million fundraise for the data centre will follow.

Desalination is a nascent technology that has raised concerns about project costs and environmental hazards. North America's largest facility, the Carlsbad Desalination Plant north of San Diego, opened in California in 2015 with a $1 billion price tag and has drawn ire from government agencies over how it disposes of brine, the salty excess removed from ocean water.

Despite these concerns, desalination is still a needed service in California, which is why local water utilities still signed a 30-year offtake agreement with the Carlsbad plant for the entire output of the facility.

Schumann said that although desalination is a new sector, it fits the typical model for infrastructure investments with long-term cash flow, capital appreciation and low volatility and “somewhere between 8 and 12 or more percent” yield.