The Business Model of a Water District and Its Turbines

In this episode, Emily Morris of startup Emrgy discusses the promise of small-scale hydropower and the opportunities it could provide for both power infrastructure and water management.

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David Roberts

Hello Volts listeners! I thought I would start this episode with what I suppose is a disclaimer of sorts. I suspect most of you already understand what I’m about to say, but I think it’s worthwhile being clear.

Every so often on this show, like today, I interview a representative from a particular company, often a startup operating in a dynamic, emerging market. It should go without saying that my choice of an interviewee does not amount to an endorsement of their company, a prediction of its future success, or, God forbid, investment advice. If you are coming to me for investment advice, you have serious problems. I make no predictions, provide no warranties.

The fact is, in dynamic emerging markets, failure is the norm, not the exception. My entire career is littered with the corpses of startups that I thought had clever, promising products — many of whom I interviewed and enthused about! Business is hard. In most of these markets, a few big winners will emerge, but it will take time, and in the process most promising startups will die. Such is the creative destruction of capitalism. I'm not dumb enough to try to predict any of it.

More broadly, I am not a business reporter. I do not have much interest in funding rounds, the new VP, or the latest earnings report. (Please, PR people, quit pitching me business stories.) I do not know or particularly care exactly which companies will end up on top. I am interested in clever ideas and innovations and the smart, driven individuals trying to drag them into the real world. I am interested in people trying to solve problems, not business as such.

Anyway, enough about that.

Today I bring you one of those clever ideas, in the form of a company called Emrgy, which plops small hydropower generators down into canals.

Now I can hear you saying, Dave, plopping generators into canals does not seem all that clever or exciting, but there’s a lot more to the idea than appears at first blush. For one thing, there are lots more canals than you probably think there are, and they are a lot closer to electrical loads than you think.

So I’m geeked to talk to Emily Morris, founder and CEO of Emrgy, about the promise of small-scale hydropower, the economics of distributed energy, the ways that small-scale hydro can replicate the modularity and scalability of solar PV, and ways that smart power infrastructure can help enable smarter water management.

Alright, then, with no further ado, Emily Morris of Emrgy. Welcome to Volts. Thank you so much for coming.

Emily Morris

Thank you for having me. It's exciting to be here.

David Roberts

You know, I did a pod a couple of weeks ago about hydro and sort of the state of hydro in the world these days. And one of the things we sort of touched on briefly in that pod is kind of small-scale, distributed hydro, but we didn't have time to really get into it. And I'm really fascinated by that subject in general. So it was fortuitous a mere week or two later to sort of run across you and your company and what you're doing. Your sort of model answers a lot of the questions I had about small-scale hydro.

Some of the problems I saw in small-scale hydro, just because it just seems to me so at once small, but also kind of bespoke and fiddly. And your model sort of squarely gets at that. So anyway, all of which is just to say I'm excited to talk to you about a model of small-scale hydro that makes sense to me and some of the ins and outs of it.

Emily Morris

Yeah, absolutely. And I'm thrilled to be here. I'm thrilled to tell you more about our model. And I love that you called small-scale hydro bespoke because I was talking with one of the larger IOUs a few weeks back and they referred to hydro as artisanal energy. And I got such a kick out of that because it is in so many ways, hydro can often be a homeowner's pet project that has a ranch or something like that. And bringing hydro into a world in which solar panels are taking over distributed generation and utility scale, and doing it in such a standardized, modular, repeatable format, bringing that architecture into water, is something that hasn't yet really been done successfully. And what we're trying to do here at Emrgy.

David Roberts

it is kind of like a lot of this echoes solar. It's sort of an attempt to sort of replicate a lot of what's going on with solar. But we're getting ahead of ourselves. Let's start the business model is, to put it as simply as possible, is you make generators and you plop them down into canals. So let's start then with canals, because I suspect I am not alone in saying that I've gone almost all my life without thinking twice about canals. I know almost nothing about them. Like, what are they? Where are they? How many are there?

This water infrastructure kind of surrounds us is almost invisible. So just talk about canals a little bit. What are they used for and where are they and how many are there? What's the sort of potential out there?

Emily Morris

Yes, canals are almost invisible, but my goal is that after this podcast, you'll never look at a canal the same way you'll look at it, as a source of energy. That, man, we should be tapping that energy and using it. Canals are our main target market. They're really our only target market right now. We get asked all the time, well, couldn't you do this in a river? And couldn't you do this in tides? And the answer is yes. If you're focused on the engineering but as a commercial founder at Emrgy, I'm focused on the market and where can we install projects today that can be immediately delivering economic benefit and environmental benefit.

And so canals are that market. A canal is an open channel of water conveyance that's moving water from one place to another for a specific purpose. That purpose might be because it's raw water that's being delivered into the city to be treated for drinking water. It could be that it's an agricultural channel taking water from a river out to farmland. It could be an industrial flow of water that's coming from a large brewery or a large factory and delivering that into either a river or another piece of water conveyance. But canals are seemingly invisible. I'll be honest, when I started Emrgy, I thought that the technology would first thrive in a water treatment environment.

