Jason Eis, Senior Strategy Manager, The Carbon Trust

UK Industry experts shared insights on trends & strategies that can help innovative Israeli cleantech ventures meet with success in the global market

In the dynamic and uncertain waters of the rapidly developing cleantech sector, startups will improve their chances of success by navigating carefully and making smart decisions on their commercial focus and business model from the outset.  To help its members make the right decisions, CleanIsrael invited experts Jason Eis, heading up Innovation Strategy for the Carbon Trust, UK and Richard Youngman, MD Europe & Asia, the Cleantech Group to share their insights, experience and expertise on the topic.  Both speakers indicated that while today’s trends show that currently it is more difficult to obtain funds for new ventures, nevertheless the megatrend bringing cleantech to the mainstream continues. The UK and global markets are expanding and more and more varied sources are seeking innovative cleantech technologies in which to invest.

The event kicked off with opening remarks by Ariella Grinberg, an analyst at ICV, and Gabby  Czertok, CEO of HydroSpin and Managing Director of CleanIsrael, who co-hosted the event for the CleanIsrael Network. Next on the agenda was Richard Youngman, MD Europe & Asia for the Cleantech Group, the world’s premier intelligence service on global cleantech innovation, who previously spoke at CleanIsrael in 2008.  He gave a brief analysis on how VC funding for cleantech companies has evolved since his previous appearance in 2008. From a peak of US$8 billion in 2008, the bulk of which was invested in large-scale, capital-intensive renewable energy and infrastructure technology companies,  the volume of investment has decreased slightly but the number of transactions has grown. Until the market hears reports of success and positive returns on the big cleantech endeavors of the last few years, focus within the sector will remain on resource efficiency projects characterized by secure business models involving smaller investments, partnering and risk-sharing. See graph below.

In addition to cleantech-specific VCs, investments in cleantech are also being made by private, usually low-profile individual and family office investors, as well as by large corporations carrying out technology scouting to broaden their portfolios.  Signs of stronger interest from public equity investors are evident in the performance of the Cleantech Index. Youngman concluded that the cleantech theme has gone from niche to mainstream, from renewables to energy efficiency and from California to China in a short space of time: new startups must take these changes into account when strategizing their market entry.



Source: The Cleantech Group

The primary presentation on commercializing cleantech technologies was delivered by Jason Eis, responsible for setting strategic direction for RD&D programs and planning commercialization support for new ventures at the Carbon Trust, a not-for-dividend company aiming to accelerate the transition to a low carbon economy, through various programs including collaborative RD&D between technology developers and buyers, as well as integrated packages of grants, advice and networking for cleantech entrepreneurs.  A former McKinsey project manager and currently a policy advisor to the British government, Eis shared his insights on the complex and dynamic cleantech playing field, where the rules of engagement are still not clear. He recommends that in order to survive in these market conditions, cleantech ventures must analyze public policies and invest their attention as much in understanding how such policies drive the market demand for their technologies, as they would traditionally focus on the technology itself.  Eis gave several examples of cleantech market uncertainty in the form of technology alternatives that are dependent on differing infrastructure which the market will eventually have to choose between, such as electric versus fuel cell vehicles or CHP versus heat pumps. To date countries don’t yet know where they will invest and policies are often contradictory; effective cleantech companies’ business models recognize and negotiate these issues by supporting and influencing industry and government standards, and by partnering with corporate leaders that have technological staying power and can help them facilitate market access.

Eis described how the Carbon Trust offers a commercial deployment-oriented approach to R&D by bringing together “convened consortia” of large technology buyers in specific subsectors, such as offshore wind, to identify challenges and barriers  and define R&D projects oriented toward commercial opportunities, hence reducing the risk to innovators.. These programs are open to innovators across the world, and they are currently defining new program areas for the next 3 years. This experience and knowledge guides the Carbon Trust in the advice it offers to startups while also positioning them to offer more services and funds to new ventures.

The Carbon Trust also offers incubator services to fast track new entrepreneurs across the cleantech “Valley of Death”. Services include grants, broad networking opportunities and advice using a proprietary diagnostic tool. They have assessed 2000 and supported 300 ventures to date and have capacity to scale up by at least 2-3x this volume. For each million pounds Carbon Trust invested, the companies were able to raise 13 million in private funds, and 67% of the ventures they supported achieved commercial investment. Eis stressed the increasing role of corporates in cleantech that startups can engage as part of an effective business strategy.

