Startup Series: Virridy
Today's guest is Dr. Evan Thomas, CEO and Founder of Virridy, and Director of the Mortensen Center in Global Engineering & Resilience and the Climate Innovation Collaboratory at the University of Colorado in Boulder. Evan is also a tenured Associate Professor in the CU Boulder Civil, Environmental and Architectural Engineering Department. So, he’s a busy guy.
Virridy’ s water sensors monitor and measure groundwater pumping for more than 4 million people in the East African countries of Kenya and Ethiopia and the American West. The company’s partners include the National Science Foundation (NSF), USAID, The World Bank, NASA, the Millennium Water Alliance, Swarm Technologies, The Freshwater Trust, Wexus Technologies and the Kenyan government.
We’ve recently had a few conversations on the pod at the intersection of water and climate change. Jason spoke with Felicia Marcus of Stanford’s Water in the West program, and Cody talked to David Wallace of CODA Farm Tech. It’s worth noting some of the key learnings up to this point. For starters, conversations about water are nuanced. Droughts, floods, sea level rise, irrigation, stormwater systems, clean drinking water, etc… all have water as a common thread, but are each enormously separate topics on their own. And while most of the problems and challenges with water existed before climate change, they have accelerated faster than anyone anticipated.
Evan is pursuing two different business models in East Africa and the U.S., albeit with the same tech stack. In the former, he primarily seeks to earn avoided emissions carbon credits by monitoring the activity of groundwater pumps and the cleanliness of the water they produce, and ensuring access to clean drinking water without the need to burn fuels to heat and purify it. In the American West, he is participating in the demand response economy, helping water utilities shut down their groundwater pumps and conserve electricity during times of peak grid demand.
Evan and Cody have a fantastically nuanced conversation, tackling subjects as diverse as the outcomes of COP27 as it relates to climate justice, his background at NASA and how it informed his approach to earth science, how he runs a company while also being a university professor, how carbon credit financing works, and of course the differences in how climate change is accelerating droughts in East Africa and the American West, and what that means for the water systems in each geography. Get ready to dive in a learn a ton!
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Episode recorded on November 28, 2022.
In this episode, we cover:
[4:12] Evan's background in water systems in space and rural communities
[8:28] Applying carbon credits to clean drinking water
[10:50] Evan's partnership with Life Straw and academic and entrepreneurial experience
[12:20] Similarities and differences between the American West and East Africa in terms of climate change and water
[18:36] Groundwater in East Africa vs. California and purification requirements
[24:10] Virridy's solution and technology
[26:22] The company's carbon credit methodologies in Africa
[28:31] Financial incentives and carbon offset endorsements from COP 27 in Egypt
[32:11] Virridy's different business model in the U.S.
[37:48] How Evan manages Virridy's different markets
[42:59] Applying Virridy's tech to soil carbon
[46:23] The company's funding to date and an overview of pre-selling carbon credits
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Jason Jacobs (00:01):
Hello everyone, this is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Sims.
Jason Jacobs (00:05):
And welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (00:26):
We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us, so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guest is Dr. Evan Thomas, CEO and founder of Virridy, as well as the director of the Mortenson Center in Global Engineering and Resilience, and the Climate Innovation Collaboratory at the University of Colorado Boulder. Evan is also a tenured associate professor in the CU Boulder Civil, Environmental and Architectural Engineering Department. So he's a busy guy. Virridy's water sensors monitor and measure groundwater pumping for more than four million people in the East African countries of Kenya and Ethiopia, as well as the American West. Virridy's partners include the National Science Foundation, US Aid, the World Bank, NASA, the Millennium Water Alliance, Swarm Technologies, The Freshwater Trust, Wexus Technologies, and the Kenyan government. We've had a few conversations here on the pod recently at the intersection of water and climate change. Jason spoke with Felicia Marcus of Stanford's Water in the West Program, and I recently spoke with David Wallace, of CODA Farm Tech.
(01:40):
A few things have become clear to me. One, conversations about water are nuanced. Drought, floods, sea level rise, irrigation, storm water systems, clean drinking water, et cetera, et cetera. These are all separate topics that have water as a common subject, but are each enormous separate topics on their own. Two, most of these problems and challenges existed before climate change, and climate change is accelerating them faster than anyone anticipated. With that lens, I went into today's conversation about Virridy, eager to understand how one technology is solving water problems in both East Africa and the American West. And I wasn't shocked to learn that Evan is pursuing two different business models in these two geographies, albeit with the same tech stack. In East Africa, he primarily seeks to earn avoided emissions carbon credits with his sensor tech, by monitoring the activity of groundwater pumps and the cleanliness of the water they produce, and ensuring access to clean drinking water without the need to burn fuels to heat and purify it.
(02:44):
And in the American West, he's participating in the demand response economy, helping water utilities shut down their groundwater pumps and thus conserve electricity during times of peak grid demand. Evan and I have a fantastically nuanced conversation tackling subjects as diverse as the outcomes of COP 27 as it relates to climate justice, his background at NASA and how it informed his approach to Earth science, how he runs a company while also being a university professor, how carbon credit financing works, and of course the differences in how climate change is accelerating droughts in the American West and East Africa, and what it means for the water systems in each geography. I learned a ton from Evan, as I suppose I would hope when speaking to a university professor, and I hope you do as well. Evan, welcome to the show.
Evan A. Thomas (03:31):
Thanks, Cody. Appreciate the time to be here.
