The R&D Tax Credit Aspects of Water Desalination

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        This article will discuss the potential development opportunities within the water desalination industry.  It is one of a five part Water Tap series including Water Analytics, Water Recycling, Desalination, Advanced Water Technologies, and The U.S. and Singapore Water Tap Comparison.

        The problem of worldwide water scarcity is a large one.  Growing populations, increasing demand for water, and diminishing freshwater sources have created shortages of water across the globe.  Already 700 million people world-wide suffer from water scarcity; that number is expected to swell to 1.8 billion by 2025.  Many countries around the world such as Israel, Singapore, and Japan rely heavily on desalination technologies to meet the growing water demand. 

        In the U.S., the Midwest has been plagued by relentless, recent droughts with no significant let-up in sight.  The Colorado River is so overtaxed that it rarely reaches the sea.  In California, water from the Sacramento River delta is being rationed off by state officials, cutting off many farmers from their main source of irrigation.  San Diego County, with its hot, dry, and increasingly populated conditions offers insight into where the rest of the country, and indeed the world, are headed.  Many communities are beginning to look toward the sea for an answer.  In order to make sea water potable, desalination technology is required to remove salt from the water.

        Desalination is an old technology that has much potential for development.  There are at least 26 desalination plants in California that utilize innovative technologies to remove salt from seawater and more than 16,000 worldwide.  Still, desalination technology developments have been much slower and more costly than anticipated, especially in the U.S.

        In America, transporting water from aquifers remains the favored method because of the lesser overall costs involved.  However, fresh water sources are inadequate to meet the demand.  Against all the gloom described above, there is good news. Desalination technology has the potential to be made even more cost effective than traditional water sources. 

The challenge for innovators is to lower the costs of desalination technology, which largely involves steep energy usage in blasting water through filters. In order to meet the challenge, investments in R&D must be increased substantially.  Federal and state research and development tax credits are available to support the costs associated with innovation in order to meet this demand. 

The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2014, President Obama signed the bill extending the R&D tax credit for the 2014 year.

Water Shortage: Supply & Demand Problems

        There are both supply and demand-side threats to meeting the necessary water needs.  On the supply-side, groundwater aquifers and freshwater supplies are being withdrawn faster than we can replenish them. Even if there is enough water, much of it is not good enough to meet human consumption needs.  On the demand-side, concern is arising from an increasing, worldwide population and high demand users that are geographically concentrated in regions that cannot sustain such usage.  One solution would be to reduce the demand through conservation.  Water analytics and advanced technologies are available to support this end.  Another alternative, which can be implemented simultaneously, involves increasing the freshwater supply.  This is where desalination comes into play.

Desalination Defined

        Desalination is a term used to describe the extraction of salt and other minerals from water.  The process is useful in producing water suitable for human consumption, irrigation, and many other uses.  It is typically utilized on ships and submarines, however, the technology can also be scaled up to provide flowing water for communities and cities as well.  Nonetheless, due to higher energy costs associated with the process, it generally costs significantly more to produce potable water using this method. The preferred course is still transporting from water reservoirs or extracting from the ground. Still, these alternatives are not available in many regions.  Thus, desalination is a viable option if construction and operating costs can be reduced.

Industry Growth

        Looking forward, the growth of global desalination will be enormous.  Since 2000, the global desalination output has tripled; 16,000 plants are currently up and running around the world.  This pace of construction is expected to increase further in the future.i

        Historically, worldwide, large scale desalination has been disproportionately built up in the Persian Gulf region where there is no alternative for public water supply.  More recently, however, the combination of lower cost membrane desalination and increased water scarcity means that big desalination plants are now being built outside that region. Some of these include large scale investments such as the $3.5 billion Victoria Desalination Plant in Melbourne, Australia completed in December 2012 and the Magtaa Reverse Osmosis Desalination Plant in Algeria which produces up to 500,000 cubic meters of drinking water a day, enough to meet the daily requirements of about five million people. 
Capacity of installed desalination plants
        Other large desalination plants include the Shaoba CCGT Power and Desalination Plant and the Ras Al Kair Desalination Plant, both in Saudi Arabia.  The Ras Al Kair plant is particularly interesting, as it is now the largest desalination plant of its kind in the world. Completed in January 2014, the plant uses the multi-stage flashing (MSF) method and reverse osmosis (RO) technologies to produce 228 million imperial gallons per day or 728 million liters, enough to serve of 3.5 million residents.   