Eis cited other UK agencies offering assistance and financing such as the Technology Strategy Board and the Energy Technologies Institute.  Moreover, public funds for cleantech in the UK will be available in the near future via the Green Deal and the Green Investment Bank, the latter is expected to offer £2-3 billion in public money to leverage up to £15 billion in private funds.  Overall the message was that Israeli cleantech ventures would do well to include the UK in their investment and development programs and the Carbon Trust is very interested in investigating Israeli cleantech ventures.

Both speakers indicated that they find Israeli cleantech ventures to be of interest. When asked how he characterizes Israeli cleantech, Richard remarked that Israeli ventures tend to be highly technical, and because the local market is small, most ventures’ route to market involves a challenging cross over a geographical divide at a relatively early stage. To succeed in these tough circumstances, Richard recommends that the entrepreneurs be very realistic in evaluating the time it will take them to get to market and to set business plans accordingly.

Jason’s observations largely concurred; he commented that in many areas of the cleantech sector the role of buildup and achieving maturity in your local market before extending out globally is very significant.  This factor creates a tough challenge for Israeli cleantech startups that face more difficulties breaking into foreign markets than those in other high-tech sectors; at the same time, he notes that Israeli ventures tend to be outward- oriented early on relative to ventures in other major markets.

The event drew a large audience with representatives from cleantech startups, venture capital funds, established firms and academia. The atmosphere was positive and the speakers answered many questions and met with several attendees one on one after the presentation.  The general presentation was preceded by a closed Round Table session focused on innovation in efficient energy & water management in buildings that enabled CEOs and managers of interested startups, such as TriDiNetworks, Emefcy and Panoramic Power among others to present their ventures to the guest speakers in advance and get some valuable individual feedback and have more detailed discussion. Thanks go to the Carbon Trust and to Israeli Cleantech Ventures for co-sponsoring the event.

By Shelli Zargary, shelli.zargary@gmail.com

Shelli Zargary, a veteran marketing and marcom professional with some fifteen years of experience in the Israeli high-tech sector, has joined CleanIsrael to assist with marketing activities.

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Cleantech & Israel – The Quest for Smarts

Albert Einstein once said “only two things are infinite, the universe and human stupidity, and I’m not sure about the former.”  He must have been talking about how we use energy.  How can it be that we build dangerous coal mines, burn that coal in power plants while emitting NOx, SOx, mercury and other toxins into our air and water, and build vast networks of overhead transmission cables across hundreds of kilometers and into people’s homes, just so we can have the pleasure of turning on a light bulb in our living room?  Not to mention that if too many people turn on their lights at the same time, we all suffer a blackout.  As Jefferson Tester, Elisabeth Drake, and their MIT co-authors illustrate in their landmark textbook, Sustainable Energy, this most common of energy lifecycles – transformation of the chemical energy of a mineral fuel to visible light using an incandescent bulb – has an overall energy efficiency of 1.6%, when accounting for energy losses at the power plant, during transmission, and finally at the light source itself.  In other words, we lose over 98% of the energy potential in a unit of coal during this process, to say nothing of the energy required to mine the coal in the first place and the externalities/pollutants generated throughout this (non) value chain.  Somewhere between our energy generation, transmission, and consumption methods today on the one hand, and relying on candlelight on the other, there has to be a smarter way.  And it is this – the quest to find a smarter way – that cleantech is all about.

Opportunities for Innovation

Scratching the surface of the above example reveals a glimpse into the myriad of markets and technologies that are emerging from the drive to build a more sustainable industrialized energy economy.