Cody Simms (03:33):
So Evan, I have to ask you, you have, from what I can tell, an awesome setup at University of Colorado Boulder, which is a fantastic university. You could be teaching classes in the morning, doing your research in the afternoon, skiing every afternoon, and yet you've also decided to take the crazy journey of being an entrepreneur on top of that. So I have to understand your path and how you got from working at the university to also starting a company, and what that looks like. So maybe even going further back in the way back machine, talk us through what led you to ultimately starting Virridy.
Evan A. Thomas (04:12):
Sure. Well, I actually went to the University of Colorado Boulder. I got my undergrad and all the way through my PhD here in aerospace engineering. And the beginning of my career was at NASA in Houston, where I worked on life support systems for spacecraft. So I worked on air quality and water recycling systems for astronauts on the space shuttle and the space station, and I can tell you a little bit more about that if you're interested. But the astronauts on the space station need the same things that we need here on Earth. They need safe air, clean water, a safe, warm place to sleep at night. The air we can actually pack down into scuba tanks and launch up into space. So they get makeup air up on the space station, but water is really expensive to launch.
(04:56):
It costs about $20,000 to launch a liter of water into space, so we recycle the water in the space station. Every single day, all the astronauts, they sweat out about a liter of water a day. They perspire that liter of water, they also breathe out, they respirate, a liter of water a day, and they also urinate about a liter of water a day. So up on the Space Station, we collect about three liters of water per astronaut per day, and we recycle about 90% of it back into drinking water. So that was the beginning of my career, was developing systems for managing water in space, and testing the quality of recycled water.
Cody Simms (05:34):
I have to note, you're the second founder who's come on this show who is working on climate solutions, who started their work working on space solutions, and you're actually the third founder I know who is doing that. You're the second one who's come on the show. The other one was Moji Karimi of Vita Factory. The other founder I know is the team at Avalanche Energy who was building space propellant at Blue Origin, and is now working on micro fusion reactors. So it's so cool to see people realizing, hey, there's this technology that may work in a really challenging environment, and now looking at how can we apply some of this learning potentially to our own earth systems.
Evan A. Thomas (06:17):
Yeah, that's right. NASA's a great incubator for people that want to help preserve the planet. The vast majority of the work NASA does is studying change on the planet. The vast majority of satellites and telescopes are looking at the Earth. They're not looking out at the stars. And a lot of engineers like me at NASA are worried about how do we keep astronauts alive in space, but how do we also address the fact that a billion people on the planet Earth still lack access to safe drinking water every day? In 2022, a billion people don't have access to safe drinking water still. And when I was at NASA back in 2007, I was working in my spare time in Rwanda on drinking water treatment in rural communities that suffer from... They've got plenty of water, but the water's often dirty. So there's a high degree of diarrheal illness. In fact, millions of children die every year from diarrheal diseases that are preventable. And a lot of the work that is aimed at addressing these challenges in low income countries and communities is grant funded or international donor funded.
(07:19):
So you might have money coming from the United States Agency of International Development, or the World Bank, or the Gates Foundation, or your local charity going into water projects, but that money's often finite. You only have a few years of funding, and then it dries up, and then the water pump breaks or the water filter breaks, and you're back to where you started. When I was sitting in Houston at NASA, my dad actually sent me an article about the United Nations carbon credit markets, which were in their infancy, but they were an opportunity to take climate financing that was generated from high income countries who were high in polluters, like the United States, and apply it to basic services in developing countries. So we were the first to invent the idea of earning carbon credits tied to drinking water treatments, and started to demonstrate this in Rwanda back in 2007. It's been almost a 16 year journey now, applying climate finance to drinking water access. I left NASA, started my own company.
Cody Simms (08:21):
What does it mean to apply carbon credit and climate finance to clean drinking water? Can you unpack that a little bit more? I'm curious, because I haven't heard of that before.
Evan A. Thomas (08:28):
So one carbon credit represents one ton of carbon dioxide either removed or not admitted to the atmosphere, and it's an opportunity to use market mechanisms to incentivize clean development, or to even disincentivize, make more expensive, polluting economies or industries. There are mixed reviews of carbon credits right now. There's a lot of issues with things like carbon credits from tree planting, but then the trees go up in smoke in a wildfire. But in our case, what we're doing is offsetting the use of firewood to boil drinking water. In some cases that's people actually burning firewood, or in some cases fossil fuels like kerosene. But in most cases it's people drinking untreated water. They don't have enough fuel, they don't have electricity, they don't have kerosene, they don't even have firewood, so they just drink untreated water. And that leads to one of the leading causes of illness and death globally, which is diarrheal disease. So we figured out a way to thread the needle, to apply carbon financing and get carbon credits by offsetting both the actual use and the demand for fuels associated with water boiling.
Cody Simms (09:37):
Interesting. So it's taking the whole clean cook stoves movements, particularly in Africa and emerging economies, and applying that to an even more critical need, which is drinking water, and helping to generate clean drinking water.
Evan A. Thomas (09:50):
Yeah, equally critical. Respiratory disease is the leading cause of illness and death globally. Diarrhea is the second leading cause of illness and death globally. Both contribute to use of biomass and associated emissions and soil erosion and deforestation. We actually adapted the cook stove methodology, so we took the cooks of methodology, wrote in a couple clarifications, asked the UN for permission, and then took that to scale, and reached several million people in East Africa with clean drinking water treatment.
Cody Simms (10:18):
And you did this prior to going back to UC Boulder from a professorship perspective. This is post-NASA work, but you were doing this as an NGO, or what was the pathway there?