There's 30,000 water treatment plants in the US. And many tens of thousands all around the world. And that water is running 24 hours a day, seven days a week, 365. And man, the ability to take something modular that looks and feels like solar in terms of its ability to seamlessly integrate into the surrounding infrastructure, but deliver power in a baseload format was something that immediately, I thought, water treatment. Yet when I was really early in my entrepreneurial journey, we did our first pilot at the city of atlanta's largest water treatment plant. And I went out to Los Angeles and gave a white paper on it at LADWP.

And when I was there, the city of Denver had two representatives there. And they came up to me after my presentation, and they said, we think you're thinking about this all wrong. You got to come to denver and see what we've got in terms of water infrastructure. And when I went out to Denver that next couple of weeks, I spent three days touring probably 500 or 600 miles all around the Denver metro area of canals that are transporting water. You may not know that the water you drink in denver actually comes from the other side of the continental divide, and they bring it into the city of denver through a series of canals and storage reservoirs that allow for the appropriate amount of treated and stored water for the city.

And so when I was there, I thought about, okay, as a business model, being able to deliver one to ten of these modules at 30,000 water treatment plants sounds like I need a big sales force. And then looking at the Denver infrastructure and seeing hundreds of miles of uniform canal that's transporting water where thousands or tens of thousands of these generators could be deployed with one partner just made a ton of sense. And so then I started peeling back the curtain on that.

David Roberts

You say one partner. So are most of these two of the sort of features of canals? That came as somewhat of a surprise to me, and I'm sure you're familiar with this response is, first, when I thought of canals, the first thing I thought of was agriculture. I assumed they were mostly out in farmland. But what you have discovered is that they are laced throughout urban infrastructure, they are in cities.

Emily Morris

Oh, absolutely. It's both. It's certainly both. Our project we have a project with the city of Denver that overlooks the Denver skyline right there near the city. And if you overlay a map of Phoenix roadways with map of Phoenix waterways, you can see two highly sophisticated transport systems all throughout the metropolitan area. Not just Phoenix, think of Houston 22 canals and bayou's flow all throughout the urban metro area that are both a source of water or even an attraction for the city, but also have an inherent energy, sometimes too much energy during hurricane season and whatnot to be able to harvest and hopefully deliver value from as well.

David Roberts

Yeah, and so the other feature is they're not privately owned for the most part. Most of these canals are operated by a city municipal water district.

Is that sort of the standard?

Emily Morris

Yeah, that's correct. Typically there is an organization that manages the water infrastructure, the canal infrastructure. It is often public. It can be a political subdivision, like a municipality or a local not for profit organization or co-op. It also can be a private canal company, although those typically remain nonprofits. They're typically a public service for the good of the recipients of the water.

David Roberts

But the point is, you are not having to track down a bunch of individual owners of individual canals. You can get at a bunch of canals through one partner.

Emily Morris

That's absolutely the case. And it's all public record the managers of water infrastructure and their contact information. You're not going and knocking on someone's home asking if you can put something in the backyard or something like that. This is an operated and often, from their contractual perspective, they're typically buying water from an entity and selling water to a series of entities, buying water from the US Government and selling it to farmers, something like that. And so the reporting aspects about that water that flows through, they tend to be detailed. They tend to be long running. And so as you think about developing a resource assessment of how much energy is inherent in that water that you can produce electricity from, it's not necessarily like needing to go build a MET station and understand exactly what resources there.

They're typically well organized, well operated, and well documented.

David Roberts

A well characterized resource.

Emily Morris

Absolutely.

David Roberts

Okay, so you go to these canals. You make a deal with the owners of these canals, and then you go plop down energy generators into the canals. Let's talk about the generators, try to give the listeners kind of a sense of how big one of these things is and kind of what it looks like. What are you plopping down into the canal?

Emily Morris

In terms of physical size. Our generators are an eight foot cube, and they have their own precast concrete structure that holds them together. So you can think of sort of half of a precast concrete culvert, if you are familiar with the construction world, that is an eight foot cube. We do that strategically, they are easy to lift and handle.

They're easy to transport by trucking or other means. You can even containerize them if you need to. And we place those into the channels without doing any construction, any modification, any impounding of the channels, which is a really important part of the canals, because, as I mentioned before, that water is going to a destination for a purpose. And so going in and saying, yeah, we're just going to build a dam right here in the middle of your canal doesn't seem to resonate so well. And so being able to bring something in that's fully self supported can be placed into the channel and held there by its own weight.

And it only weighs about seven tons, so it's not a super heavy lift, but it's hydrostatically, designed to not shift or slide or overturn once the water hits it. And inside of that culvert or the concrete structure, there is a vertical axis turbine that looks probably very similar to vertical axis wind turbines that many of the listeners will be familiar with. And so they take advantage of the kinetic energy in the flow using the swept area of the turbine and the speed of the water, and generate torque and speed around the shaft up to the power takeoff and the generator. And so physically, they're eight foot cubes.

But from a power perspective, our smallest turbine that we sell is a 5 kilowatt turbine. And it's the same physical footprint that the 8 by 8 cube, but it can generate mechanically and electrically up to 25 kilowatts per turbine based on the depth and the speed of the water.

David Roberts

I was going to ask whether the sizes vary. So the generator, the eight foot cube is standard. All the generators come in these eight foot cubes, but the generators themselves vary in size based on the water flow.

