Water’s Scarcity Spells Opportunity for Entrepreneurs

By ERICA GIES

Hydrovolts, a start-up company in Seattle, has developed a portable turbine that generates energy from water flowing in irrigation canals. BlackGold Biofuels, based in Philadelphia, takes fats, oils and grease out of wastewater to createbiodiesel.

Last week, Hydrovolts won the 2010 Imagine H2O prize, an annual competition established in 2007 to encourage innovation in water technology. BlackGold was one of two runners-up. Both are poster children for the flourishing “blue tech” economy that is drawing innovators, entrepreneurs and investors into the water industry.

“Water is mission critical in everything that we produce, eat, need, and underpins pretty well all economic development,” said David Henderson, a partner at XPV Capital in Toronto, a venture capital firm that focuses on water technology.

According to a World Health Organization report last year, about 884 million people worldwide lack access to improved drinking water supplies and 2.6 billion lack access to basic sanitation. Developed countries, too, have water problems: Infrastructure is aging, causing leaks and pollution.

Meanwhile, micropollutants are a growing hazard to health and the environment, the global population is rising and climate change is making water supplies increasingly unpredictable.

Historically, water’s definition as a common good, publicly owned and closely regulated, has made entrepreneurs and venture capitalists reluctant to get involved.

But that is changing with the growing awareness of the challenges of climate change and energy supply.

Water and energy are closely linked. The nuclear plant crisis in Japan is a stark example: Nuclear plants require huge amounts of cooling water, and the cooling systems require large inputs of power.

Hydraulic fracturing to extract U.S. shale gas and oil-sand mining in Canada are opening up huge new hydrocarbon reservoirs, but both techniques use a lot of water and cause pollution.

Climate-change science and policies are pushing companies to measure and reduce their carbon footprints. As they take stock of their environmental effects, many companies are measuring their water footprints as well, recognizing that saving water saves energy and money.

Bill Wescott, vice president for innovation at the North America operations of Veolia Environnement, said water footprinting programs, which aim to quantify direct and indirect water use, “allow us to have a language and metrics around water that I think was missing to some degree in the past.”

There are security issues around water, just as there are around energy, Mr. Wescott noted.

In addition, population growth and urbanization are expected to drive demand for water up 40 percent within 20 years, according to a 2009 report from the 2030 Water Resources Group, an association of the World Bank, major industrial water users and the consulting firm McKinsey.

Industrialization lifts people out of poverty, Mr. Henderson said, but “the Achilles’ heel of that process is people move to a protein diet, which is very water intensive, and they start consuming things like jeans, shoes, cars, and smartphones that have huge underlying water footprints to produce.”

To entrepreneurs and investors, all of this is starting to signal opportunity. Mr. Wescott said the resources group report showed that “in many cases, there’s a fair amount of money to be made in addressing some of these water issues.”

Tamin Pechet, who founded the Imagine H2O competition in 2007, said he did so because at that time “most entrepreneurs weren’t aware of how big a human and environmental issue water problems were and also a potentially commercially attractive market opportunity.”

In 2009, the contest focused on water-efficiency solutions. In 2010, the focus was how water and energy were linked. The cash prizes are relatively modest, but the main benefit to entrepreneurs is Imagine H2O’s incubator program.

Rob Steiner and Peter Yolles co-founded WaterSmart Software, which was the runner-up in the competition in 2009. Their software helps residential users track their consumption to save water and money.

“The process of applying for the prize helped us define our business strategy and refine our concept,” Mr. Yolles said.

When they were chosen as finalists, they had to develop a business plan and a presentation for investors. To assist them, they were assigned a mentor, the chief financial officer of a solar company.

The process, and the exposure to investors, paid off. “We’ve gotten commitments for funding for at least half of our seed round that have come directly or indirectly from the Imagine H20 competition,” Mr. Steiner said.

Continue reading: http://www.nytimes.com/2011/03/22/business/energy-environment/22iht-rbog-innovation-22.html?partner=rssnyt&emc=rss

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