Quenching Growth: How New Desalination Plants Could Boost ASX Stocks

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Australia has a dry climate, making it the second driest continent in the world, prompting the country to rethink how it sources its most essential resource: water.

FNArena reviews the desalination plant boom alongside the ASX companies poised to benefit most.

By Jason Collins

The solution to this growing problem is billion-dollar desalination plants. In recent times, Australia has begun investing heavily in desalination projects, such as Perth’s $2.8bn Alkimos Seawater Desalination Plant and Rio Tinto’s planned facility in the Pilbara.

Both of these plants are designed to secure long-term water independence, which is something the country desperately needs.

Desalination investments are reshaping public infrastructure and creating new opportunities for ASX-listed companies. The companies set to benefit the most in terms of financial gains and contracts include those involved in engineering, construction, materials, and water technology.

Additionally, as the government moves towards desalination plants becoming a permanent investment rather than an emergency solution, the market for large-scale water treatment and resilience infrastructure is quietly but quickly becoming one of Australia’s most significant growth frontiers.

Today’s piece will look into the desalination plant boom alongside the ASX companies poised to benefit the most.

Desalination Boom Driven by Climate Change

Australian states are increasingly seeking new water sources as droughts persist and the effects of climate change intensify.

Around 80% of the country receives less than 600mm of rainfall per year, and in states like Western Australia, where rainfall has been exceptionally scarce, dam inflows have declined since the 1970s. Growing populations are also placing additional strain on already limited supplies.

As fears of water scarcity escalate, seawater desalination projects are gaining traction as reliable, rainfall-independent solutions, especially the Alkimos Seawater Desalination Plant (ASDP) and the Dampier Seawater Desalination Plant.

The ASDP, now under construction, is expected to deliver 50bn litres of drinking water annually by 2028 while creating hundreds of jobs.

Meanwhile, Rio Tinto’s Dampier Seawater Desalination Plant in the Pilbara will generate 4GL per year in its first stage, which is underway and expected to be enough to support both local communities and industrial operations.

With these facilities and others on the horizon, Australia’s desalination investments are positioning the sector, and the ASX-listed companies behind it, for steady, long-term growth.

With this in mind, let’s have a look below at how these plants and others can boost ASX stocks and which companies are seemingly the most ready to capitalise:

Engineering and Construction Beneficiaries

As expected, major desalination projects translate into significant contracts and groundbreaking alliances for engineering and construction companies.

For example, an alliance between Acciona Construction and Jacobs Group Australia (NYSE: J) has been formed to design, build, and operate the Alkimos plant.

This is not the only partnership or engineering and construction company to benefit. Perth-based engineering contractor Monadelphous Group ((MND)) has recently secured a three-year panel contract for water management across Rio Tinto‘s ((RIO)) Pilbara mines.

The company also won a contract in 2010 to construct the intake and outfall pipelines for CITIC Pacific Sino Iron’s desalination plant in WA. With the recent panel contract win, Monadelphous is positioned to capitalise on miners’ moves to build climate-resilient water sources.

Downer EDI ((DOW)) is leveraging its utilities expertise to capitalise on the momentum of water projects. For years, Downer EDI has provided water and wastewater services across Australia, and recently the company won a 10-year contract with Urban Utilities in Queensland.

The agreement features a five-year base term, with subsequent three- and two-year options, under which Downer will design, build, and manage water treatment and network assets across South East Queensland.

As desalination and recycling initiatives multiply, firms like Downer stand to gain steady revenue streams through construction and long-term maintenance contracts.

In short, Australia’s push for water security is boosting engineering groups’ and contractors’ order books, supporting their growth outlook.

Materials and Infrastructure Suppliers

Like with engineering and construction firms, the desalination build-outs lift prospects for construction materials and infrastructure suppliers.  A prime example of this is Boral Ltd, now part of SGH Ltd ((SGH)).

Boral is Australia’s largest building materials company, and it was awarded a vital package on the Alkimos project to supply and manufacture more than 31,000 precast concrete segments for the plant’s underground tunnels.

