First published in Cleantech magazine, July/August 2010. Copyright Cleantech Investor Ltd
Water and solar are amongst the most developed cleantech sectors in Israel – but there is investment in a host of cleantech industries. Israeli companies benefit from significant government support, including funding from the Office of the Chief Scientist for research and development. However, a well established culture of venture investment is perhaps the main factor behind the growth of cleantech investment.
Israel has historically faced the challenge of water scarcity. In 2006 Israel’s Government launched the NEWTech (Novel Efficient Water Technologies) programme, which focuses on desalination, water purification, irrigation, sewage treatment, waste water recycling, leakage prevention, water security, usage planning and infrastructure construction. NEWTech’s role is to coordinate between government agencies, academic institutions and the private sector to maximise exports of water technology, expected to become one of the main growth engines of the Israeli economy.
At the time of NEWTech’s launch, Infrastructures Minister Binyamin Ben Eliezer described Israel as the “Silicon Valley of water technology”. NEWTech’s target was for exports of Israeli water technologies to reach $2 billion by this year – double the 2006 level.
Exports account for over 90% of Netafim’s sales and customers for its low-volume irrigation systems (which operate through microchips, installed behind tiny drip holes in plastic pipes) include farmers and commercial growers around the world. Netafim, which was founded on a kibbutz, secured investment from Israeli private equity firm, Tene Capital, alongside Markstone Capital Group of the US.
Tene is also an investor in Blue Water Technologies, which has developed electro-optic technology to support water quality analysis and management.
Many of Israel’s venture capital funds also have investments in water companies. Dedicated cleantech venture stage funds based in Israel include Israel Cleantech Ventures (ICV), Terra Venture Partners and AquAgro Fund. ICV was established in 2006 and has $75 million under management. Water company investments in the IVC portfolio include Emefcy Limited, a ‘microbial fuel cell’ start-up, which raised $5 million in second round funding earlier this year. ICV participated in that round alongside Pond Venture Partners and Plan B Ventures. Emefcy is developing an industrial wastewater treatment system which generates base-load electricity and hydrogen in a bio-electro-chemical process known as the MEGAWATTERTM platform, designed for wastewater which cannot be treated by anaerobic methods.
Emefcy founders, Ronen Shechter and Eytan Levy, had previously founded wastewater treatment company AqWise, in which ICV acquired an 11% stake in 2008. The majority owner of AqWise, which has developed the AGAR wastewater treatment process, is Altos Horos de Mexico SA de CV, a Mexican mining conglomerate. The AqWise AGAR process is a fixed biofilm process which can be rolled out in existing wastewater treatment plants, where it removes nitrogen and increases the water treatment capacity.
AquAgro Fund is a $100 million mid-to-late stage venture capital fund which focuses on innovative agriculture, water and other clean technologies. It was founded by Benjamin Gaon, the Chairman of Gaon Agro Industries. Its first investment was in Desalitech (formerly known as Advanced Desalination Technologies Ltd), which has a reverse osmosis technology for desalination. Desalitech raised $4 million from AquAgro in 2008.
Earlier this year AquAgro aquired a stake in Kinrot Technology Ventures from Stern Partners Inc. of Canada. Kinrot, a water technology incubator governed by the Israeli Government’s Tecnological Incubators Program, has invested in around a dozen cleantech start-ups since its privatisation three years ago. Its portfolio includes companies like Aqua Digital, which is developing a remote water metering solution. AquAgro will reportedly be required to inject at least $3 million into Kinrot over the next three years.
Terra Venture Partners, meanwhile, is a seed and early-stage investor in cleantech. In the water space, Terra has invested in SmarTap – a company which has developed intelligent water applications for the home which reduce water consumption.
Other VC stage water investments in Israel have included B.P.T. BioPure Technology, which received investment from Pitango Venture Capital. B.P.T. BioPure is developing advanced membranes-based separation solutions for water treatment.
Solar energy is the other cleantech sector in which Israel can claim to be a world leader. Solar water heating is commonplace in Israel, installed on the rooftops of 90% of households. Terne is invested in this area through Chromagen, a manufacturer of thermal solar systems for water heating.
Leading research institutes in the solar energy space include Ben-Gurion National Solar Energy Center, Technion, and the Weizmann Institute. Israeli firm, Luz, was the first company to produce electricity on a large scale from solar thermal energy: however, Luz went bankrupt in the early 1990s. But Israel can claim to have created the world’s largest solar thermal company, Solel Solar, which was acquired by Siemens of Germany for $418 million last October.
Siemens is just one of a host of foreign firms, including both industrial companies and investment funds, which have invested in Israeli solar companies. Alstrom, which lost out to Siemens in the bid to acquire Solel, recently committed to invest up to $55 million in BrightSource Energy Inc., an Israeli solar thermal power plant developer. BrightSource has raised over $300 million to date, most recently a Series D round of $150 million from investors including VantagePoint Venture Partners, California State Teachers Retirement System (CalSTRS), Morgan Stanley and Draper Fisher Jurvetson, alongside Alstrom. BrightSource has contracts to build 14 solar power plants, with capacity of 2,610 MW, in the US southwest by 2016, for Pacific Gas and Electric Company (PG&E) and Southern California Edison.