Emily Morris

Yeah, that's exactly right. We do have a deeper water platform that goes up to about 18ft of water, and then we're working on an even deeper platform in conjunction with the DOE. But right now, our main platform is the eight foot cube. And the beauty of water is that the power is exponential by the speed of the water. And so we can place a turbine in and it can generate 5 kilowatts at say a shallower, slower speed. Or that very same equipment can put out five times the power output if placed in a different location. And so as we think about coming down the cost curve, growing to scale, we can immediately find higher density resources that make sense today, even as a young company that hasn't quite gotten fully to the quantities that other adjacent industries like solar and wind have.

David Roberts

Right. So I have a bunch of questions about that. But just this question about size brings up the question about canal size. If you have a standard sized module, I'm assuming that canals themselves are relatively standardized in size. With this eight foot cube, can you confidently say, we can go to more or less any canal and it'll work? Or do canals also vary?

Emily Morris

Canals vary, but not substantially. There are standard sizes, and our eight foot cube does cover a wide envelope of canals in the US. And abroad. We do see, though, that this is the array planning and array specification, which is how we deploy these. We never deploy them as single turbines, but really as arrays, just like solar and wind, that with the arrays. It's a very similar planning method to solar is you look at your total square footage across the canal, you look at the gradient of fall along the canal, and you plan out the optimized number of turbine modules that make sense for that canal.

So sometimes if you have a canal that's 18 feet wide, rather than build two 9 foot cubes, all of a sudden, you do two 8 foot cubes, right. And you standardize and you optimize for cost even if you're not squeezing every single ounce of power out of that flow. And I think that's one big thing that differentiates energy and distributed hydro from traditional sort of small-scale hydro is we're optimizing for cost and scale rather than for utmost efficiency, which is typically where hydro really focuses.

David Roberts

Right. And Volts listeners are very well educated on the fact that the modularity, the small-scale and modularity of solar panels are a huge piece of why they have proven so adaptable and grown so fast. Like the advantages you get from standardization and modularity vastly outweigh whatever sort of marginal gains you could get on either side in a particular canal.

Emily Morris

Absolutely. We're big believers in that, our smallest module is an order of magnitude larger than a solar module. But you should think of it absolutely in that same way. We do have people, especially the folks that are really focused in hydro, they say to us, "Oh, your modules are so small, 5 kilowatts or 25 kilowatts, that's so small." And I say to them, "No one ever goes to the solar field and say, 'Hey, your panels are so small.'" It's a totally different mindset that you have to be thinking of the module as the panel, as the individual generator that ultimately goes into the array. And yes, our arrays will likely continue to be on the distribution scale rather than on the utility scale or the large transmission scale. But no question the aggregation of modules is how power grows, this generation of renewables.

David Roberts

Well, let's try to get a sense of just how big they are power wise. So, 5 kilowatts to 25 kilowatts, what's a typical array, and then what's the output of a typical array, and then maybe just to help the listeners kind of get their head around it, how does that sort of compare to an array of solar panels? Like, if I'm the owner of a canal or a network of canals, and I'm trying to decide, do I want to put a bunch of these in there or do I want to say cover the canals with solar panels? What's the scale comparison there?

Emily Morris

Well, if you're asking me which one you should do, I would absolutely say both. The answer is both. One does not preclude the other, because this is a great real estate segment to be able to convert to renewables of all types. But when you think about our systems at 25 module, let's say that's 40 turbines to be a megawatt. And some canals are on the smaller side that we look at maybe enough for two or three modules across, some of them maybe ten modules across, just depending on the width of the canal. And so you could place 40 modules as close as, say, half a mile away across those four rows of ten, or it could be spread a much longer distance, it could be a mile or 2 miles for that.

And really we're optimizing for spacing. Obviously, you don't want to run cable to the point of interconnect any further than you have to. We're optimizing for hydraulics. You want the energy to recover after being taken out by our turbines as it flows downhill. And then ultimately, we want to co-locate these with the offtake and whether that's directly into the grid or behind the meter with a particular industrial or municipal client. Those are typically how we think about this. But when you think about covering a canal in solar panels, I don't have the specific statistics on how many linear feet equates to a megawatt or things like that, necessarily, but you're going to see, most importantly, that you need three times the power output or potentially more to overcome the differences in capacity factors. So with our system, they're typically operating 24 hours a day.

David Roberts

So in these canals that water flows through, water is constantly going through there 24 hours a day. I would think some of it at least would be sort of like scheduled or go in one direction and then another direction. Are they all steady 24 hours flows?

Emily Morris

Not everything is consistent, of course, but I would say that in the water space, the capacity factor is determined by seasonality and or maintenance schedules, but less by intermittency. It's actually pretty bad for a canal to be turned on, turned off, turned on, turned off, because you end up having other maintenance challenges, things that break issues in the canal.

David Roberts

So they want to run them?

Emily Morris

They want to run them continuously. Yes. And so depending on what the water is being used for, whether it's a certain area of cropland and therefore there's a seasonality to the flow that's fairly common, or if it's municipal, it may be a year round flow. Or depending on your region in the arid Southwest, you'll see perennial flows a lot more frequently than you will, let's say in Montana or Idaho, where there's obviously quite harsh winters.

