SAN FRANCISCO - When it comes to water, it is pretty clear to investors that a growing global shortage will bring in new business opportunities.

But while venture capitalists and private equity investors told the Reuters' Global Climate and Alternative Energy Summit that water could potentially be a very big deal, they are not yet taking the plunge.

Their investments in alternative energies -- in wind, solar or electric vehicles -- are beginning to pay off handsomely. But for all the worries over water supplies, from California to the Middle East to China, water may not be in the next wave of big global warming-related investments.

For one, the politics of water can be very murky, whether it is over local water rights or cross-border rivers. And then there just are not enough companies out there with revolutionary technologies that light up investors' eyes.

As Stephan Dolezalek, managing director of Silicon Valley venture capital firm VantagePoint said, many of California's water problems could be solved with better policies and use of existing technologies, citing the example of Israel.

If I invest in a technology that is supposed to solve that problem, then next week a politician comes along and solves it through legislative change, then I am out of business, said Dolezalek.

Dolezalek, who has backed promising start-ups like electric vehicle maker Tesla Motors, has created a water team inside his clean-tech team. But it has just one water investment so far, in a company called Ostara that has found the way to spin nutrients out of waste treated water and create fertilizer.

'COMING UP QUICKLY'

Another Silicon Valley venture capitalist, Steve Westly, believes water is a very big deal.

He looks at the fight for water in the Middle East, the extraordinary dearth of water in the Western United States, the 100-year drought in Australia, and depleted water tables in China due to pollution.

But Westly admits he does not know where to play -- in measurement systems, remediation, filtration or desalination or general efficiency.

We have looked at a number of companies, and we have not seen one yet that is close enough to commercialization and that where we like to play, said Westly, whose Westly Group is on the brink of launching a second clean-tech investment fund with over $100 million.

But it is just a matter of time, he said, adding it is coming up quickly.

Then there are those investors who just don't have enough capacity to look at water as they concentrate on renewable energy solutions like solar and wind. Those are industries with clear political backing as governments seek to reduce their countries' carbon emissions to combat climate change.

We would love to invest in water, but there are only so many things we do, said Richard Kauffman, chief executive of private equity firm Good Energies, which has anywhere from $3 billion to $7 billion in purely green investments.

One big solar player, pressed to look far ahead to good investment ideas in a warmer world, singled out water purification as a potentially strong industry.

If you are able to do water purification with some kind of energy source that is not conventional, that could be an industry that is very strong, said Steven Chan, chief strategy officer for Suntech Power Holding Co Ltd.

Indeed, Dolezalek said that making energy-hungry desalination technology work with wind or solar rather than fossil fuels would be a compelling twist in the water story.

That becomes interesting from a technology standpoint because you are combining solving the energy problem with the water problem, he said.

(Reporting by Mary Milliken; Editing by Peter Henderson and Richard Chang)

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