TechTLV

This week, I attended the Eilat Renewable Energy Conference. I’ve been working on renewable energy (primarily photovoltaic) for about two years now, and this conference has been a good chance to reflect on the industry.

In my mind, it goes without saying that VCs (and Israeli VCs in particular) should not ignore renewable energy as an area of potential investment. That said, renewable energy is very different from traditional areas of VC activity, and involves a very steep learning curve. I’m still very near the bottom of that curve.

A few takeaways from the conference:

• Israel seems to be finally getting serious about PV. The country recently announced a feedback tariff incentive plan for both small scale and large scale PV installations, with guaranteed rates through 2011. This article (in Hebrew) lays out the details. This is a necessarily step because it puts the country on the road to renewable energy in a credible way and kick-starts the process of establishing an eco-system here. Without local PV demand, it’s going to be tougher to drive local PV manufacturing. And without local PV manufacturing, other elements of the PV eco-system are going to be harder to build. So this is a good step. Sort of a parallel to the establishment of the Intel fabs in Israel several years ago.
• Israel has yet to get serious about a national policy. There has been a lot of talk this year and in previous years about establishing a national renewable energy policy. This has a lot to do with Israel’s energy security and even more to do with its economic security. Maybe I can’t decipher the difference between the twenty different government agencies that are somehow involved, but I think Israel is still a long way off from a real strategic decision to make renewable energy technology the pillar of its growth strategy. Just ask a company I know that is planning to relocate to Germany to build its manufacturing plant because of government economic incentives. That’s 100 good cleantech jobs and lots of corporate taxes that will go to Germans instead of to Israelis.
• The conference, like the renewable energy industry, is a crossroads. Technologists, business people, start-ups, large multinationals, financial people, government people, environmentalists, academics, etc. They all meet here, and each comes with a slightly different take on the same overall agenda.
• The energy market is truly immense, but that isn’t enough from a venture perspective. There is no question that the energy industry is absolutely immense and can be the home to some very big companies. That by itself, however, is not enough. VC is about the ratio between the amount of capital invested and the velocity of revenue growth a start-up can achieve. Too many cleantech start-ups require tremendous infusions of capital (far more than most Israeli VCs can deploy) and many of them do not have clear paths to rapid, scalable, revenue growth.
• There are some fantastic Israeli cleantech start-ups. SolarEdge is my personal favorite, but I’m hugely biased. Other companies that are extremely promising are:
  • Zenith Solar – The company is building highly efficient concentrated PV (CPV) dishes. They want to marry low-cost reflective dishes with high-cost super-efficient PV cells to create very cost-effective PV systems. BusinessWeek covered them here.
  • HelioFocus – HelioFocus is building dish-based solar-thermal concentrators using micro-turbines. The company’s modular designs enable their systems to be installed easily at existing power stations. Haaretz covered them here.
  • 3G Solar – 3G Solar is pioneering dye cells, a different type of solar energy technology based on a chemical reaction instead of a semiconductor. You can think of it as “artificial photosynthesis.” If they can prove the durability of their technology, it will enable them to produce solar energy systems at a fraction of the capital cost of traditional PV, which would make them very relevant for off-grid emerging markets. http://www.3gsolar.com/
  • Project Better Place – Shai Agassi’s revolutionary plug-in-car project has been covered very adequately by the press, but it is one of the more exciting cleantech projects in Israel. Their deal with Renault is very exciting.
• Don’t be distracted by falling oil prices. First, oil prices are falling with the economy, but the economy will recover eventually. On the other hand, there isn’t going to be any more oil, and some pretty smart people think we have already reached “peak oil.”  So oil prices are bound to rise again. Second, a big part of Obama’s recovery plan revolves around renewable energy, so lower oil prices don’t necessarily translate into reduced demand for alternatives. Third, electricity prices and oil are not tightly related because not much electricity gets generated from oil. The long-term demand for PV and other renewable technologies is driven by fundamental shifts that are not going to reverse themselves.
• There is no vacuum. Unlike many areas of IT and semiconductors, its tough for cleantech start-ups to show up and invent new markets. The market for electricity (or fuel or air-conditioning) exists and is already dominated by large players. In cleantech, no one operates in a vacuum, and this means that start-ups must be very sensitive to realities in the world around them. Understanding the value chain in your market and how you fit into it is critical in every business – but in cleantech it’s absolutely essential.