And so in our case, we target canals that can be the most predictable in their flow and the most continuous. Yet if you have a site that is only running six months out of the year, getting to that 40% to 50% capacity factor because let's say it runs constantly through that six months of the year can still lead to an incredibly exciting impactful project overall with good returns, even though it's not on every day. Right? It's a different mindset.

David Roberts

Right.

Emily Morris

I have definitely had water districts say. "Well, what do I do in November, December, January if we're not flowing water?" And I said, "You may not think about it, but every night when you go to sleep, your solar panels also aren't working." It's just a different mindset of something not working every day for 90 days rather than not producing every night. And so doing that educational piece to where projects in terms of their output and their economic value can be highly competitive even at the shorter seasons with canals.

David Roberts

Right. So the basic point here is that while these generators may not crank out as much power as a solar panel while they're generating, they are generating much more often. They're generating around the clock. And so you have to have kind of three times the power output from a solar panel to end up matching the total power output.

Emily Morris

That's right.

David Roberts

They have the advantage of being base-loady, basically.

Emily Morris

Exactly. That's typically what we see is that for canals that are running the majority of the time, you'll ultimately need if you want the equivalent amount of annual energy, you'll need a power capacity on your solar that would be about three times larger than what you would need on the hydro side.

David Roberts

Interesting. Okay, so you go to a water district, you say, "Hey, we want to generate some power from your canals." You do an analysis of the sort of optimal kind of spacing and placing and then what, a truck comes in or a crane comes in and just sort of like drops these things one by one in the canal. It sounds like installation would be pretty straightforward and pretty low footprint, is that true?

Emily Morris

That's absolutely true. It sounds too simple to say in some ways, but yet simply lifting the turbines and placing them into the channel, making sure that they're level, making sure they're not sitting on top of debris, or boulders or something like that, that may have fallen in the canal is important. But placing them in the canal correctly is the most important aspect of the installation. That's unique to Emrgy.

David Roberts

So they're not connected in any way it's just the weight of the thing holding it in place. It's not literally not connected to anything. There's no screwing or attaching or bracketing.

Emily Morris

That's correct. There is nothing that is physically attaching it to the canal.

David Roberts

So easy to take out.

Emily Morris

Owners love this. Yes. Because they can take it out if they needed to ...

David Roberts

Or move it

Emily Morris

... often. Because these are operated channels they often will, once every five years or on some periodic schedule, drive up and down the canal or drive a bulldozer down and make sure that all the debris is out or something like that. So they love the flexibility. We tend to see that canal owners like the flexibility of being able to take them out. Now onshore each turbine, or each cross section, I should say, has a power conversion system that has both the control system as well as the power conditioning. And that is something we deliver as well. And it sits on a concrete pad on the side of the channel. But then as you connect those together electrically and then connect them to the grid, there's no innovation from Emrgy there. It's just optimization based on the appropriate electrical balance of system design.

And so as we think about partnerships with other types of developers, other renewable developers, there isn't a special skill set that installers would need to have to be able to install our system. The balance of system is essentially exactly the same as distributed solar. And all you would need to do is be able to place the turbines in the canals correctly.

David Roberts

Interesting. Yeah, I like simple and dumb. That's resilient and that's what can spread fast.

Emily Morris

And maybe I'll just mention that when I first started this business, I thought it was too simple. I assumed that somebody had already done this before, that it seemed pretty obvious. And as I looked deeper into it, I learned really the two things that I believe have held this space back that now are no longer barriers. One of them is regulatory. And that gets a little bit back to why we focus on canals in general, is that up until 2015, I believe it was all water in the US was permitted for power in the same way. So to place our system in a canal would have been permitted and regulated the same way it would in a river. And in 2015, FERC enacted the qualifying conduit exemption which stated that electric projects within water conduits or conveyance systems were exempt from FERC licensing up to 40 megawatts per project.

David Roberts

Interesting.

Emily Morris

And so now our projects are fully exempt from FERC licensing. And it's a 30-day notice of intent to FERC requesting that exemption, which is lightning fast compared to other projects.

David Roberts

Yes. So you're not dealing with permitting issues, NIMBY issues, all the sort of like land issues, all the stuff that's bedevilling wind and solar right now you're sort of doing an end run around that stuff.

Emily Morris

We'd like to think so. I mean, projects are always controversial to some extent, and every neighbor may have an idea of what they'd like to see in the canals. But in terms of general regulatory approvals and project buy in, we tend to see this being much lower barriers than many of the other types of land based systems. The other thing that was a major barrier that has since been lifted is the growing ability to use solar designed or solar inspired smart inverters for technologies and generators other than solar.

David Roberts

Let's talk about that first. Maybe, I don't want to assume first, maybe just tell listeners what does an inverter do and what does it mean for it to be smart? And maybe tell us about how those were developed in solar.

Emily Morris

Sure. So the generation of the power from the water or from the sun typically has been done over many decades and even centuries in terms of hydro, very successfully. The physics of getting energy out of a resource is something that is fairly straightforward. Now, the modern scalability of being able to replicate that in thousands of locations all around the world, conveniently into our modern electricity grid, is something that I would say has been hugely influenced through the development, industrialization and scalability of the smart inverter. And what I mean by that is actually readying the power, conditioning the power, making it grid compliant and ready for delivery into the grid, has received billions of dollars of industrial development in the solar industry to take it down in size and form factor as well as in efficiency.