        Although it may seem like desalination plants of this magnitude may be significantly addressing the water shortage problem, it is not yet the case.  Only around 1% of the world’s population is dependent on desalinated water to meet their daily needs. Desalination technology in the U.S. is even less prevalent. Desalination in the United States produces less than .01 % of U.S. municipal and industrial water use.   Moreover, most of these U.S. plants are small facilities built for specific industrial needs.  Indeed, the rest of the world is making comparably more progress in addressing the water shortage issue than here in the states. 

        The accompanying chart shows the gap in worldwide desalination technology when compared with U.S. technology growth.  As you can see, the worldwide scale is accelerating at a far more rapid pace.

        The chart below shows total desalination capacity by country.  As you can see, smaller countries like Saudi Arabia and Japan have significantly more desalination capacity than the United States despite being only a fraction of the size.

            Desalination Capacity by Country

California Awaits Desalination Plant Construction   

        California is a U.S. region where the water shortage issue is particularly prevalent. Water utilities there have a vested interest in ensuring an adequate water supply. Yet some utilities in the state are experiencing difficulties maintaining this mission. California is currently in the midst of a four year drought.  Its local reservoirs are currently at less than 30% capacity.   Governor Brown recently declared a drought state of emergency and directed state officials to take all necessary actions to prepare for water shortages.  As the state awaits construction on the largest desalination plant in the Western Hemisphere, county workers and volunteers have been going door to door providing bottled drinking water to residents. Aside from expanding desalination use, all other options to quell the problem, including conservation, have been exhausted.

        The Carlsbad Desalination Project aims to address these issues.  It will provide San Diego County with a locally controlled, drought-proof supply of high quality water that meets or exceeds all state and federal drinking water standards.  Consisting of a 50 million gallon per day capacity and a 10-mile water delivery pipeline, the main objectives of the plan are to:

  • Provide a local source of potable water to supplement imported water supplies
  • Improve water supply reliability
  • Improve water quality
  • Complement local and regional water conservation and water recycling programs

        It is expected that the project will be delivering water to businesses and residents in San Diego County by late 2015.   While the project adds only 10 percent of the county’s water delivery needs, it will be reliable and drought-proof, providing a hedge against possible droughts down the road. 

        The technology involved is both traditional and innovative. First, water will be treated and filtered with 18 house-sized, concrete tanks filled with sand and charcoal.  Next, the water will be pressurized through a stainless steel pipe measuring one meter in diameter before reaching the more innovative filtering process. 

        The technique used is referred to as reverse osmosis.  It has been around now for more than a few decades.  Engineers however, have developed the concept to include many innovative features in order to provide cost efficieny, reliability, and durability.  Reverse osmosis, however, is not the only available desalination technology.  Other novel approaches are also discussed in the subsequent sections. 

Reverse Osmosis

        Reverse osmosis (RO) is a water purification method that utilizes a semi-permeable membrane to remove unwanted particles from drinking water.  Basically, water is forced through a filter which allows the water molecules to pass through while blocking the salts and other inorganic impurities.  In the normal osmosis process, water moves from an area of low solute concentration, through a membrane, to an area of high solute concentration.  The following chart demonstrates the difference between the two approaches:

Mechanism of osmosis and reverse osmosis
 Source: Desalination System Design

        Much of the innovation in reverse osmosis technology surrounds creating efficient and reliable systems while reducing energy costs. An ideal system removes all pathogens, bacteria, and viruses while reducing color, turbidity, and mineral content and at the cheapest cost.   Pumps, pressure vessels, valves, control panels, and other instruments are continuously developed in order to maximize durability, capacity, and efficiency.  Particular engineering and design elements can lead to significant cost savings on large projects.   Perhaps the most important aspect to producers is that the system be able to operate on minimal electricity usage. Modest reductions in desalination electricity usage are expected to have substantial market value. 

        Theoretically, seawater can be desalinated at 1 kwh/m3 of water treated.  However, in practice, total energy requirements for the plant are closer to 3-4 kwh/m3 of water treated . With advances in new RO membrane technology, water can potentially be produced cheaper using reverse osmosis than from using traditional methods such as transporting water from aquifers.  Given this fact, the global desalination market is projected to grow significantly in the next decade.  Global innovators that can produce energy efficient technology will benefit most from the expansions. With this, there is strong interest in optimizing the amount of energy usage closer to the theoretical minimum.

