Israeli Solar Gets Its Moment in the Sun
On Oct. 15, German engineering giant Siemens made headlines by paying nearly a half-billion dollars for Israel's Solel Solar Systems, a pioneer in solar thermal technology. Solel has spent two decades perfecting a system that uses mirror-lined troughs to capture the sun's energy and drive steam turbines that produce electricity. With Siemens (SI) as a parent, Solel will have access to deeper pockets, world-class manufacturing, and vastly broader global distribution. Almost lost in the hoopla was another deal the same day that also involved Israeli solar technology—but in this case, even more state-of-the-art. Startup SolarEdge Technologies, based just north of Tel Aviv in Herzliya, said it had secured a $23 million round of financing, the largest such infusion to date into Israel's fledgling solar energy industry. SolarEdge is working on advanced technology to improve the efficiency of photovoltaic cells. Among its new funders: giant General Electric (GE), in its first direct investment in the local solar scene. Vote of ConfidenceTaken together, the moves by Siemens and GE were seen as a powerful vote of confidence in Israeli solar technology. With the global renewables industry booming and growing interest in Israel as a source of cutting-edge technology, SolarEdge and other companies hope to become major players in the energy sector. "Israel developed solar thermal, and now we want to harness our high-tech expertise to bring new solar technologies to the market," says Guy Sella, the founder and chief executive of SolarEdge. The 44-year-old Sella, a former venture capitalist and commander of an elite Israeli military intelligence unit, is typical of the new breed of Israeli solar entrepreneurs. Many like him have already succeeded in the country's info tech sector and view solar energy as the new frontier. They also believe Israel stands a chance of playing an outsize role in renewables, thanks to top scientific and engineering talent, a vibrant entrepreneurial culture, a paucity of local energy sources—and abundant sunshine. In the past few years about three dozen homegrown startups have joined the global race to reduce the cost of producing electricity from the sun. Most are focused on photovoltaic and solar thermal technologies. "Israel can't expect to compete with China as a low-cost manufacturer but has tremendous potential when it comes to innovation," says Adam Bergman, senior vice-president for cleantech investment banking at Jefferies & Co. (JEF). A VC InfusionTo be sure, the industry is still small, employing perhaps as few as 1,000 people. But nearly a half-billion dollars have been invested in Israeli solar startups in recent years—not counting the Siemens-Solel deal—primarily from local and foreign venture capital funds. "We're seeing very strong deal flow and an increasing number of local entrepreneurs entering the field," says Jack Levy, founder and managing partner at Israel Cleantech Ventures, a Tel Aviv-based firm that focuses on renewable energy and water technologies. His fund has already invested in three solar ventures in the photovoltaic field and is looking at several more deals. Most of the startups are in the early stage, though a few are looking to enter the market next year. SolarEdge, for instance, has developed an improved inverter that lowers the average cost of electricity from standard photovoltaic arrays and can increase power output by as much as 25%. CEO Stella predicts revenues next year of $20 million to $30 million. "We've got a backlog of 20 megawatts," he says. SolarEdge has struck partnerships with industry leaders such as BP Solar (BP) and Schott Solar, which plan to embed its technology into photovoltaic panels. And the GE deal could lead to bigger things. "We view our investment as the beginning of a broader collaboration that could include joint product development and distribution," says Alex Urquhart, president and CEO of GE Energy Financial Services. Another potential Israeli winner is B-Solar, which says it has developed a process to manufacture two-sided (or bifacial) photovoltaic cells capable of generating 15% to 20% more electricity. The company is keeping details of the process under wraps and at present doesn't even have a Web site. "We're planning to build a manufacturing facility in 2010 with an initial capacity of 65 megawatts that will reach 500 megawatts within five years," says Yossi Kofman, founder and CEO of B-Solar. Kofman previously scored a tech home run with Modem-Art, a fabless semiconductor company acquired for $145 million in 2005 by Agere Systems, now part of LSI (LSI). Plenty of SunshineOne advantage enjoyed by Israeli solar startups is that they can test their technology locally, thanks to ideal climatic conditions and a substantial home market—though many entrepreneurs are critical of the government for moving too slowly to support and advance the use of solar energy. In April, for instance, startup Zenith Solar began operating a commercial demonstration plant to test its unique concentrated photovoltaic technology for producing electricity and hot water. The plant now provides both to 250 families at a kibbutz in central Israel. The next step is to build two full-scale pilot plants in India and China. Israel had a head start in harnessing the sun's energy through the widespread use of solar water heating. The relatively simple technology has been around for decades—and nearly every rooftop in Israel is covered with solar water-heating panels. But the more challenging technologies used to convert sunlight into electricity got only lip service from the government and short shrift in university research funding. Things got especially bad in the early 1990s, after a brief solar bubble. Solel's predecessor, Luz Industries, went bankrupt in 1991 after building nine thermal solar power plants in Southern California. A group of Belgian investors bought the intellectual property for a mere $2 million and relaunched the company under the Solel name. That gamble paid off handsomely with the Siemens acquisition. Solel predicts it will book revenues of $200 million this year. Arnold Goldman, the original founder of Luz, didn't give up either. He went on to found BrightSource Energy, which has developed a new solar thermal technology that uses thousands of small mirrors to reflect sunlight onto a boiler sitting atop a tower in the center. The boiler produces high-temperature steam that powers a turbine to create electricity. The company has signed the largest solar power agreements ever with Pacific Gas & Electric (PCG) and Southern California Edison (EIX) and has brought in construction giant Bechtel Group to build the power plants. A Tariff for SolarThe growing global success of Israeli solar startups has finally prompted the government to pay more attention to the sun's potential to meet domestic energy needs. In January of this year, the previous government of Prime Minister Ehud Olmert approved a feed-in tariff for solar electricity producers and set a 2020 target of 10% of all electricity production from renewable energy. "This coming year will be crucial in determining whether the government is serious about solar energy," says Hezi Kugler, former director general of the National Infrastructures Ministry, who was instrumental in gaining government backing. Now a private businessman, he also chairs a newly established lobby focused on persuading the government to move forward in renewable energy. Kugler figures the government will have to allocate 80 to 100 square kilometers (20,000 to 25,000 acres) of land in the Negev Desert to meet its target. So far, bureaucratic issues have delayed the first tenders for large solar power plants. On Oct. 20, Prime Minister Benjamin Netanyahu announced the establishment of a national council to find alternatives to oil within the next decade. The aim is to formulate a plan of action for developing solar energy and other alternative fuels to tip the economic balance away from oil producers and reduce the concentration of wealth now in their hands. Many in the fledgling solar industry say the rhetoric will have to be backed up by funding. "Israel has a tiny national solar energy lab with an insignificant budget, while Germany has half a dozen institutes devoted to solar energy with hundreds of scientists and massive government funding," complains Roy Segev, CEO of Zenith Solar. With global giants like Siemens and GE now investing in Israel's solar energy sector, its chances to become a global force now seem much greater. But Israel's government, which played a crucial role in getting the country's booming high-tech sector off the ground, may need to lend more of a hand to the solar industry if its potential is to be fully realized.