Evan A. Thomas (10:32):
While I was at NASA, a few of us at NASA started a social enterprise. So we are a for-profit social enterprise that I was doing in my spare time. I would take vacation time from NASA, fly to Rwanda, take a meeting with the Ministry of Health, and fly back Monday morning for a design review in Houston.
Cody Simms (10:48):
Wow. So then what happened?
Evan A. Thomas (10:50):
So we were approached by a water filter manufacturer named Life Straw, Vestergaard Frandsen Life Straw. A lot of your listeners might have seen their products at REI or other outdoor retailers in the past few years. When we started working with them back in 2010, they exclusively worked in low-income settings distributing things like their own bed nets for preventing malaria, or the Life Straw for treating drinking water. So we joined forces, they hired us to apply our business model of carbon credits for water treatment to their water filter, in Kenya first, and then later in Rwanda. And I left NASA back in 2010, and started working at Portland State University as a professor while doing this work in Kenya and Rwanda.
(11:32):
And then in 2018 I came back to the University of Colorado where I took over the Mortenson Center in Global Engineering and Resilience. So here in Boulder, the research center I run studies things like what does it take to make sure that people have access to safe, clean, drinking water? What are the impacts of climate change on water access globally? What are the technologies that can be used to monitor water access or to treat drinking water? So my students and colleagues and I develop technologies, we deploy technologies, we evaluate programs and the entire system behind water services. And Virridy, my latest company, came out of that research lab taking a combination of IOT satellite based technologies and this carbon credit model, so that we could deliver safe, clean, drinking water, but do it in a profitable way.
Cody Simms (12:20):
And maybe let's take a minute to talk about with Virridy, my understanding is you have deployments in Africa, as well as in the US West, Colorado, California, et cetera. Here on the pod, we've spent a bunch of time talking about water and climate in the US West. We had Felicia Marcus on recently, Jason spoke with her. I had the CODA Farm Tech CEO on recently. We've looked at agricultural use of water, we've looked at what's happening with drought, and causing both groundwater depletion as well as just general lack of runoff from snowpack, et cetera. Help me understand, when it comes to climate change in particular, what's similar, and what's different, between the US west and Africa? And obviously Africa is a huge place, but you said it sounds like you spend a lot of time particularly in Kenya, so maybe talking about Kenya and Colorado and California, and some of the similarities and differences as it relates to climate change and water.
Evan A. Thomas (13:16):
So the first thing we see with climate change almost everywhere in the world is changing rainfall patterns. So wet places get wetter, we see more flooding globally in wet places, and dry places get drier. We're seeing droughts, which really is aridification, happening in East Africa and also happening in the American West. So they're a lot more similar than they are different. There are 40 million people that are facing food insecurity in East Africa right now, because of an unprecedented five season drought, which again is really aridification.
(13:51):
And the response to drought and drying up surface water sources is to drill wells. A lot of these wells have been drilled and installed with water pumps by foreign aid agencies like USAD or the World Bank, and they're drawing up really deep fossil aquifer water. So some of this water is 100 meters deep, and there's actually plenty of water available. The groundwater reserves in Africa as a continent are actually increasing, unlike everywhere else in the world like the American West where we're depleting groundwater rapidly, groundwater reserves are actually under exploited in Africa.
Cody Simms (14:27):
How are they increasing? Maybe just for my knowledge, explain the phenomenon there that's causing them to increase right now.
Evan A. Thomas (14:33):
Well, groundwater comes first as rain. So it all comes from the same place originally. So rain falls in the mountains and the valleys. Over anywhere from minutes to millennia, it infiltrates into aquifers. Fossil aquifers are thousands and thousands, maybe even millions of years old in some cases. And over time, the water, the rainfall over Africa, is continuing to infiltrate because there's really not that much use of the groundwater. Only 1% of agriculture is even irrigated in Africa, let alone groundwater irrigated. So it's an underused resource, and it's the main way that people in East Africa can try to mitigate the impact of drought, is by using those groundwater reserves.
Cody Simms (15:15):
So most agricultural irrigation and just drinking water in Africa today mostly come from rivers and estuaries and bodies of water, as opposed to wells, at least currently.
Evan A. Thomas (15:26):
Yeah. Just rain fed agriculture. Water either comes from rain or shallow groundwater wells. So hand pumps that might only be maybe drying up water that's a hundred feet deep. But these deep aquifers are a way to mitigate the impact of drought. And the problem isn't the water, the problem is the infrastructure. It can cost hundreds of thousands of dollars to install one of these water pumps. And yet during peak drought, about half of them are broken. UNICEF did a recent study that said that the infrastructure itself is broken during peak drought. So part of what we do as Virridy is we invented a universal pump monitor. This is a device that's the size of a shoebox, self-powered off of a six watt solar panel, satellite connected telemetry. We can walk up to any pump anywhere in the world, we don't need to know anything about it in advance, install our sensor and walk away in about an hour.
(16:17):
You don't need to have a plumber, you don't need to have an electrician, you don't need to have an engineer. And we've now installed thousands of these around the world. We're currently monitoring about four million people's water supplies continuously in East Africa, and the goal is to help with maintenance of those pumps, so we can actually identify when a pump is broken or about to break. And the users of our data are everywhere. Everyone from local communities or subnational governments like counties or regions, or national governments, or even international aid agencies that can use our data to go and fix pumps before they break or rapidly after they break, so that people can maintain access to water during these droughts.