1. The coal power plant — coal is the cheapest, most abundant, but also the most carbon intensive and pollution-emitting source of energy in our industrialized world.  Hence the enormous sums of political and financial capital that have gone to (a) reducing emissions from coal fired power plants (b) efforts at carbon capture and sequestration (c) trials using algae to absorb CO2 alongside power plants during cultivation as a biofuel feedstock, and (d) technologies to convert coal into a cleaner, more efficient source of energy such as natural gas, through catalytic processes.
2. Alternative energy generation — coal, gas, and oil account for about 85% of the world’s energy supply.  Nuclear is about 6%.  Wind and solar combined still account for only 1%.  The long term market outlook for these alternatives, to say nothing of biofuels, is compelling and obvious.  Migrating our societies off of fossil fuels and into renewables is one of the greatest challenges and economic opportunities of the 21^st century.
3. Smart Grid — According to the US Department of Energy (DOE), America’s electric system, “the supreme engineering achievement of the 20th century,” is aging, inefficient, and congested, and incapable of meeting the future energy needs of the Information Economy without operational changes and substantial capital investment over the next several decades. The DOE, in its position paper entitled “Grid 2030”, envisions a competitive marketplace for electricity, and one which connects everyone to abundant, affordable, clean, efficient, and reliable electric power anytime, anywhere.  The paper points to several promising technologies on the horizon including advanced conductors made from new composite materials, electric storage systems such as flow batteries or flywheels, distributed intelligence and smart controls, power electronics devices for AC-DC conversion, and distributed energy resources including on-site generation and demand management. This past October, the DOE announced $3.4B in smart grid investment grants, with allocations for smart meters and consumer systems, transmission and distribution grid modernization and projects that include and integrate various smart grid components. In November, the DOE announced $620M in grants for regional, fully integrated smart grid demonstration projects in 21 states and energy storage projects, including advanced battery systems, flywheels, and compressed air energy storage.  President Obama has a stated goal of doubling the amount of renewable energy the country uses in the next three years and is backing that up with significant cash infusions.  Already, we see the rapid deployment of smart appliances, sensors, timers, thermostats, and advanced meters. These in turn enable diagnostics and real time monitoring, demand response, and more sophisticated provisioning and billing from utilities and newly emerging intermediaries.
4. Energy efficiency — According to the International Energy Agency, (IEA), energy consumption is expected to grow by 25 quadrillion Btu by 2030.  This growth will cost $10 trillion for electricity generation, transmission and distribution assets alone.   Providing enough energy for economic growth in the future will require co-generation — using waste heat from electricity production for environmental heating/cooling and water heating.   It will also require entirely new approaches to energy efficiency and conservation within buildings. The IEA reports that existing commercial and nonresidential buildings account for nearly 40% of U.S. energy usage and contribute an almost equal percentage of the CO2.  When viewed specifically for electricity, buildings account for 72% of U.S. consumption.  Piper Jaffray analysts currently expect the ‘green’ construction market to reach $95B – $140B, and perhaps more over the next five years, through the introduction of green building components like energy efficient windows, walls, insulation, construction materials, building integrated PV technologies and other energy saving devices.  Some governments have put in place tax incentives and rebates for conducting energy audits to catalyze the shift to energy efficiency within the business and home.  The incandescent bulb in our example will become extinct through a combination of legislation and technology, as fluorescents and increasingly reliable and cost-effective solid state lighting (LED) alternatives capture market share. Opportunities abound within the enterprise setting as well, with the drive towards efficiency leading to new conceptions of how to build enterprise computing, data storage networks, and server farms.

The Israeli Entrepreneur’s Dilemma

Clearly, the energy markets today are varied, vast, and offer tremendous opportunity for aspiring technology entrepreneurs.  And the above broad market categories still exclude entire swaths of the cleantech opportunity such as transportation, water desalination, water treatment and agritech, all of which tie into our energy economy as well.   Little wonder that cleantech as an investment theme in Israel has gone from fringe to obvious in the span of a few years.  Three dedicated cleantech VC funds have been raised successfully, nearly all generalist VCs have added cleantech to their portfolio mix, and the pace of new cleantech dealflow has grown to about 150 startups annually, up from just a trickle in 2005.

Nonetheless, VC markets are showing signs of stress.  According to the IVC Research Center, Israeli high-tech companies raised $1.1B in 2009 compared with $2.1B the preceding year, a fall of 46%, and projections for 2010 are even worse.  And based on NVCA data, 2009 was the worst year for VC fundraising in the US since 1993.  True, cleantech as a percentage of total VC investments has increased substantially not only in Israel, but around the world.  But with just $150M of dedicated early stage capital for cleantech under management by the most active local VCs, absolute dollar amounts allocated for cleantech in Israel are still quite limited.

So, here’s the problem.  We know that our industrialized energy-intensive economies today are unsustainable.  We know that the next decades will be largely devoted to bringing technology to bear on tackling these problems.  We believe that this offers potential for massive wealth creation on the part of the best and brightest entrepreneurs and innovation-driven businesses.  Yet, right now the VC industry in Israel is going through a tough period and accessing early stage capital for cleantech is not easy.