And if that was not available to us, and Emrgy had to build out an industry much like solar to drive industrial development of power conversion and power delivery, to be able to install it globally, we would be on a 20- to 30-year timeline. We would need billions of dollars and or it would just be really slow. If we had to do all custom power equipment, then every utility would have to come in and do a full engineering review of what we were building, whether it would cause problems to the grid. And what we have been able to take amazing advantage of is the ability to utilize a smart inverter that was originally designed for solar and largely used in solar, and be able to use that to control our hydro-generator without invalidating its utility certifications.

You have to know quite a bit about power systems, perhaps, to know that controlling the power curve in a hydro-turbine and controlling the power curve in a solar panel is very different, a lot trickier than one might think. And being able to manage the torque and speed, to be able to manage and optimize a power point along the curve is tricky when you're trying to use a device that was made for a different industry. And so one of the biggest areas of Emrgy's technology, development and innovation is not necessarily in the. Physics in the water of how we're getting energy out of the water.

It's really how are we delivering that electricity now to the grid in the most cost effective, high efficiency and streamlined way. And being able to use the same inverters that the solar industry is using helps put us on a much closer playing field to be able to deploy these projects in an apples to apples way. And even, as you mentioned, do you do solar or hydro and canals? It's great to do both and potentially even put them right into the same inverter. And that's the beauty of where distributed generation, I believe, is going, is to a flexible environment where you can have that base load, have your peaking load, have your energy storage and share as much of the cost along the system as you can.

David Roberts

So you can just use smart inverters that are designed for solar off the shelf. There's no engineering or tweaking or fiddling you have to do.

Emily Morris

So we're prohibited from doing a ton of tweaking inside the inverter because obviously they go through quite a level of utility compliance and we can't necessarily change that. However, what we have is a power controls unit. It's a NEMA panel that looks like a standard electrical panel that sits right next to the inverter and that contains all of our fairly sophisticated controls and mechanisms to allow us to control our system and have it communicate with the solar inverter in a language that the solar inverter understands most of our innovation. And IP in that area sits in that power controls unit rather than in the inverter itself.

David Roberts

Got it. And so what do we mean when we say smart inverter? I've always kind of wondered, do people just say that because it's like sophisticated? Or is there a clear distinction between a dumb inverter and a smart inverter?

Emily Morris

I'm probably not best equipped to handle that question, but I can say that from our perspective, using the inverters that we do use enables us to have both the smart capabilities as it relates to grid following, ensuring the grid islanding or other types of issues are matched. But also for us, having the data aspect of what's collected in that inverter and the amount of information that we can pull off of it is very helpful for us. I mean, we collect data in a number of ways and using the solar inverter or the smart inverter helps us to triangulate and calibrate that data to ensure its accuracy. So, for example, the inverter will give us power output, real time data in that regard, while we also have sensors off board the system in the water that reads flow information, speed information.

And so we know if there's a change in power, is that related to a change in flow and we can calibrate that via the sensors, or is it related to an issue in the system? And using both the data off the inverter as well as off of our other data collection systems, helps us to diagnose and monitor device health as well as to especially as we continue to innovate, predict and alert water infrastructure owners of decisions they may need to make.

David Roberts

The obvious service you're providing to a water district is we're going to give you some power, some economical power. But I'm wondering about, if you're collecting so much information about water flow, is that information helpful to the canal owners? In other words, are you able to improve the actual operation of the water infrastructure itself?

Emily Morris

We are, and I believe that this will continue to evolve as the industry continues to evolve as well. But right now the water management, especially out in the field, is managed by an aging population. I think the last figure I saw that the average what they call a ditch tender or ditch rider, someone that is monitoring the health of the water conveyance system, the average age of that title is 56 years old.

David Roberts

A familiar story in so many of these areas.

Emily Morris

Yeah. So recruiting young talent, recruiting the right type of personnel is tough and so being able to provide data that can integrate back into a SCADA system or otherwise be able to inform those that are not in the field things that may be happening in the canal is definitely valuable. Now over time as well. The canals have been operated for mainly one purpose for many decades now, which is to deliver water and earn revenues off of delivering that water. They're selling the water now as they will be running water and earning revenues from generating power along the way.

Working with water districts to optimize their irrigation schedules or their deliveries, to be able to take advantage ...

David Roberts

So they could change the way they do things to optimize power delivery too?

Emily Morris

Yes, I mean, this is one of the very few generation types, particularly on the distribution grid, that is a controllable feedstock. And so to the extent that a water district can generate double the revenue by flowing water during specific times, there are incentives to do so.

David Roberts

Interesting.

Emily Morris

And we can provide those. And so aligning incentives between the water district Emrgy and the farmers that they serve to be able to really bring a powerful force of renewable energy onto the grid at the right times of day or the right times of year is something that we believe distributed hydro has a unique ability to do.

David Roberts

So I'm guessing that this is in early days, this idea of a water district sort of co-optimizing water usage and power output. I would guess that there's a lot of running room there to find efficiencies and find better ways of doing things.

Emily Morris

That's right there is it's early days. I mean, we are working one of our municipal clients, the canal that we're installed within, its only job is to manage water levels between two reservoirs. So there is a ton of operational flexibility within that section and being able to work with them on optimization of the water flows to drive power is something very straightforward. Now, there are other districts that have been doing things the same way for 50 years. And perhaps they're going to be more of the districts where you have to put the incentive out there first, let them start to see how it changes their income with a change in flow and guide them on that, and we'll see it over time.

