Israel's Clean Technology Pioneers

They're pros at getting the most out of limited natural resources. The world is taking notice—especially U.S. venture capitalists

Levy and Schwaber of Cleantech: The green energy industry hums "despite politics" Elion Paz

By Roben Farzad

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Yavne, a hazy industrial corridor in central Israel, seems at first glance an improbable haven for geothermal technology. Its largely barren environs offer no geysers or volcanoes, the essential raw materials for geothermal energy. Yet this small city of 32,000 is home to Ormat Technologies (ORA), a $2 billion multinational listed on the New York Stock Exchange (NYX) that builds geothermal power plants around the world, from Colorado to Kenya.

At a kibbutz, or farming collective, 70 miles to the south in Israel's Negev Desert, entrepreneur Amit Ziv recycles runoff water from a nearby spa to raise sea bass and barramundi, a white fish in demand at high-end restaurants. He then channels the water from his desert fish farm to grow olives, which he exports to, of all places, Spain. "Seagulls and pelicans must be thinking, 'What the hell?' " remarks Shai Ben-Tal, one of the kibbutzniks.

One can't help but think the same.

Anyone visiting Israel will quickly realize that its resourcefulness is a matter of necessity. The New Jersey-size nation of 7 million has no choice but to conserve: Marked by long stretches of desert and a dwindling freshwater supply, it is both bereft of natural bounty and flanked by neighbors bent on its annihilation. Simmering hostilities often rise to full-fledged military actions, most recently in December, when Israel responded to Palestinian rockets by invading the Gaza Strip.

Israel's siege mentality is driving its six-decade quest to coax more from the soil, water, air, and sunlight than do most other nations on earth. In the throes of a three-year drought, for example, Israel leads the world by recycling 70% of its wastewater, three times the figure for No. 2 Spain. Now many of Israel's so-called cleantech companies, including drip irrigation pioneer Netafim and solar power outfit BrightSource Industries, are exporting their wares around the world. They're even setting up shop inside that other hotbed of innovation, the U.S. "The world is now realizing it has to deal with things that Israel has had to tackle for 50 years," says Jacques Benkoski, a venture capitalist with Silicon Valley-based U.S. Venture Partners. "Doing more with less is becoming the standard."

Venture capitalists seem eager to get in on the action, especially at a time when most other investment prospects are bleak. Just about every major VC firm in Silicon Valley, from Kleiner Perkins Caufield & Byers to Sequoia Capital, is prospecting across Israel for cleantech investments. All told, at least 80 venture funds, many of them American, manage more than $10 billion here, with an increasing share devoted to cleantech companies.

Google (GOOG) co-founder Sergey Brin and several U.S. politicians have paid visits to Israel recently to learn about water- and energy-conservation technologies. "We can't rely on others for our safety and security," says Phoenix Mayor Phil Gordon, who is looking to import Israeli solar expertise.

One might assume that the Israeli government is driving the audacious efforts to raise fish amid the sand dunes. But officials seem too preoccupied with national defense and political scandals to take notice.

Israel is a nation of contradictions, socialist in many ways but laissez-faire when it comes to the economy. The national equivalent of a startup, it was founded by people willing to make a go of it in a swath of land dominated by desert. The core element of that plan was the kibbutz, wherein people eat together, tend to communal crops and livestock, and even dispatch their two-year-olds to a dormitory. Kibbutzes are still common: There are at least 200 throughout Israel. That sense of shared purpose has always translated to national defense, which politicians consider paramount.

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