Cody Simms (16:57):
So if I understand, back to the differences and similarities, similarities between the US West and East Africa in particular is very drought prone. Droughts are increasing due to climate change. Big difference is, whereas in a lot of the US West, we've been actively massively depleting groundwater reserves, in East Africa, the groundwater reserves are incredibly deep, incredibly rich. The challenge is there's not enough technology today deployed to actively extract the water from these wells. And when that technology does exist, it's often put in place by NGOs who maybe don't have the technical capability today to continue to monitor the ongoing uptime of these wells. And that's partly where Virridy comes into play, is the ability to build a system that can understand, are these wells actively still pumping water and providing the irrigation that's needed? Did I get that part correct?
Evan A. Thomas (17:58):
So technology is definitely part of the solution, and data is often part of the gap, whether or not a pump is broken, whether or not people have access to water. But technology doesn't solve anything by itself. It's also about policy. It's about the economy, and fundamentally it's about poverty. Poverty in a region of the world that is facing the first and greatest impacts of climate change. And so in Africa, it's about knowledge generation and trying to mobilize action, but that action is around allocating resources, allocating money, allocating things like climate finance, allocating national and international budgets towards basic drinking water services. So we're trying to provide data so that the people that control the purse strings can act on that data.
Cody Simms (18:36):
One other similarity/difference question, and then I really want to get into the product of what you're building as well. My understanding is, groundwater in the US west is often heavily polluted with agricultural runoff, whether it's nitrogen or other issues. Is the same true in Africa, or is this deep well water generally cleaner, and what does that mean from a purification requirements perspective?
Evan A. Thomas (19:00):
Yeah, unfortunately, groundwater's not a perfect solution in East Africa. It's generally free of any fertilizers. It's also generally free of microbial contamination, although sometimes by the time somebody gets it to their home, it might be contaminated, again, with fecal contamination. The bigger problem is it's often saline. So if you're drawing up water, you might be getting pretty salty water. And so that means that not all that water is potable. In the American West, there are definitely similarities. We are also aridifying here. We are now in the third decade of a megadrought, the first megadrought in 1500 years. You guys have all heard this before, even on this pod, but Lake Mead is within about 100 feet of the inlets of the Hoover Dam.
(19:44):
So it's possible that by next summer there literally won't be any water or electricity being generated by the Hoover Dam. And again, when aridification and drought happens, the response is to pump groundwater. So poverty is not an issue in the American West. The Colorado River by itself generates 1.4 trillion a year in economic activity, and California's the bread basket of North American, and one of the bread baskets of the world. But it's surviving on mining groundwater. There are areas in the Central Valley of California that the ground has literally dropped 40 feet in the past 80 years because we're pumping water at totally unsustainable rates. So at some point we're going to run out of both surface water and groundwater if there aren't big changes made.
Cody Simms (20:31):
And I think California's obviously incredibly complicated when it comes to water in general, with senior water rights, junior water rights, et cetera. They're supposed to be a public good, but in reality they're relatively privatized in many cases, just given who owns them. And how does it work in East Africa? Is there government regulation in place? Who are these NGOs working with to determine what populace gets access to water that's pumped up from the ground, et cetera?
Evan A. Thomas (21:00):
Yeah, water is just this tricky problem globally. There's a human right to water that is recognized by the United Nations. So pretty much everybody agrees that everyone has a right to water, but nobody agrees who has to pay for it, or who owns it. We treat water like it's renewable, even though we actually use it at non-renewable rates. We often only charge for water in terms of treating it, but not necessarily the full value of the water. In California, only just two years ago did a law come into effect, the Sustainable Groundwater Management Act that actually finally takes water from being a private good, that if you can drill a hole in the ground and you suck up the water, it belongs to you, into a public good, that actually is regulated. And basins and aquifers now have to bring their groundwater use into sustainable yields, although it won't come into full effect, full compliance, until 2040.
(21:53):
So it's going to be another 20 years before we know if we've actually been able to reduce the use of groundwater in California into sustainable yields. In Africa, it's similar, although there's a lot less data. It's the USGS, the US Geological Survey here in the US that will survey and tell us aquifer health and aquifer levels. It's also the USGS in Kenya who are hired by USAID to try to estimate water reserves. Now again, water volumes and aquifer health are not really a big issue, at least not right now and not for a while, in much of Africa. The question is, who's actually going to pay for pumping it? Who's going to pay for fixing the pumps when they break? Who's going to deal with the fact that a lot of people have to migrate, because their watering holes are drying up for themselves and their livestock? It causes a lot of physical and social and economic insecurity, which are very, very costly.
Cody Simms (22:44):
Super helpful backdrops. We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin Lu (22:53):
Hey folks, Yin here, a partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019, and it has since then grown to 2000 members globally. Each week we're inspired by people who join with differing backgrounds and perspectives. And while those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
(23:22):
Some awesome initiatives have come out of the community. A number of founding teams have met, nonprofits have been established, a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming like monthly Women in Climate meetups, idea jam sessions for early stage founders, climate book club, art workshops, and more. So whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to MCJcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (23:54):
All right, back to the show. Okay, now maybe let's dive into, okay, well, what is the solution that you are bringing to market? What's the physical product look like, and how is it instantiated in a daily routine in East Africa?
Evan A. Thomas (24:10):
So there's three pieces to our technology and business model. The first is the hardware itself. Virridy has developed and patented a fully integrated IOT system for monitoring water points, whether they're water pumps or water filters or water supplies, so that anywhere in the world we can monitor if people are using it, if the water is clean, if people are getting access to it, if the water pumps are functional. So we deploy those in Kenya in water pumps, but we also deploy them here in Colorado on water pumps, or with growers out in California. The second piece is our cloud-based analytics. We actually just had two patents issued to the company last Friday, which we're really excited about. In both cases, we take our in situ sensor data, so the sensor data that's on the ground, collecting data you can't see from space, right?