Heliofocus, which has developed a thermo-solar system and has a product application to boost existing power stations, received investment from Chinese air-conditioning giant Zhejiang Sanhua in January this year. This is understood to have been the first direct investment by a Chinese company in an Israeli business. Zhejiang Sanhua invested $9.25 million and was part of a total funding round of $11.5 million, valuing Heliofocus at $45 million. IC Green Energy, the investment arm of Israel Corp. (the major shareholder in Heliofocus) also participated.
Another Israeli solar company which has attracted international investment is 3G Solar, which is funded by 21 Ventures and Quercus Trust from the US. 3G Solar uses DSC (dye solar cell) technology, a lower cost alternative to silicon and thin-film based systems. Its first applications are for off-grid rural areas.
But domestic Israeli funds are also actively putting their money behind solar technologies. ICV investments in the solar sector include BrightView, which makes in-line process control solutions for thin-film solar panel manufacturing. BrightView’s systems are integral solutions for improving thin-film PV productivity and profitability. The company attracted funding from ICV initially in 2008. ICV was joined in 2009 by Hasso Plattner Ventures (the venture fund financed by SAP founder Prof. Hasso Plattner and investors including Shai Agassi of Better Place), taking the Series A funding round to $6 million.
Israeli fund Genesis Partners has several solar sector companies in its portfolio including bSolar (high efficiency photovoltaic cells) and SolarEdge (energy harvesting solutions for solar photovoltaic systems). And AquAgro’s investments include Impel Microchip, which has developed technology for concentrated solar energy applications.
Pitango is also active in the solar sector, with an investment in Pythagoras Solar, which has developed “3-D optically enhanced PV”. It has launched a transparent photovoltaic glass unit which can be used as a window or skylight while generating solar energy. ICV is also an investor in Pythagoras, which raised $10 million in Series A funding in 2008. Pythagoras had previously received seed funding from Precede Technologies, Pitango’s incubator arm. In addition to Pythagoras, Precede Technologies, which provides seed capital of up to $1million, has also invested in SolarPower.
Water and solar may be the dominant themes, but the Israeli cleantech scene is not restricted to these sectors. Ormat Industries, quoted on the Tel Aviv Stock Exchange, is the parent of New York Stock Exchange-listed geothermal giant, Ormat Technologies. And given Israel’s strength in IT, it’s not surprising to find companies developing high tech cleantech solutions. Examples include Metrolight, which manufactures Smart Electronic Ballasts that power high intensity discharge (HID) energy efficient lighting systems. Virgin Green Fund is an investor in Metrolight.
ICV’s investments in sectors other than water and solar include CRE, a biogas-to-biomethane system for landfill gas applications, and CellEra, a platinum-free membrane-based fuel cell technology (PFM-FC). CellEra, which is developing fuel cells for hybrid cars, raised $2 million from ICV in 2008 and has subsequently secured follow-on investment from ICV alongside BrainsToVentures of Germany. PFM-FC technology maintains the advantages of PEM-FC (polymer electrolyte membrane fuel cell) technology, but without incurring the costs of expensive components such as platinum.
And Israeli companies are also developing next generation biofuels. AquAgro’s portfolio includes Variable Transbiodiesel: AquAgro invested $1.5 million in this enzymatic biodiesel technology company in 2008.
One of the challenges of solar energy, in common with other renewable energy sources, is storage. Israeli VC Canaan Partners is an investor in EnStorage, a company which provides energy storage systems used for power grid load levelling and for storage of energy from solar and other renewable sources such as wind.
Although wind resources in Israel may not offer so much potential as solar, that hasn’t deterred Israeli innovation in the space. Precede Technologies has invested in Coriolis Wind, which develops small vertical wind turbine units, while AquAgro’s portfolio includes Variable Wind Solutions, which makes roof-top wind turbines. And Terra Ventures is an investor in IQWind, a company which is developing an innovative gearbox for the wind turbine market. IQWind’s gearbox can be retrofitted to existing wind turbines, enabling them to work at much higher rates of efficiency.
The IQWind technology is also expected to have commercial potential in the automotive industry. Automotive investments, in particular electric vehicles, have attracted considerable attention in Israel. ETV Motors, which is developing electric powertrain technology, received investment from a group of US investors last year. The round was led by Quercus Trust and investors included 21 Ventures. The scientists at ETV Motors are focusing on an energy-dense, power-dense battery and are also developing a microturbine for use as a range-extender.
Another Terra Ventures investment, Lithium Force, is developing solutions for electric city fleets (buses, trucks and taxis). Lithium Force was behind the battery exchange system which ran the buses for the Beijing Olympics.
The concept of battery exchange stations has been embraced by Better Place, which was founded by Israeli entrepreneur Shai Agassi. Israel was the first country to adopt the Better Place electric vehicle infrastructure system. The company has subsequently signed agreements with Renault Nissan and is rolling out its EV infrastructure around the world. Better Place has managed to secure one of the most successful cleantech investment rounds, receiving a $350 million investment led by HSBC in January this year. After that fund raising, which valued the company at $1.25 billion, HSBC owns around 10% of Better Place, sitting alongside investors such as Morgan Stanley, Lazard Asset Management, Israel Corp., VantagePoint Venture Partners, Ofer Hi-Tech Holdings and Maniv Energy Capital.
Better Place may be the poster child for cleantech in Israel – but its success should not overshadow the innovative companies and entrepreneurs from the country who are making their mark in the cleantech space. Israel looks set to keep churning out entrepreneurs and attracting investment as the cleantech sector develops.
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