But this is one thing that we talk about a lot at Emrgy, is how to adequately predict future behaviors with water as a function of how this partnership can work together and provide them both the data, the revenues and other services that are helpful.

David Roberts

You could even imagine water districts with an array of these turbines installed maybe playing a role in demand response type things. In other words, they might have the ability to sort of turn it up and down on demand as a source of value.

Emily Morris

Absolutely, and they can do it both on the water side as well as somewhat on the power side as well. If you're familiar with the energy water nexus, the concept that it takes quite a bit of electricity to move water, move and treat water, a lot of these water districts are huge electricity consumers. And so one thing we often talk about with districts is what are their highest consumers of electricity? Is it a particular groundwater well? Is it a particular pumping plant? Is it a particular water treatment facility? How can we both utilize the water to drive demand response and to drive smart operation of water and therefore power?

As well as should we cluster these systems around some of those highest consumers even in some ways behind the meter or along with energy storage to where they're able to keep that demand down into a whole different echelon from what they've been operating at?

David Roberts

Right. Well, this raises the question of in your installations so far, who's buying this power? Who's the modal kind of consumer? Is it the water districts themselves? I mean, they're big electricity consumers. You can see this as kind of a self contained loop kind of thing where they're sort of generating the power that they're using or are you selling it into the grid? Are you selling it to particular off takers or is there a standard model yet?

Emily Morris

There's not a standard model yet. I would say the most common models are power purchase agreements directly with the water district so buying power from us rather than from the grid. And in many cases, if we're in states that have advantageous net metering, which I know are becoming fewer and fewer each year, but able to use that type of arrangement where essentially they're receiving a bill credit and then remitting those savings onto Emrgy

David Roberts

And net metering works the same here as it does for solar panels?

Emily Morris

Yeah, exactly the same. Exactly the same. Down to the same form you fill out from the utility, all the same. And then there are certain states that have advantageous hydro avoided cost contracts where we can just pull directly on a standard offer from the IOU in the area that can allow for a bit of a streamlined contract negotiation. Then when you're meeting with the district, you're only talking about how much we're going to be paying the district to host the system and share those revenues with the IOU rather than contracting with them on power purchase directly.

David Roberts

Right. A little easier for them. And that sort of raised my next question, which is, is the business model that you go to a water district and sell it these turbines and then it operates these turbines, or is this a power as a service type of arrangement where you own the turbines and operate them and just sell the power to the districts?

Emily Morris

Yeah, Emrgy has always been organized with a goal toward power as a service. We're currently doing that, although in our first reference projects, we needed to sell the turbines just to get equipment out there, get people familiar with it, which we were successful in doing. Now we're focused primarily on a power as a service model. Although water does tend to be an industry with a high value on ownership. And so many of the districts we work with, they're either interested in being a part owner, they're interested in a future buyout option or transfer of ownership option, just because it's quite common that the manager of the water district grew up at the water district, had maybe a father or grandfather that worked there.

And so they focus on generational outcomes. They want to see long lasting systems. They don't want to see us come in, plop something in and then blaze off. They want to know that we're going to be there for the long haul, which with water power that is one of the other benefits is that this is an electromechanical system that if properly maintained, will last for many decades. It doesn't have that inherent chemical degradation.

David Roberts

Right, solar panels are I think the official is 20 years, or in practice they last a little longer than but I think they're like generally certified for 20 years of operation. What's one of your turbines? Is there a specific fixed time period that you guarantee or how long will these last?

Emily Morris

Yeah, well, we market 30 years. We seek out 30-year contracting arrangements on both site hosting and power production and sales. But truly there's nothing that drives that 30 years aside from that's what our clients are used to seeing from solar or wind or other types. For us, if these systems continue to be maintained, well, we do do an overhaul every 15 years and make sure that all the equipment is well maintained. But ultimately I was just in Idaho, a few weeks ago and there was a hydro-plant there that had similar materials, similar bearings, similar turbine blades, generators.

It was 113 years old. And I won't live long enough to know if one of our turbines can last that long, but there isn't anything inherent of the system that just breaks down and ultimately causes it not to function.

David Roberts

Right. So another question is which these days I find myself asking every guest, which is what is IRA doing for you? Is the Inflation Reduction Act helping you in some specific way either in manufacturing these things and by the way, they're manufactured here in the US?

Emily Morris

They are.

David Roberts

So that's domestic content, what's your relationship with the IRA?

Emily Morris

While we are still early in how the IRA is being implemented and transacted against within our projects, the understanding of how the IRA will provide advantage to the projects is massive for us. You're spot on. Our systems qualify for both the production tax credit and the investment tax credit. And by both, I mean either we can use either one. We meet the requirements for the domestic content requirement, and many of our projects that we're seeking are in energy communities as well.

David Roberts

Oh, right.