(25:00):
So there's a lot of companies out there that try to do a lot of analytics only using free NASA data. We also use free NASA data, but we combine it with sensor data that you can't get from satellites. So we upscale from the sensors, we combine it with satellite data, we bring in machine learning models, that then help us downscale back to the site. The device itself only collects really basic information. All of the cloud-based analytics, looking at what else is going on at other sites, other pumps, other remote sensing data, helps us improve site level estimates, whether it's something like, is this water pump working, or is this water clean? And then the third piece is the revenue model. It's not just, as I said earlier, it's not just data alone, just telling people that you're using too much water, or the flip side, this water pump is broken.
(25:47):
Neither of those things are enough to motivate people to spend money to fix the problem. So we have to bring in financial incentives that are both a revenue stream for us as Virridy, and for our customers. In Africa, it's carbon credits. We treat water, we fix pumps, we generate carbon credits under voluntary carbon credit mechanisms, and then we sell those to buyers. So we generate a revenue stream associated with delivering a clean drinking water service, and that's investible. We have investors that are directly backing the advanced purchase of those carbon credits.
Cody Simms (26:22):
Walk me through that model in Africa. So earlier on you had said that the carbon credit that you were generating was for replacing using biofuels or fossil fuels to heat and purify water. And so you're basically gaining an avoidance credit by using renewable energy sources to purify water, was my understanding. How does that work in relation to your sensor technology that's sensing whether or not a groundwater pump is operating? How does that relate to the purification side of things, or is that an additional layer on top that you're helping to continue to monitor?
Evan A. Thomas (26:57):
So the methodologies that we actually helped develop, 16 years ago now, credit the offset of the demand or the actual use of firewood or kerosene. So there's a really important nuance in, we are directly avoiding emissions associated with firewood use, but we're also avoiding the fact that a lot of people don't boil their water at all and drink untreated water. There's a barrier to energy use caused by poverty. An average person in East Africa uses less than a 12th of the energy that you and I use. We use three times as much as what the earth can sustain, which is about two tons of emissions per person per year. And in Africa, they're using less than a fourth.
(27:37):
I don't know, maybe that math didn't quite add up, but people in Africa use a lot less fuel than we use, but then they don't benefit from the use of that energy. And so one example of that is drinking untreated, dirty water. When we bring up clean drinking water through functional pumps, and/or also treat that drinking water, like through gravity fed water filters, we're able to demonstrate that people are getting clean water, that it is offsetting the demand and the use of firewood. We generate those carbon credits, and we sell those both to our investors, as well as to mostly US corporates that end up retiring those credits, and counting that against their own net zero commitments.
Cody Simms (28:19):
Interesting. Okay. Super helpful and very clarifying. And then you were about to, I think, say also how that relates to what's going on in the United States, in terms of use of your sensor technology.
Evan A. Thomas (28:31):
Yeah, well I should just, while we're still on the carbon credits, let me just mention we're just a few days out of COP 27 in Egypt. It'll be a few months by the time this pod drops of course. But there were two major developments in Egypt. The first was that every country in the world finally agreed to a loss in damages fund. So we finally acknowledged, including the United States, and China, and Europe, have all acknowledged that rich countries like the United States have caused climate change. The United States is the single biggest emitter of all time, and we are the single biggest per capita emitter today. China beats us in terms of overall emissions, but they have three times the population. They're actually using considerably less energy and emissions per capita than we are.
(29:12):
So we've now all come to the table and said, okay, we benefited from the use of energy, we also have caused climate change, and the poorest countries in the world are suffering the earliest impacts of climate change without really having caused it. So the international community at COP 27 under the UN framework, have finally agreed to loss and damage reparations. So this is a really important signal that it is okay and it's a good thing to take climate financing and try to apply it to mitigating the impacts of climate change, such as making sure people have clean drinking water year round. Another important thing that came out of COP 27 is the United States, for the first time ever, endorsed carbon credits.
(29:50):
So we've been out of this market. The market's existed for 30 years, ever since the Kyoto Protocol was passed, which we never signed or we never ratified, and we never joined the game, which really meant that carbon finance and carbon credits was a stagnant market for a long time. Now, the United States has joined, the United States has endorsed carbon finance and climate finance as an appropriate tool of adapting and mitigating to climate change. And so the markets are expected to grow dramatically over the next few years, including in the United States, where a lot of the buyers of carbon credits are US corporates trying to make good on their ESG and their net zero claims.
Cody Simms (30:29):
Let me ask one quick question there. I mean, yes, I think we all have seen the rise in corporate buyers of carbon credits. Because the US never had ratified Kyoto, does that mean the US federal government had not been purchasing carbon credits up until now with COP 27? So basically, does that mean that the US government as a buyer of carbon credits has opened up, or is there even more to that endorsement at the COP 27 level of the US government?
Evan A. Thomas (30:57):
So you're right. The US government never joined Kyoto, so we never joined the clean development mechanism, which means the US never was a market participant in carbon credits, and nor were any of the states, with the exception of California, or the industries. But industry and ESG commitment and net zero commitments got ahead of the negotiations over the past few years, and American corporates have been making these unilateral, voluntary net zero commitments. They've become quasi-regulatory. The SEC released some guidance a few months ago that if it goes into effect, it's actually going to hold publicly traded companies to their word when they say that they're net zero. You can't just say whatever you want, you have to follow certain standards, but it's still all voluntary. And it's the voluntary carbon credit markets that are expected to grow now. The US is probably not going to buy carbon credits directly. Instead, funding like under the Inflation Reduction Act can be mobilized towards projects, programs, and incentives that actually generate carbon credits on the market.
