While "drought" is not the kind of word that people generally enjoy hearing, especially when it’s coupled with "statewide" and "catastrophic," California’s drought has the potential of turning bad into good, say industry experts.

"This is going to be truly explosive. It’s going to be a boom," said Neil Berlant, a fund manager of the PFW Water Fund at Crowell, Weedon & Co. investment group.

"People have always over looked [water] because it’s been inexpensive," he said, pointing out that was about to change in California.

Berlant has been investing in water for almost two decades and claims his water fund has beat the market every year, for the past 18 years.

According to Berlant, water is the largest industry in the world and encompasses a large spectrum of companies—from treatment to pump manufacturers, to filter and membrane companies—all of which could be needed in much larger supply in California soon.

One such company making a difference is San Leandro, Calif.-based Energy Recovery, a desalination company founded in 1992 with the aim of making seawater desalination affordable by reducing energy costs—one of the most common complaints with desal.

"Their equipment has made a significant impact of reducing the cost of desalinating water," said Berlant. "It’s an energy intensive process, but they’ve made a dent and dramatically decreased the cost."

Representatives from Energy Recovery were unable to speak with Cleantech Group, as the company filed for a share sale to raise up to $175 million earlier this year (see Cleantech water deals diving into rough market).

Conversely, David Henderson—a managing director of Toronto’s XPV Capital—looks to substantial growth in reuse, recycling and conservation areas.

"Those are the low hanging fruit when it comes to managing water resources," continued Henderson.

While Henderson thinks desalination will be important, he's not convinced it will be the answer for the immediate technology that will help resolve some of these issues. "The drought is just all part of the climate change transition that's taking place," continued Henderson. "It will just continue to fuel the need for alternatives in terms of water and managing water resources."

Along with the growing water scarcity problem, there continues to be growing activity in the water services industry, and companies are taking notice.

St.Paul, Minn.-based Ecolab (NYSE: ECL),which offers cleaning and sanitizing solutions, filed in February to acquire Ecovation for $210 million (see Ecolab boosts water services with Ecovation deal).

Earlier this year, Global Water Resources, a Phoenix, Ariz.-based water and wastewater utility, filed to raise up to $50 million in an initial public offering (see Global Water Resources going public) and Global Water joined Voorhees, N.J.-based American Water Works (NYSE: AWK).

Mark Shannon, the director of University of Illinois' WaterCAMPWS Center, said he's seen a lot of companies making tremendous strides in the water sector and pointed to General Electric (NYSE: GE) and Siemens Water.

Most recently, GE announced new water initiatives in Beijing, and said it’s working with China’s Baosteel Group to help that company meet water efficiency goals (see GE tackles water supply).

"Water is one of the fastest growing sectors out there," said Shannon. "People can really make a lot of money at this. Californians can make some real money."

"It's going to take some convincing to change old ways to new ways though," continued Shannon.

The University of Illinois professor likened U.S. water systems of dams and pipes to that of the telegraph, while everyone else in the world is going wireless.

"Big dams, pipes—that's the telegraph, and developing countries are going to have the chance to not make the mistakes that the U.S. has made," said Shannon. "They can implement low-cost systems."

Issued earlier this year, JPMorgan Chase's (NYSE: JPM) Watching Water report, noted water scarcity shows no bias toward industry and noted power generation, mining, semiconductor manufacturing, and food and beverage sectors are particularly exposed to water-related risks and could be pushed to reveal their water supply practices.

"The drought will call enormous attention to the serious problem of water and water availability in California and elsewhere," continued Berlant. "There will be growing restrictions on the amount of water that is going to be used."

In late 2007, Cleantech Group Chairman Nicholas Parker forecasted the possibility of a crisis event in 2008 that would draw attention to the fragility of fresh water supplies (see Eight cleantech developments to watch for in 2008).