Emily Morris

And so the opportunity for quite a substantial tax benefit as a function of these projects. And I'll say, in addition, some of the other major IRA programs or BIL programs that funded both the Department of Energy's Office of Clean Energy Demonstrations, OCED, or the USDA's Rural Energy for America program, the REAP program, are also incredibly advantageous to our projects. A substantial amount of our project pipeline right now is in USDA REAP eligible census tracts, which means that they qualify for either loan guarantees, which provides for commercial lenders to be able to offer lower interest lending to the project, or grant programs for renewable energy systems up to a million dollars each. And so these can provide, especially given that these are not exclusive, so we can bring in both REAP loan guarantees as well as the IRA tax benefits into the same project, making them incredibly attractive even in an earlier stage of a company where we haven't yet optimized cost and whatnot.

David Roberts

Interesting, so you're already in a position where you can go to a water district and offer them a pretty sweet deal, very low upfront costs, a new revenue stream, fairly minimal maintenance. A couple of final questions. First off, you talk about sort of scale and reducing costs. These are pretty simple, as I said before, as one of the benefits. Sort of simple. You have a concrete bracket, there's a vertical turbine, there's some wires and some power control stuff. Where is the room here for technological advancement or is there room for a lot of tech advancement or are you going to get more cost reductions out of scale?

Or are you, do you think, pretty close already to this being as cheap as it can get?

Emily Morris

Yeah, I mean, in terms of tech advancement. I often describe our systems as sort of like when you drive past a wind farm and you can just tell that it was built in wind 1.0 all the turbines are sort of facing the same direction and they're sort of spaced in a finite manner. And then you drive by a newer wind facility and you can tell they're taking advantage of all of the wake of all the different turbines and they're all oriented differently and they're spaced differently. I call our system still a bit of like that 1.0 feel right?

We're designing systems and optimizing them for the canals, but there's things that we just can't simulate in any fluid dynamic software until we've got hundreds or thousands of these turbines out there operating.

David Roberts

So learning some learning by doing here.

Emily Morris

Oh, absolutely. I mean, there are times we've seen in practice where the turbines are all generating and then let's say the water district starts to they lower their flow and the turbines are no longer fully submerged in the water. And we found that if you ease off of one of the turbines in terms of its electrical loading and it starts to spin faster in freewheel, then it can ultimately push water levels up and the turbines upstream push into their optimal generating capacity. And that gets a little technical. Maybe folks listening want to call me a nerd out about that sometime, I'd love to ...

David Roberts

About hydraulics.

Emily Morris

But nonetheless, we are definitely at the tip of the iceberg in terms of understanding all the different wake effects and how to create an array that is more than the sum of its parts. So I'd say that's a big area for tech advancement. We are currently funded by ARPA-E in advancing that what we call the term we use is called dynamic tuning, tuning the systems as things dynamically change around them. Another area for advancement is certainly around hybrids and micro grids. So you made the comment earlier about solar or this and we really believe that to really become carbon free at the distribution level, it's going to be many different technologies, not one silver bullet.

And so there's no reason why you shouldn't combine either floating solar or ground mounted or spanning solar together with our system, share as much of the balance of system as possible, drive LCOE down and have a hybrid. Adding in energy storage or even adding in renewable fuels production is absolutely something that you could use our system with. And we're actually, we're funded with DOE on another one of these projects looking at micro-grids for resiliency, because a lot of times that resiliency piece in a micro-grid is diesel, right? When all else fails, you have your diesel.

And so how can we create something where hydro can be that resiliency piece as something that we're currently working on as well for tech advancement?

David Roberts

Interesting.

Emily Morris

And I think you'll see a lot of we see Emrgy as sort of the base platform, the distributed hydro as the base platform. But ultimately we're interested in pursuing how water infrastructure, which spans, as we already talked about, both rural and urban environments, can ultimately become a key facilitator of the energy transition, not just something that's invisible.

David Roberts

Would you Emrgy get into designing and installing hybrid systems or would this be like a partnership with a solar company? Or is it too early to know?

Emily Morris

We already are into designing and specifying hybrid systems and really more so on creating, for lack of a better term, sort of the universal plug right, where you could plug our system and solar and other things into our overall power architecture. And so we're not necessarily out there innovating on the solar side or on the energy storage side, but creating a way that whether it's with a codevelopment partnership or whether it's something that we can source from a manufacturer, the same way that other developers do, with a very flexible and universal application for combining generation and storage types.

David Roberts

Yeah, because if there are efficiencies available in optimizing one of your systems, I can just imagine once you get into optimizing systems that are small hydro turbines and solar panels and batteries, the more pieces you have, the more sort of room for optimization and efficiency you have, and the more sort of runway there is to bring down costs for the total system.

Emily Morris

And the more controllability you can add, then the more ultimately this becomes meaningful. At the distribution scale, I think we need more controllability and dispatchability at the distributed scale and providing that baseload resource is one of the key pieces to getting there. And so we don't claim to be experts in microgrid controls or anything like that and definitely seek partnerships in that regard. But I definitely see this as an important piece to the puzzle in how we get to be a more resilient set of carbon-free communities.

David Roberts

Maybe just say a word or two about why you think, because there's a long running argument in the clean energy world where you see this, especially in solar, where people say, well, the industrial size, utility scale solar, you get cheaper per kilowatt hour output, which I don't think is controversial. Like if you're just measuring on a per kilowatt hour basis, you're going to get cheaper power out of giant fields of solar than by scattered multiple installations. So what do you see as kind of the advantage of doing all this work in a distributed way rather than just say, like adding some big new dam or some big turbine to some big river somewhere? What do you see as sort of the advantages of power generation being distributed through urban and rural areas in water infrastructure like this?