Cody Simms (31:59):
Great. Super helpful clarification. Okay, so now I think you were getting into with that backdrop, how Virridy in the US may be able to also benefit from these shifting winds.
Evan A. Thomas (32:11):
Yeah, sure. So same challenge, but slightly different flavor. We're pumping up groundwater unsustainably. We're growing crops in the desert that are very water hungry, but aren't very profitable. As you mentioned earlier, things like water rights actually incentivize user it or lose it. So people are using water even if they don't really need it, because otherwise they fear that they might actually lose their water rights. So it's all kinds of backwards. There are emerging regulations like SGMA in California, but also other mechanisms here in the Rio Grande Valley of Colorado. There are farmers that are voluntarily capping and trading groundwater rights, for example, and applying taxes even within their own water districts.
(32:55):
The Rio Grande Water Conservation District, for example, are creating little miniature cap and trade and tax programs to reduce the use of groundwater. But still water is largely unregulated, and it isn't priced at what it actually costs. So instead, there are other incentives, like electricity incentives. Out in California, you live in LA, you've probably dealt with some of these demand response programs this summer during your heat wave. Governor Newsom was probably texting you, saying, "Turn off your lights, turn off your AC, we'll give you a couple dollars back on your energy bill." That actually scales at the agricultural level. In the middle of the summer, in the middle of a drought, when everybody in LA is using their air conditioners, that's also the time that everybody in Orange County wants to pump water to irrigate the fields, because they're not benefiting from gravity fed surface water anymore.
(33:45):
They're spending a lot of electricity to pump up groundwater, and the utility needs that capacity back. They need to manage that demand, and they will pay growers to irrigate at other times of day or to overall reduce their irrigation, which reduces both their energy use and their water use. With Virridy, we're able to install our sensors on agricultural pumps. We do it for free. We actually pay farmers for the inconvenience of letting us tromp around their fields for a few days. We pay them a fee up upfront. We install our hardware for free. Costs us a few thousand dollars, but it generates thousands of dollars a year in what are called automated demand response payments from the energy utility, when we take over pumps and we turn them off during these demand events.
Cody Simms (34:33):
I'm curious on that. So in order to enter into those contracts, does that mean you have to go have conversations on a utility by utility basis, to be able to provide demand response? Or are you able to integrate in with other third party companies that are basically enabling demand response as a service?
Evan A. Thomas (34:49):
Yeah, there are aggregators out there, so there's only a few utilities, and the utilities have to offer these demand response programs. Then there are aggregators that want your nest and my water pump and somebody else's pump all under their program. What we do is we're on the front line talking to the farmers and the growers, looking at the water pumps, looking at the sizes, trying to estimate revenue opportunities. We work directly with those growers, install our hardware, and then work with aggregators so that they can roll that up together and show the utility, show PG&E that they might have 500 megawatts under management that they can take control of when the utility wants to make sure that they don't shut off power in San Francisco.
Cody Simms (35:29):
So for Virridy, same technology, two different business models in different parts of the world. In Africa, monetizing carbon credits by ensuring basically a carbon avoidance credit, because you're avoiding the use of biomass or kerosene to purify water, as well as ensuring the water that is being pumped up doesn't even need to be purified in the first place. So it's an avoidance credit. In the US West, it's a demand response mechanism to help shut off groundwater pumping during times of grid peak capacity. Am I following so far?
Evan A. Thomas (36:07):
Yeah, you got it right. And in both cases they're means to an end, the carbon credit is a way to make sure people have clean drinking water. The demand response incentive in California is actually a way for us to get onto farms, take control of pumps, and then create an enabling environment where we can reduce water use. I'm a water guy, I'm not an energy or electricity guy. My motive is to try to reduce water use. Once we're on that field and on that farm, we can work with the farmer so that she can both save water and save electricity and again, start to demonstrate how over the next few years we can help bring California farmers into compliance with the Sustainable Groundwater Management Act.
(36:46):
We just did a study in Solano County with the Freshwater Trust, which was a demonstration funded by the Moore Foundation and the Water Foundation out there, where we took control of pumps, monitored water pumps and created acre feet credits of water, that we could show how even within a sub-basin landowners could trade water allocations so that overall they stayed underneath their SGMA groundwater use cap, but they could trade allocations among themselves like a miniature cap and trade system. A tiny little version of the analogy of the international carbon credit markets.
Cody Simms (37:23):
So for me, as someone who sits here and learns from startups all day, I think it's super fascinating that you're approaching these two different markets and there's so much to learn in each of them. For you as the CEO of this company, that's got to be a challenge. How are you managing these two different go-to markets together? Where do you find economies of scale between doing that, and where have you needed to set up sort of distinctly separate operations?
Evan A. Thomas (37:48):
There are clear synergies. Our hardware system is identical. Our analytical system is very similar. Our team can move across the two different markets really easily. In Africa, we've been working there for a really long time. We have a strong team of our Rwandan and Kenyan colleagues that have been working on these problems for decades. I'm talking to you from Boulder, but really it's my colleagues in Kenya and Rwanda that are doing hard work at the water pumps, and doing water treatment at schools, and we're the OGs in that space, so we came up with the idea and we were the first to bring it to market.