        There are several approaches to doing this. Advances in pressure recovery devices, heat exchangers, pretreatment processes, and integrated data monitoring systems all provide avenues toward the theoretical minimum. A great deal of research and innovation has been focused on membrane chemistry. Changes to the formulation and different methods of membrane production allow for small efficiency improvements, which can be translated into large savings.

Feed Spacer Innovation

        The next innovation in line for the industry involves filtration efficiency techniques that come from the feed spacer.  Many researchers, from academia and industry, are developing creative designs in the simple plastic netting.  Conwed Global Netting Solutions, based in Minneapolis, provides netting technology for the water filtration systems and has invested significantly in R&D that aims to address three common problems associated with the feed spacer, which are discussed below.

I. Pressure Drop
        It takes a lot of force to push water through the membranes which translates into high energy costs.  Maintaining the optimal pressure level during this process is very important in controlling costs.  Any decrease in pressure represents a loss in applied feed pressure and hence a loss of efficiency, energy, and money. Conversely, any increase in pressure represents a direct savings to the plant. This is however an over-simplization of the process because when the pressure level is too high certain negative trade-offs will occur.
        In an RO plant, the applied pressure comes ideally as much as possible from high feed stream throughput, and not from overcoming feed spacer resistance. But a feed spacer with no resistance isn’t the answer either, because RO elements require turbulence in the feed stream to work efficiently. That turbulence comes mostly from the water rushing through the feed spacer. This is important because it reduces salt buildup on the membrane. To address the challenge of pressure drop, researchers at Conwed are experimenting with feed spacer configurations for optimum flow while still trying to maintain a sufficient degree of turbulence. While more testing remains to be done, the feed spacer may have a role to play in reducing pressure drop to optimal levels in order to control energy costs.

II. Membrane Damage
        Part of the innovation behind desalination technology involves creating more durable filters. RO membranes themselves are susceptible to damage during the manufacturing process when they are tightly pressed against the feed spacer. In addition, the feed spacers need a high degree of dimensional stability—that is, stiffness— to maintain separation between the membranes. The stiffer the feed spacer, the more likely it is to damage the membrane. A softer feed spacer, for instance, one made from resins other than polypropylene, is gentler on the membrane but can compromise some of the stiffness and stability.

        RO membrane elements undergo extensive quality control checks before being shipped, including testing for performance and durability. Elements with membrane damage can’t be repaired.  Instead, they are discarded, and accrue to the membrane manufacturer’s scrap rate, driving up costs. Research has suggested that changes to feed spacer resins might offer breakthroughs in terms of the tradeoff between structure and membrane damage. Ongoing testing indicates there might be gains to be made in feed spacer structure without causing membrane damage, but determining that requires an effective way to test the spacers to predict potential membrane damage.

        The innovation team at Conwed is testing different chemical configurations and the impact they may have on RO membranes. “Right now there’s not really a standard way to test membrane damage without winding an element,” says James Kidwell, leader of Conwed’s Innovation and Technology Team. Conwed is attempting to measure and predict what impact different feed spacers will have on membranes during the winding process (the process of rolling up the materials in the cylinder filter). The ultimate goal is to develop even higher quality feed spacers, with the potential impact on membranes tested, measured, and documented.  All of which is R&D intensive.

III. Biofouling
        Biofouling occurs when unwanted microorganisms and algae grow on the feed spacer or membrane surfaces. Biofouling could happen in any RO desalination system and it causes two main problems for RO plants.  The first is clogs in the membrane and the feed spacer, leaving less permeable area. This increases flow resistance and leads to higher pressure drop, causing the RO plant to pump higher pressure water involving more energy use.

        Second, bio-fouling also impairs the quality of the permeate water. To address these problems, RO membrane elements have to be cleaned, which causes a reduction of available RO membrane units for water production. All of these factors contribute to an increase in water production costs. With this in mind, Conwed is evaluating the impact different feed spacer configurations might have on biofouling. Similar to the pressure drop and membrane damage experiments, current biofouling experiments have proven that further R&D is absolutely warranted .

        There is much progress to be made with reverse osmosis technology.  RO however is not the only innovative water desalination technology.  The multi-stage flash method, solar still method, and new electricity method are discussed below.

Multi-Stage Flash Method

        Multi-stage flash (MSF) distillation is the most widely used desalination process, accounting for about 60% of all desalinated water in the world.  MSF plant separates water from salt by evaporating the water and collecting condensation. This occurs in sequences, with a hot end, a cold end, and intermediate temperatures in between. 

