Smart Solutions for Global Warming

From geothermal to biomass, Israeli energy pioneer Ormat Industries is advancing alternative and renewable energies around the world

by Neal Sandler

A Mideast nation with no oil of its own, Israel is increasingly tapping into a different kind of resource—the inventiveness and persistence of its scientists and entrepreneurs. From shale oil to solar power, Israeli companies are becoming world leaders in alternative energy, exporting their technology to customers worldwide while at the same time reducing Israel's dependence on costly oil imports.

It's a good time to be pushing into renewables. As concerns mount over hydrocarbon-induced global warming, interest is surging in non-polluting energy sources. On Oct. 30, British Prime Minister Tony Blair, for instance, released a comprehensive new report on global warming and warned that the consequences of failing to act "are literally disastrous." At the same time, oil prices are near historically high levels, which makes alternatives more cost-competitive.

One of Israel's mostly unlikely success stories, given the lack of local geysers, is Yavne-based Ormat Industries (ORA), which has become a global leader in geothermal energy. Founded in 1965 by Lucien and Yehudit Bronicki, a husband-and-wife team who now serve, respectively, as chairman and CEO, Ormat booked revenues of $257 million in 2005 and has a market capitalization of more than $1.3 billion.

Plant Growth

Ormat's Nasdaq-traded shares have more than tripled since the company listed in the U.S. two years ago. "Ormat is one of the hottest renewable energy companies on Wall Street," says Len Rosen, Lehman Brothers country head for Israel. Even after that run-up, brokerage UBS issued a report in mid-October saying the stock was still trading at a substantial discount.

Why the excitement? Much of Ormat's success owes to a breakthrough turbine design developed by the Bronickis that permits renewable energy sources such as geothermal or solar-heated steam to be converted into electricity more efficiently. After decades of selling turbines alone, Ormat in the mid 1990s started building geothermal plants of its own around the world that use its super-efficient turbine technology.

The company now operates 11 plants in five countries, including facilities in California, Nevada, and Hawaii, that collectively produce some 360 megawatts of power—enough to power a city of about 500,000 people. Ormat sells the power generated at these plants to local utilities and books a tidy profit. Net earnings in 2005 reached $15.2 million, or 5.9% of revenues—and topped 12.25% of revenues in this year's first half.

Heat Recycling

Of even greater interest to investors, Ormat and two partners—Japan's Itochu and Indonesia's Medco Energi International—won a tender in July to construct a new 340 megawatt geothermal power project on the island of Sumatra, the largest such facility in history. This and other expansion plans will boost the company's production capacity 80% by the end of 2008.

Ormat turbines also help wring more power out of conventional energy sources. At gas-fired electricity plants in North and South Dakota, the company has installed systems that recover heat normally "wasted" in production and convert it into additional electricity. Similar projects are under construction in Washington State and Canada. Ormat's "recovered energy power generation" business earned $9.2 million in revenues the first six months of this year, up from less than $1 million a year earlier.

Now, the company is branching out into related fields. In the early 1990s, Ormat developed a technology for producing oil from shale. But with oil prices low at the time, the Israeli government was unwilling to back an ambitious project to develop the country's huge shale reserves (see BusinessWeek.com, 7/5/06, "Israel Presses for Oil from Shale").