(38:20):
So we know what the pitfalls are and we know what the opportunities are. In the US, we're really the newcomers. We've been making mistakes in automated demand response. We've been learning from other experts and other peer companies in this field where we can try to add value, in what we think is going to be a significantly emerging market opportunity. The climate, finance, drought, neither of these things are going away. Technology has to be part of the solution both for gathering and acting on data, so that we can wrestle control of that resource back into a way so that generations to come, people have access to water and the food that it needs to grow.
Cody Simms (39:02):
And the hardware that you're providing, generally you are providing that. Are the deployers buying the hardware from you, or are you providing the hardware in order to either monetize the credits or the demand response, depending on the market?
Evan A. Thomas (39:15):
In both cases, our technology, we give it away for free. So the technology is an enabling capacity. For carbon credits, it's making sure that the water pumps and the water filters are working, and it's the audit trail for the carbon credit. So we look at the data to make sure everything's actually operating, and we can go and deploy repairs, and we show that same data to the auditors who then tell us how many carbon credits we've earned. In demand response, it's the same thing. We get those devices on the pumps, and then both us and the growers benefit from the generated revenue.
Cody Simms (39:44):
I mean, I think what's interesting about having the two models, I'm sure it creates some challenges of focus, but it also gives you the ability to flex as the market is changing, and as different trends emerge and whatnot, you now have knowledge of how to monetize this hardware in a few different ways. Who knows what other opportunities are going to emerge for you, in an unfortunately continuing to be unstable world, when it comes to water?
Evan A. Thomas (40:12):
People have been thinking that environmental commodities are around the corner as a market for decades now. Things like ecosystem services, or nature-based services, or nature-based carbon, I think it's actually going to happen this time. We are now at a crisis point on the Colorado River. We're at a crisis point in East Africa. A quarter of the world's population is facing water insecurity. The problems are unavoidable. They're directly in front of us now, but so are the solutions. We now see a COP 27 agreement to support carbon financing and climate credits, and reparations for loss and damage. We see the Inflation Reduction Act, which by itself had $4 billion in it to mitigate drought in the American West. So we are also seeing the markets and governments and policies responding in a way that supports using technologies to enable commodities.
Cody Simms (41:06):
And I think it's a good reminder to all of us who are working in the climate change innovation space and technology space, that sometimes business models in this space are going to look different than they do just in a straight-up software tech environment. They are more complex because you're dealing with on the ground realities, and the on ground realities in East Africa are different than on the ground realities in the Central Valley of California. Very different than maybe scaling out a SaaS software platform, where the product is what it is, and you're going to have some small tweaks for go to market, but the core tech is what it is. And what you're saying is, the core tech is what it is, but the business model does need to change based on the realities on the market on the ground.
Evan A. Thomas (41:53):
And hardware's hard, hardware's expensive. You have endless engineering, manufacturing, distribution, servicing, warranties. Hardware's hard. A lot of companies out there want to offer a service or data service that's entirely based on remote sensing analytics, but you can only detect... From space, you can only detect what's directly on the ground, not what's underneath the ground. And so we need our hardware to enable our business model and to help us actually value the water that's delivered. When we think about the value of water, we really only price what it costs to deliver it.
(42:28):
Here in Boulder where I live, we have lots of water, we have lots of infrastructure. We don't really have that many people, and yet we only pay about a quarter of the cost of delivering us water in our water bill. 75% of the cost of delivering water in Boulder, Colorado is subsidized by one source or another, whether or not it's taxes at the local, state or federal level, or a subsidy from the energy utility. Nonetheless, we have highly subsidized water here. Meanwhile, in some countries around the world, people spend half of their income buying water.
Cody Simms (42:59):
Such a good reminder, and it's unbelievable to me how much in the US we take water for granted, given how critical it is to how we eat, how we live, how we grow our crops, how we survive. And I have to ask another question, which is related to a little bit on the complexity side. On your website, we've talked all about water, but you mentioned the technology also applies to soil carbon, which I'd love to hear how that leverages some of the same core tech stack. And to me, it reinforces the notion that perhaps what you are building is this environmental commodities based business, not just a single use technology.
Evan A. Thomas (43:40):
So there are three natural huge carbon sinks on the planet. There's the forest, there's the ocean, and then there's our soils. But about a third of agricultural soils globally are degraded. So we've actually tilled them so much, overused them, that the carbon has left the soils, which impacts yields negatively, and it also contributes to global warming and emissions. One of the most exciting and attractive opportunities for nature-based climate adaptation is to rehabilitate agricultural soils. And you can do that in actually pretty simple ways, like engaging in no-till practices and cover crops.
(44:18):
So things that have existed for centuries and centuries before mechanized agriculture, we can just return to some of those practices cost effectively and start re-accumulating carbon in the soil. Now the challenge is that you can't measure that from space. You can't just look at maps, or just look at survey data. You have to actually measure the accumulation of soil carbon if you want to earn something like a carbon credit as a payment, as an incentive, for engaging in those practices. So we've been developing sensors with colleagues here at the University of Colorado Boulder, and commercializing them through Virridy, that can directly measure accumulation of soil carbon, and then link that into registry systems and methodologies to credit those practices into commodities that you can sell, and earn money to actually engage in regenerative ag.
Cody Simms (45:10):
Got it. So in this case, that would be different sensor technology, which measuring water is different than measuring soil carbon, but leveraging the know-how that Virridy has, in terms of how to build carbon credit methodology, and monetize carbon credit methodology, and just run a business that knows how to deploy environmental sensors at scale. Am I understanding correctly why that would be an additional product you would offer?