Emily Morris

I wouldn't call myself an expert on the math, but while I think you're right that at the field the cost per kilowatt hour of a large solar farm is less. Although I don't know that that math holds. If it's the cost of that kilowatt hour to your home, and if you calculated the per kilowatt hour cost to your home for utility or transmission level solar versus local distributed energy, whether that's solar or Emrgy or anything else, I think the number is probably a lot closer and maybe surprising. I'm sure people have done the math. I personally don't know it, but I believe that as we start looking and staring down the barrel, truly, of what it's going to cost our grid, our transmission grid, to maintain modernization and resiliency, if all we do is keep building large utility scale solar farms, the price of delivery to the house is no question going to become higher and higher.

And if we can successfully generate local energy, then it should be lower cost because you're not going to have those massive grid upgrades. It should be more resilient so that if there's a wildfire halfway across the state, it doesn't affect you.

David Roberts

The micro-gridding and ability to island is huge, especially if you imagine it sort of multiplied out to every place with a series of canals, which is more or less every city of any size.

Emily Morris

No question. And so we're big believers in the distributed scale, but again, large hydro and large solar provides such a huge benefit. I think we often take strong stances without realizing all the benefits we enjoy from all the various types of assets that are on the grid. And so I think there's a need for all of it. But I absolutely think that there is a better way to becoming net zero than just covering all of our remote fields in solar and all the batteries that are needed to get there. So being able to bring that more locally in a more continuous format is one solution of, I think, all the many that we'll need to truly become net zero.

David Roberts

So, final question is a question that, as you say, you get asked a lot. Do you have an eye on other kinds of distributed water infrastructure or is this like a canal play more or less exclusively? Or are there other like, I didn't even really know about canals, so are there other hidden water infrastructure that I don't know about hiding around? Or can you imagine something this simple and modular and low footprint working in natural water features, streams or rivers or something? What's the sort of next step beyond this?

Emily Morris

Yeah, I mean, we get asked for all sorts of applications that would probably not be on your radar. Whether we can hang these off of oil rigs out in the Gulf, or can we take advantage of the intercoastal waterways on the barrier islands in Florida, or could we use these in tidal environments in Australia or in LNG plants in Singapore? I mean, you name it, we definitely get asked about anytime someone either is driving in their car, looks out the window and sees a flow of water, and they think, "Oh, we should be able to tap into that energy."

David Roberts

Right, there's energy in all of it.

Emily Morris

They're absolutely right from a physics perspective, but Emrgy is super focused on what we can do and bring value today. Because for me, a clean kilowatt hour generated today is far more valuable than a clean kilowatt hour that I have to plan for and engineer for and design for that can be generated in 2028. And so we're focused on what are near real term opportunities. I would say that we're coming full circle back around to some of the water treatment applications.

David Roberts

Yeah, I was going to ask, what if there's stuff in the water? I meant to ask this much earlier. Are most of these canals carrying clean water? And if it's not clean, if there's stuff in it, does that muck with your turbines?

Emily Morris

Certainly. If there's undesirables in the water, it's going right through our turbines. We design the turbines to avoid as much as that as possible with some fluid mechanic designs, but we have an operating mode that essentially will flush the turbines if needed. If they're stuck, if there's debris or algae or something on there, that's a very similar mechanism to what you find in a pump to flush it and get rid of any alien items. But nonetheless, I would say that in terms of water treatment, we'd be focused on effluent channels of already treated water that's returning out to a different water source.

As I mentioned before, we are doing some R&D work related to riverine and tidal resources. When I started Emrgy, I said, "Hey, we're going to pick a market that we can really master. And if we can master the product and master the base platform that can scale, amending it for a specific environment is much easier than trying to create a product in lots of different environments at the same time." So over time, perhaps you'll see us in rivers or you'll see us in tides. I don't think it'll be anytime soon. The UN Food and Agriculture Organization estimates that there's 2 million linear miles of surface water infrastructure in the world over the globe.

And so we'll be pretty busy in the canal market for a long time. And I think building a really impactful technology for this space along the way. But certainly we'd be open to collaborations or exploring other markets as those become, I believe, more accessible and developable.

David Roberts

It's exciting to me because this is sort of, as we said, modular and repeatable in the way that solar was, but at the very, very beginning of that journey that we've seen solar go through, which is scale expands, it gets cheaper. You find your ways into new niches. You find your way into applications you didn't even know you were going to get near. Just sort of like it's a self reinforcing cycle of sort of scale and cheapness and then spreading to new applications. That's been fascinating to watch in solar, and it's sort of just at the outset here in small-hydro.

Emily Morris

Absolutely. We hope we can leapfrog some of that, having learned from all the things that they've done and being able to actually adopt many of their innovations like the inverters and whatnot. But no question, this is an emerging asset class. There's still tons to learn. And as we scale, I'll like to look back on this podcast a few years from now and see how many of my predictions help.

David Roberts

Yeah, we'll have to have you back on. Alright, Emily Morris of Emrgy, thanks so much for coming on this really intriguing and exciting new area here, so I appreciate you sharing with us.

Emily Morris

This was great, thanks for having me.

David Roberts

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