The key then, for the cleantech entrepreneur in Israel is to focus on bringing unique capabilities to bear on a real, immediate, pressing market need in an industry segment that offers a clear, capital efficient, and quick path to commercialization. The VC industry globally and locally will likely face continued consolidation. Financing startups will be more difficult than in the past. Yet, the best entrepreneurs with the best ideas will continue to get funded, which are in fact the only companies that should be getting funded in the first place.

Israel’s tech sector has flourished through the creation of core technology competencies that are world leading.  These include, but are not limited to digital printing, semiconductors, power electronics, optics, and software.  Over the last two decades multiple billions of VC dollars have poured into Israeli companies in these sectors, market leaders have emerged, and many of the world’s largest multinationals have bought companies and set up shop in Israel as a result.   Israel’s ability to compete globally in cleantech markets will depend largely on our success in leveraging all this know-how.  And we are already seeing it happen.  Entrepreneurs who built their careers in the digital print industry are now taking that expertise to PV cell manufacturing.  Israeli excellence in advanced optics and systems has spawned a number of very interesting utility scale solar companies.  And local technology prowess in power electronics and chip design has found a home in companies doing energy efficient lighting and smarter PV energy harvesting.  It is in these areas, where there is a critical mass of development and engineering talent available here in Israel, that local entrepreneurs should channel their ideas and efforts.  No need to try to solve all the problems in the “light bulb” energy lifecycle.  Many solutions within the energy marketplace do not make sense to build from Israel.  Instead, local entrepreneurs should keep a laser focus on their own core competencies and concentrate solely on those segments where they can bring unique capabilities to bear.  Companies in Israel that marry up world-class business and technology acumen, a deep understanding of the path to market, and capital efficient business models, will have little trouble raising VC financing.

Where We’re Headed

Human industrialized society may have stumbled into a pretty dumb way of turning on our lights, but we are no doubt going to innovate towards a more sustainable paradigm of energy creation and utilization.  As JFK said in 1963, “our problems are man-made, therefore they may be solved by man.  And man can be as big as he wants. No problem of human destiny is beyond human beings.”  Israel with its well documented history of innovation is fast becoming one of the leading global centers for cleantech activity.  And we are only just beginning.

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Aora Solar has a unique, modular technology capable of generating electrical power a reality for billions across the globe living off the grid,  in remote communities, requiring a reliable, clean power, around the clock.

Yuval Susskind, COO and Co-Founder

Company History

Aora Solar was founded in 2002 as EDIG Solar, a member of the EDIG group of companies. The company has developed an advanced solar-hybrid power generation unit based on breakthrough intellectual property licensed from the Weizmann Institute of Science. The company built and operates  Israel’s first and only grid-connected solar thermal power plant in the Arava Valley at Kibbutz Samar.

Innovation

Aora’s modular, small-scale solar thermal units, comprise of a field of 30 tracking mirrors (heliostats) focus the sun’s rays onto the top of  a tower, where a gas turbine converts the 1000C heat energy into electrical energy. Unlike larger solar thermal systems that require a liquid (usually super-heated water or oil, used to generate steam), Aora’s systems needs no liquids to operate. In addition to solar heat energy, the unit can operate on fuel and biofuel, ensuring operation even with solar irradiation. Each modular unit produces 100kW electric in addition to 170kW thermal power,  enough to power about 70 US households.

These hybrid power system operates either on solar energy or on conventional fuel, thereby offering remote communities, uninterrupted power- 24/7.

Market & Strategy

Aora is focused on providing modular energy units to emerging economies, particularly India and China, where explosive population and growth of the middle class are driving demand for power where Generation, Transmission and Distribution infrastructure do not exist.

Competition

Although there are several major solar thermal companies, including leading Israeli companies BrightSource Energy and Siemens CSP (formerly Solel), they are focused on multi-hundred megawatt installations, which are significantly more capital intensive and face massive regulatory and other hurdles. Aora also competes with traditional solar PV and solar concentrated photovoltaic companies, but believes its modular and low-cost solar hybrid offering is unique solution in the spectrum of Rural Solar- solutions for off-grid communities.

Financials

In early 2007, Aora closed it’s initial $5M Series A funding round. Until then, the company had been founded and supported by EDIG, the parent company in the group.