Evan A. Thomas (45:34):
Yeah, exactly. The sensors themselves are actually pretty basic. They're things like temperature, and humidity, and connectivity, but the intellectual contribution is to upscale from that sensor, combine it with all of those other fancy remote sensing data sets and models, both mechanistic models and statistical models to then improve that site level estimate. So that's what we're doing on water pumps for water quality, but also for soil carbon, is applying that electrical property and that know-how to taking relatively basic sensor data and improving not only what we think is going on on the ground, but also what's going on spatially. And even forecasting, forecasting accumulation of soil carbon, forecasting demand for groundwater, predicting where there might be water contamination in the future.
Cody Simms (46:23):
Super. Well, really interesting that you're basically building an environmental sensing company, and figuring out the different business models to do that across multiple use cases. I think it's, again, a good reminder of the vast scale of the problem, and yet the relatively consistent go-to-market channels that can be available once you figure those out. Help me understand a little bit then on the funding side. You guys recently announced your, I don't know if it was a seed round or series A round, you announced a little over $5 million in funding earlier this summer. Is that right?
Evan A. Thomas (46:55):
Yeah, it was a small series A, big by my books, but maybe small by Bay Area standards, or California standards. We raised five and a half million, our lead was Accord Capital out of San Diego, and that goes into developing and scanning the technology. But we also have another source of finance, which is project finance. So instead of doing another round, we're actually able to access buyers who are pre-buying our carbon credit. So we've been able to access another close to $5 million this year that are an advanced purchase of our carbon credits that actually finance the projects that we do, and then we deliver carbon credits as our product, and that finance flips from debt into booked revenue.
Cody Simms (47:35):
You're one of many companies I've heard of recently in the climate space who is very heavily leaning on that model, which I think again, is something that's quite different in the climate tech space. Maybe unpack that for folks just a little bit more. Explain what that mechanism looks like, in terms of pre-selling the credits. How much line of sight into deployment do you need to have in order to do that, and is the person buying those credits from a finance perspective ultimately the person who is utilizing those credits on their own balance sheet, or is it a third party who's then planning to go broker and sell those?
Evan A. Thomas (48:10):
So if you're doing a civil engineering project like building a bridge or a building, you can access project finance. Project finance really wants to be low, low risk. It'll be low interest, low returns, but really needs to be low risk. They need to know that they give you this money, you build the thing, and you pay them back really quick, like a bond, or just in advance. In the case of project finance for carbon, it still needs to be lower risk than your seed or your series A investors are willing to take, and of course lower returns, but what they're buying is your product in advance. They're essentially giving you a purchase order but payment upfront, and you use that money, we use that money, to go and do a project that generates our product, which is the carbon credit.
(48:52):
We deliver it, but the way it works is that the project financer is taking some risk on delivery. They have to put the money up front, and if you disappear, they've lost their money, or if you can't generate carbon credits, they might have lost some of their money. But they're paying you at a pretty substantial discount below where they think the market is going to be, and the market is expected to go up. We're thinking that carbon credits are going to be at $40 or more in the next five years or so, especially highly charismatic carbon credits like ours, associated with drinking water treatment in poorer, resource constrained communities around the world. And so our project financers will benefit on that upside. They take delivery of the carbon credits, they sell them to the highest bidder, and then we're able to plow more project finance into scale.
Cody Simms (49:38):
Evan, thank you so much. What should I have asked you that I didn't ask?
Evan A. Thomas (49:42):
Cody, a lot of people ask, "Why are you at the university and running a company? Does that really make sense?" You asked that right in the very beginning, I'm not sure I actually got back to it. I got funny looks from VCs in the Bay Area that said, "Call me back when you've actually quit the university, and I know you're serious about this." What I've always found is that the university and the company, and also things like the public sector, the private sector, they're good at different things. The university is good at finding grant money to develop improved technologies, or to study the impact of technologies. The company is good at commercializing and scaling. And so my team and I have always found that we like to wear both hats. We like to do research and development on the university side, and commercialization and scale on the company side, and these things benefit each other. They're not conflicts of interest, they're actually highly synergistic.
Cody Simms (50:31):
And where do you need help?
Evan A. Thomas (50:32):
Yeah. Well, I'm sure all the growers in California listen to My Climate Journey, so I'm sure I'm going to be getting a lot of inbound automated demand response in the spring. But in all seriousness, it's going to be all hands on deck with environmental commodities, carbon financing, and climate financing. And so we see this as a growing field where we can help people manage water, manage soils, manage other environmental commodities by leveraging these financing streams.
Cody Simms (51:02):
Evan, we covered so much today. I super appreciate you coming on and sharing what you're building, and helping us all learn more about this incredibly critical space of where water and climate are intersecting. So thanks for your time.
Evan A. Thomas (51:14):
Thanks, Cody. It's great to hear your voice in person, and not just when I'm at the gym in my earbuds.
Cody Simms (51:21):
Well, I'm glad I could oblige. Thank you.
Evan A. Thomas (51:22):
Thank you.
Jason Jacobs (51:25):
Thanks again for joining us on the My Climate Journey podcast.
Cody Simms (51:28):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change, and our member community to bring people together as Yin described earlier.
Jason Jacobs (51:50):
If you'd like to learn more about MCJ Collective, visit us at www.MCJcollective.com. And if you have guest suggestions, feel free to let us know on Twitter @MCJpod.
Cody Simms (52:05):
Thanks, and see you next episode.