        The reason for letting the evaporation happen in multiple stages rather than a single stage is to conserve energy.

        The MSF method is more energy efficient compared to single stage methods.  Like most desalination technologies, the innovation here is largely focused on cost reduction.  Market prices over the past few years have showed a constant reduction in terms of investment cost per unit installed, despite price increases in raw materials and inflation. 

            Flash Method

        Some other recent innovations, however, involved choices of materials which provided not only cost containment benefits, but also better performances at the plant.  For example, duplex stainless steel has become the most frequent material for the evaporator shell, instead of the previously used CuNi alloys.  Adjustments to the thickness of the tube bundle also gave several similar cost containment and performance benefits.

        Other areas for innovation involve reducing the amount of energy required by the brine heater or steam transformer, reducing the amount of steam required by the vacuum system, and advancements in the electric power pumps.  These innovations however, are merely scratching the surface of possibilities.

Solar Stills

        Solar still technology is a method which separates salt and water through the evaporation process.  Versions of this technology have been utilized for thousands of years. However, using solar power to remove salt from drainage and seawater is still a rather an unconventional approach.  Nonetheless, it is a promising method of desalination due to the availability of seawater and strong levels of solar Concentrated Solar Stillradiation throughout the world. 

        It uses concentrated solar still (CSS) technology to evaporate and distill water from practically any source by removing salt and other impurities on-site.  Equally beneficial, the system can store and recycle the excess heat energy it generates, enabling it to run 24/7 during sunny stretches. Moreover, the system is modular which allows for scalability – simply double the number of modules in order to double the output. 

        Water FX, based in San Francisco, is currently using the technology to provide water for California’s Central Valley.  The company's 6,500-square-foot test facility in Firebaugh can produce up to 65,000 gallons of pure water per day from various sources. The idea allows farmers to reduce their reliance on municipal water facilities.  Nonetheless, many farmers are reluctant to accept the innovative technology.  One major hurdle is to convince them to accept the new approach.

Electricity Methods

        University researchers have been developing a technology that uses small electronic fields to separate the salt and water particles. To achieve desalination, researchers at the University of Texas at Austin apply a small voltage to a plastic cup filled with seawater.  Using an electrode chip that contains a micro-channel with two branches, the chip neutralizes some of the chloride ions in the seawater to create an “ion depletion zone”.  The electric field redirects salts into one of the branches on the chip.  This allows desalinated water to pass through the other branch. The new method is considerably simpler than conventional methods, and is so low energy that it can be performed with energy provided by store bought batteries. 

        Researchers have not yet been able to achieve the 99% desalination that is required to make the water potable.  Nonetheless, they remain confident that this goal is very achievable.  They describe the experiments as a “proof of principle” says Kyle Knust, a graduate student and co-author on the new research paper.   Knust says, “We’ve made comparable performance improvements while developing other applications based on the formation of an ion depletion zone. That suggests that 99% desalination is not beyond our reach .”

        Nonetheless, the process would still need to be scaled up so that its use could provide water in mass amounts.  As of right now, the micro-channels are about the size of a human hair, and produce only about 40 nano-liters of desalted water per minute.  Researchers are confident, however, that larger scale production can be achieved, creating a future in which the technology is deployed at different scales to meet different needs.  Other universities are developing innovative desalination technologies as well.

University of Manchester (UK)

        The University of Manchester has been stirring up much academic and industry interest with its new filtration technology ideas.  Scientists there are using a material known as Graphene  to draw water more effectively through the filters.  The interesting paradox is that the material commonly known for its hydrophobic (water fearing) properties is actually being used to vigorously suck water through the filter, allowing for rapid permeation.  Two years ago, researchers discovered that thin membranes made from the material were impermeable to all gases and vapors except for water. This makes for a good filtration material. The real benefit, however, lies in the unique characteristics of the material which allows for very rapid water permeation.  This technology would be useful in filtration oriented technologies such as reverse osmosis.


        Looking forward, desalination technology will be a critical part of the world’s water supply. Desalination technology developments have been much slower and much more costly than anticipated however, as innovators develop new and existing technologies, the cost of water desalination will hopefully decline significantly in order to make the technology widespread.  Federal and state R&D tax credits are available to support these innovative activities.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Michael Wilshere is a Tax Analyst with R&D Tax Savers.

Adam Starsiak is a Tax Analyst with R&D Tax Savers.