Once awarded this package, Boral set up and operated an on-site batching plant in alliance with Acciona Construction to churn out concrete segments around the clock. For Boral, this level of involvement not only generates immediate revenue, but also positions it for future stages and other water projects.

As Boral noted, Alkimos is “another milestone” and the company is “well-positioned to support Stage 2 of the ASDP and other major water infrastructure projects across Australia.”

What this means is that government spending on desalination plants is translating into multi-year demand for Borals quarry products, cement, and expertise on large-scale pours.

Beyond concrete, big desal projects require steel pipelines, pumps, filters, and more – engaging a supply chain of manufacturers. For instance, Water Corporation’s contract with Steel Mains will see giant 1.6m-diameter steel pipes manufactured locally for Alkimos, supporting jobs and reducing transport costs.

While Steel Mains is not publicly listed, the broader infrastructure supplier category benefits from these commitments. Investors can expect materials firms and equipment providers to see an uptick in orders as Australia builds out desalination capacity and related water networks.

Water Technology Innovators

Another sector quickly gaining momentum, benefiting from desalination plants and boosting ASX stocks, is water treatment technology. In Australia, Clean TeQ Water ((CNQ)) might be a small-cap innovator, but it’s delivering advanced filtration and desalination solutions, and investors are starting to take notice.

The company explicitly frames its mission around the world’s “most pressing water treatment challenges,” and notes that climate change and urbanisation are driving the water market to become one of the fastest-growing industries. Industry growth aside, investors see Clean TeQ Water as a viable investment because of its proprietary technologies.

The company has developed membrane-free desalination (DESALX) and graphene-based filtration purification, both of which desalination plants can use, opening the company up to future investment opportunities. 

After all, as more communities turn toward desal and recycling, demand rises for systems like Clean TeQ Water’s, whose portfolio includes low-carbon treatment solutions and high-recovery desalination that can handle brine, recover resources, and minimise costs.

Even though Clean TeQ Water is an emerging company, it represents how ASX-listed tech firms can ride the wave of infrastructure investment by offering innovative tools that can make big desal plants viable and sustainable.

It’s worth noting that Clean TeQ is not alone, as the global push for better water tech includes peers like Fluence ((FLC)) in decentralised treatment and various private firms.

Experts believe that in the long run, successful water technology deployments could lead to licensing deals or international expansion, adding another dimension of growth beyond the initial construction phase of desal plants.

Water Rights and Utility Plays

Water rights and utility plays can also be of interest to investors, considering companies that own or manage water assets could offer opportunities.

For example, Duxton Water ((D2O)) benefits from the same conditions that make desal necessary, even though it is not involved in building desalination plants.

Currently, Duxton is Australia’s only listed vehicle for direct exposure to water entitlements or ‘rights.’

At a time when Australia is experiencing several ‘dry years’, the value of water holdings rises since scarcity drives prices up. Proving this theory is Duxton’s reported 4% increase in water entitlement valuations in late 2024.

This slight uptick in valuations was driven by strong irrigation demand at the time and limited supply following a ‘dry start’ to the year. 

To put it simply, high water prices boosted the companies’ leasing revenues and net asset value, which, in turn, supported the share price.

Investor Outlook: Tapping the Wellspring of Resilience

Evidently, government-backed desalination plants and water projects offer multi-year visibility and relatively stable funding, which can support contractors’ earnings, such as Monadelphous or Downer, through economic cycles.

Likewise, materials suppliers like Boral gain steady demand, while specialty tech players like Clean TeQ can leverage the push for sustainability. Even niche plays like Duxton Water remind us that water is an invaluable commodity in a drying land and solutions to scarcity, whether infrastructural or market-based, carry tangible value.

In summary, “quenching growth” in the context of desalination refers to securing water for communities and to the new growth opportunities flowing to ASX-listed companies.

As these firms help build and operate the next generation of desalination plants and water systems, their stocks could be buoyed by the rising tide of investment in climate resilience.

Investors, in turn, might consider adding water-related exposure to their portfolios as it could be potentially lucrative to the balance sheet.

Each contract won or technology deployed to keep the taps running also, in effect, refills the well of value for shareholders in this burgeoning market segment.

FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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