Will Sun Rise on Dry Lake Bed?

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Will Sun Rise on Dry Lake Bed?
Cadiz Inc.

How do you make money off of tens of thousands of acres of land surrounding a dry lake bed in the middle of the Mojave Desert, miles away from just about everything?

That’s been the challenge confronting L.A.-based Cadiz Inc. since it was founded nearly 30 years ago.

First Cadiz spent a decade trying to cut a deal to store water for local water agencies – only to be stopped by environmental concerns. Then the company made a bid to become an agricultural powerhouse, with only modest results. Then, at the height of the real estate boom, the company figured it could lure developers to its 45,000-acre site; that dream vanished with the popping of the real estate bubble.

Now, Cadiz is making a new play to profit from its land: solar energy development.

The company is marketing its land east of Twentynine Palms as an ideal site for solar energy companies to set up shop. Its desert locale means plenty of sunshine. There’s also a supply of underground water for thermal solar projects. And the site is near a major proposed transmission line that could one day carry energy to Southern California cities.

In its latest quarterly filing with the Securities and Exchange Commission, Cadiz stated it is in negotiations with energy companies that may develop solar energy facilities on the land.

But can this new scheme work where all the past efforts have so far failed to generate a profit?

Maybe, said solar energy analysts and Cadiz watchers.

Investors have been excited about solar power projects in recent years, though enthusiasm dipped after the September 2008 crash of the financial markets. California’s three investor-owned utilities – including Southern California Edison – are under pressure to meet state standards to get 20 percent of their power from renewable resources by the end of this year and 33 percent by 2020.

“Solar energy customers are out there now for the land, and the acreage Cadiz has appears to be a good fit,” said Larry Kosmont, an L.A. economic development consultant who was on the board of the Metropolitan Water District when it rejected the company’s water storage proposal in 2002.

But there are still formidable obstacles to solar power development on Cadiz land. The biggest issue is transmitting power from the site to the power grid. While preliminary approval has been granted for a major transmission route on federal Bureau of Land Management land just to the north of the Cadiz property, it could be a decade or more before an actual power line is completed.

In the meantime, the closest existing connection point to the power grid at an Edison substation 40 miles away; any transmission line would cost millions of dollars to build and would have to cross environmentally sensitive habitat. As a result, it would be certain to generate opposition.

There may also be environmental opposition to any solar project that would use ground water from the site. Plus, any proposal would have to wrestle for approvals from local, state and federal agencies.

“The biggest drawback for Cadiz will be going through all the paperwork and the permitting process,” said Adam Krop, senior analyst for solar energy for Ardour Capital Management in New York. “By the time you get through all these permitting issues and any opposition that might arise, maybe the financing doesn’t hold up.”

British-born entrepreneur Keith Brackpool bought up the 45,000 acres of cheap desert land around the Cadiz and Danby dry lake beds in the 1980s and created Cadiz Inc. to generate income from the land. But profits have been elusive from the start.

Brackpool’s first plan was to use the aquifer to store water and sell that water over time to local water agencies. Cadiz spent millions of dollars trying to negotiate deals and get government approvals. Brackpool also cultivated an extensive network of political connections, giving tens of thousands of dollars in contributions over the years to Sacramento and local elected officials.

In the late 1990s, Cadiz tried to make a water storage deal. The plan called for the Metropolitan Water District to store water in the aquifer beneath Cadiz’s holdings. But environmentalists raised concerns that tapping into the aquifer could harm the region’s sensitive ecosystem and the MWD scuttled the deal in 2002.

Subsequent water storage deals – including one with the County of San Bernardino – have fared no better. The company has tried to grow crops on the site, but the agriculture venture isn’t large enough to offset carrying costs.

Four years ago, Cadiz tried to lure commercial or residential developers to the remote site. But discussions with several potential developers broke off when the real estate market tanked.

Over the decades, Cadiz has racked up losses, mostly due to the carrying costs of the land and the millions of dollars spent trying to get approvals for the company’s water storage proposals. It has had to cover its costs with lines of credit.

Company spokeswoman Samantha Waterman said Cadiz is open to both traditional solar photovoltaic projects and more innovative solar thermal projects, in which solar power is concentrated to a central point to heat up water or some other liquid to generate steam that runs a turbine and produces electricity.

She said the company would not provide further details on the talks with solar power companies or indicate how far along those discussions have progressed.

Cadiz has a potential advantage over many proposed solar projects: It’s on private land.

“With so much government land off-limits or hard to develop, private land like the Cadiz holdings is at a premium right now for solar development companies,” Krop said.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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