The Water Crisis: An Update on the Challenges in Water Efficiency and Treatment

At the SDForum Green and Clean Evening Series quarterly event held on August 5, 2010 at Orrick in Menlo Park and sponsored by Orrick and Deloitte, Mitch Zuklie, a partner at Orrick and leader of the firm’s energy industry group, led a panel discussion on the water crisis. Panelists included Anup Jacob, Partner, Virgin Green Fund; Bruce Keiser, Founder and President, Cohesive Ventures; Bill Kocher, Director, City of Santa Cruz Water Department; and Tamin Pechet, CEO, Banyan Water.

Jacob, whose venture capital fund invests in renewable energy and resource efficiency sectors, began the event with an overview of the water industry. He told the audience that 400 billion dollars a year is spent on water, mostly on infrastructure and treatment, with agriculture by far the largest user.

During the panel discussion, Kocher, a thirty year veteran of water management, explained that the world faces a water crisis. While water appears cheap and plentiful to Americans, 2.6 billion people live without proper sanitation and safe drinking water, and there is not enough water in the right places for all of the uses that people have for water, causing wars in Sudan, environmental degradation in China, and tremendous expenditures of energy in California. California, Kocher said, applies nineteen percent of the total energy used each year to move water from north to south in order to sustain farming in arid locations.

“The biggest myth,” said Keiser, “is that water is free or cheap.” Keiser, who invests in smart grid, consumer media, mobile and charitable ventures worldwide, explained that supplying water uses a lot of energy and, depending on how it is extracted, can cause environmental damage. Pechet, whose firm Banyan Water serves as an integrator of smart water management companies, stated that water pricing does not capture all of the externalities, causing a misallocation of resources.

Speaking of California, Kocher stated that the extraction-based water systems that we have built are not sustainable. According to Kocher, we must pursue demand-management strategies and utilize diverse sources of water, including desalinization and water reclamation.

Water reclamation, Kocher said, must be part of the mix. While the quality of water output from waste water plants is not currently of the quality necessary for consumption, Kocher explained, it could be made safe. Kocher said that the largest obstacle facing reclamation is the “yuck factor,” which we have to get over this. The quantity of water on earth now, Kocher said, is the same as it has been for millions of year. Nobody has figured out how to make water. Since the water we now drink had once been dinosaur urine, Kocher told the audience, it should be no great leap to accept water reclamation.

The panelists agreed that smart grid technologies and water metering are essential to provide the data on water usage necessary to better manage water use. Pechet pointed out that there are only seventy million water meters in the US compared to three hundred million electric meters. When it comes to water management, according to Pechet, there is not enough data, and it is politically difficult to put in place the means to gather the data. Keiser added that the over fifty thousand mostly small water companies in the US aggravates the lack of data, making efficient management more difficult.

Asked by Zuklie to offer a wish list of policy changes, Jacob said that he is big fan of the Clean Water Act but would like to see legislation that comprehensively tackles water and energy. Keiser said he would like to see investment in the infrastructure needed to start collecting data so that we could start to better manage water usage. Pechet would like to see more funding of innovation.

Responding to questions from entrepreneurs in the audience about the funding environment in the water industry, Jacob said that there are now more deals in the space than there were several years ago, better management teams, and a greater understanding among venture capital firms. But because of weaknesses in the credit markets and the lack of exit opportunities, venture capital firms must think long term and assure that businesses can sustain themselves with revenue.

Keiser said that when evaluating investments in the space he hedges most against execution risk because there are still too few management teams with experience in the industry. But he believes that the current data void creates opportunities in the industry and is looking to invest in technologies that will fill the gap.

For those interested in learning more about the water crisis, Pechet recommended looking into Imagine H20, a non-profit that he chairs. Imagine H20 spurs entrepreneurship in the water industry through innovation prizes and a water business incubator. The web site, http://www.imagineh2o.org, lists news, events, and opportunities to get involved.

For pictures of the event, see DJ Cline’s posting.

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