Presently, Aora is in the process of seeking a $5M Series B round of financing.

Contact

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It’s been two years since the previous event, and this year’s WATEC (Water Technologies and Environmental Control) Conference, to be held November 17-19 at the Tel Aviv Exhibition Center in Tel Aviv, Israel, promises to be a great event.

Over the three days of the WATEC conference, the organizers are expecting over 100 delegations from 95 countries, and 15,000 attendees at the various exhibitions, forums satellite events being held.

Global Resources Conference: Cleantech Strategies and Solutions

In conjunction with the conference, there is a satellite event focused specifically on cleantech. The event will take place on November 18, 2009 in Hall 1, Conference Room C6.

Information and Registration

The agenda:

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The event was attended by ex-fatigues-wearers, dollar-bill-bearers and environmentally-sensitive ex-high-techers – about 140 in all – in a charming location off the Glilot interchange called Hakfar Hayarok and green was certainly the color of the buzz.

The morning kicked off outside in the grassy reception area with some refreshments, a fair deal of handshaking and plenty of card swapping, before we gathered inside to hear the panel and ensuing discussion.

The role that IDF veterans played in the making of the Israeli high-tech success story has become almost scripture. But the subject at hand was the emerging trend of the former making a transition into the cleantech sector. This is perhaps a less obvious phenomenon; after all, we have not yet seen the latest Israeli Merkava tank come with a solar powered electronics system and fueled by used cooking oil from the mess hall.

Sarcasm aside, in light of the elements which influenced the success of Israel’s high-tech sector, it is fair to say that the subject on the agenda has more significance than merely academic interest. The two primary factors which contributed to the exceptional growth rate of the Israeli hightech industry in the early nineties were, first, the military veterans who developed and utilized advanced technologies for military purposes and who upon release were absorbed into the private sector and second, Israel’s skilled work force, considered one of the most educated and entrepreneurial in the world. Understanding the driving forces behind the shift into cleantech gives insight as to how the sector will develop in Israel and what factors must be considered by the policy makers, market leaders and investors in order to ensure success.

The panel, moderated by Meir Ukeles of Israel Cleantech Ventures, was comprised of hightech and military veterans Yom Tov Samia Director of IC Green Energy; Gonen Fink, Co-Founder and CEO of Pythagoras Solar; Elad Frenkel, CEO of Aqwise; and Avner Cohen, CEO and Co-founder of Greenlet Technologies, several of whom served in Israel’s intelligence units and, later, gained executive and private sector experience in hightech.

They all seemed to agree that the skills set they acquired during their military service is what gave them the advantage in order to succeed.  Gonen Fink, who spent twelve years as Vice President of Products and Solutions & Strategy at Check Point prior to founding Pythagoras Solar commented that though not technological, his military service developed his abilities in systems management, analysis and seeing where things are going.  “At the age of twenty, the military makes you responsible for managing multi-million dollar systems and tens or hundreds of soldiers” panel member Elad Frankel pointed out, “This is an important basis for Israeli management.”

But not all agree that the high-tech elite will be the heroes of this story.  The CEO of a leading contingency placement firm in Israel deeply involved in the renewable technologies arena tends to believe that this is not going to be a replay of what we saw in hightech. “There are some very significant differences in the nature of the two sectors” he points out.

Unlike hightech, the cleantech sector requires professions which range from the classic hightech white-collar developers and programmers through green-collar engineers and architects to the blue-collar installers, plumbers and electricians. “Most fields within the cleantech sector are much more multi-disciplinary then their dominantly niche hightech counterparts” he explains.  Potential students, take note.

In addition to the security implications that alternative energy solutions have in weaning Israel and the West off fossil fuels, discussions also raised perhaps the most obvious and important reason to move into cleantech development – the sense of mission in contributing to the improvement of the planet.  After conversing with many of Wednesday’s participants I could not help but be impressed by the visions of necessary changes and the determination to lead toward this goal. Perhaps, after all, it is these traits which are the most dominant common characteristic amongst those transitioning into cleantech.

As one participant, a CEO of an early stage water company in the field of desalination put it: “The cleantech sector is in its emerging stage and is attractive for entrepreneurs who like to start revolutions rather than joining them.” One business development professional, when asked why he chose cleantech, said “just look around you at planet earth.”  I looked and I’ll certainly keep on watching, this will be the most exciting thing happening in the next decade.

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