Breaking the Oil Addiction: Israeli initiatives in the space of alternative fuels

By Stefan Babjak

With a new year come new initiatives and new goals concerning our future energy use and sustainability. The world still runs on fossil fuels and our fuel demands are growing daily. As newly emerging economies grow at a rapid pace our demand for fossil fuels will have to continue to grow exponentially to keep up. Our increased extraction has begun depleting the most easily obtainable fossil fuels, leaving us with more labor intensive, environmentally hazardous, and expensive methods of extraction. These include hydraulic fracturing, which is facing opposition, and deep water oil drilling, which precipitated one of the worse offshore crises with the 2010 BP spill. The increasing demand for worldwide growth and the difficulty associated with new extraction methods has spurred investment in alternative energies.

In 2011, worldwide renewable energy supplied an estimated 16% of global final energy consumption, and encompasses all different types of renewable energies, including: solar, geothermal, tidal energy, and wind energy. However, one of the most promising of these energy sources is biofuels, where Israel is quickly becoming an industry leader.

Biofuels are derived from biological carbon fixation. This includes any type of biomass or recently living organisms, and can be categorized into first generation and advanced biofuels:

• First generation biofuels are derived from seed and oil crops. This includes corn, canola, palm oil cassava, wheat etc. Yet there are obvious problems that have been encountered with this type of biofuel. Food prices have raised substantially and environmental degradation from monoculture have taken their toll on people’s faith in first generation biofuels, and, as such, most research is now starting to move towards advanced biofuels.
• Advanced biofuels are non-food crop biofuels and can be divided into the two most promising sources of future energy: algae oil and cellulosic ethanol.
  • Algae derived fuel, or algae oil, is made from the resulting biomass of growing algae. When the algae grows it takes CO2 out of the atmosphere, it’s burned as a fuel which puts the CO2 back into the atmosphere, giving it a carbon neutral property. In another process, the algae biomass that’s not used to make fuel can be skimmed off and buried along with all the carbon it locked away during its growing process, making it carbon negative.
  • Cellulose is the most abundant material on Earth; it is in the cell walls of every piece of grass, tree, bark, lawn waste, wood chips or plant of any type. The cellulose can be broken down through a variety of methods, and the sugars from the plant cells are then refined into what is known as cellulosic ethanol.

In Israel, renewable energy accounts for less than 1% of energy usage, with the majority of power generation and transportation energy demands being met by fossil fuels. Yet while Israel may be slow in adopting alternative energy solutions, they are leading the pack in the R&D and commercialization of renewable energy technologies, particularly in advanced biofuels. Due to its large commitment of government resources, strong academic backing, and a robust private cleantech sector, Israel is well-positioned for success.

Government

In Israel, there are several key government programs currently geared towards the development of renewable energy and biofuel solutions: The Alternative Energy Administration, The Israel NewTech program, and the I-CORE (Israeli Centers for Excellence in Research and Development) program.

The Alternative Fuels Administration (AFA) is a governmental team within the Prime Minister’s Office that supports the establishment of a homegrown alternative fuel industry, with the ultimate goal of reducing the world’s dependence on oil in transportation. The main goals of this administration are:

• Reducing Israel’s oil consumption while serving as a role model for the world
• Establishing Israel as a center of academic and industrial know-how in the field of alternative fuels
• Spreading Israel’s vision and expertise globally while furthering the world’s progress on alternative fuels for transportation.

The AFA has promoted several programs within this framework, including: research grants, venture capital investments, global partnerships, and making innovative research in Israel easier by tailoring government regulations for each case.

The administration partners with other ministries within the government, such as: the Ministry of Science and Technology, which awards grants in the field of oil alternatives, including the $1 million Prime Minister’s Award for Groundbreaking Technology; the Ministry of Transport, in light of the extensive cooperation needed to implement a broad-based biofuel solution within the transportation sector.

A recent conference jointly organized by the AFA, the Ministry of Transport, and the Ministry of Industry Trade and Labor discussed the goals for the decreased use of fossil fuels in public transportation. The conference was held a day after the Israeli government approved a plan to reduce the role of oil in Israel’s transportation sector 30% by 2020 and 60% by 2025. Currently, the initiative is focused on converting public transportation to natural gas, “…but as time goes by we will see other solutions like electric vehicles and biofuels,” noted the drafters of the plan.

The Israel NewTech program, which is a national program run out of the Ministry of Industry, Trade, and Labor, is also heavily involved in biofuel development. Under the auspices of NewTech, partnering organizations work towards commercializing their renewable energy technologies. The national program has been active since 2006.

Academia

In addition to these government initiatives, Israeli academia is also deeply involved with forwarding the renewable energy industry. I-CORE, which is a joint initiative between government and academia, has a program specifically focused on R&D in the field of alternative energy. The program connects 27 researchers from the Technion Institute, Ben Gurion University, and the Weizmann Institute with colleagues from US universities, like Harvard and UC-Berkley.  I-CORE will also seek out investment for R&D, with the government and participating institutions promising to match 200% of every dollar invested. The program had an initial budget of $17 million, but has already secured additional pledges of $5.4 million in private funding.

The Center for Renewable Energy, based out of Tel Aviv University, cooperates with 300 researchers from 7 different disciplines, all working within the renewable energy field. From work conducted within the framework of this center, hundreds of patents have already been filed and thousands of scholarly papers have been published in just the last few years. Currently, there are 13 different joint research projects concentrating specifically on biomass, organic matter used as fuel. The center also holds international conventions where they offer funding for select projects to attract the best and brightest minds to the renewable energy sector in Israel.

Industry

Lastly, there are already a number of private companies that have been recognized as leaders within the biofuel field. These companies have made significant advances by leveraging government programs and ultimately relying on innovative R&D.

Univerve Biofuel is developing a microalgae-to-oil process that addresses the major technological obstacles associated with providing cost-effective and high-quality oil as feedstock for biofuel through microalgae aquaculture. The company already has an entire process in place and is currently looking to scale up its operations and enhance its cost-efficiency.

Another innovative Israeli company in the biofuel space is Seambiotic LTD. The company is the first in the world to utilize flue gases from coal burning power stations for algae cultivation. They are based in Ashkelon next to one of Israel’s largest coal burning power plants. The plants CO2 exhaust is piped directly from the smokestacks into Seambiotics open air algae ponds. The resulting algae are grown rapidly and the biomass is then harvested into high quality food additives. Seambiotic is simultaneously developing methods to create biodiesel and bioethanol from the algae species they cultivate. The company was also recognized at the most important bio-fuel event in Europe, the World Biofuels Markets conference, held in Rotterdam in April of last year.

Also present at the Rotterdam conference was Virdia, formerly known as HCL Cleantech, which was founded by two biochemist professors. The company develops extraction technologies for the conversion of cellulosic biomass into highly refined fermentable sugars and high quality lignin (this is the most abundant renewable carbon source on Earth, after cellulose.) They have currently expanded to Danville, Virginia, where they plan on opening a commercial plant by 2015.

Yet another promising company researching cellulose extraction is Trans-Biodiesel, a start-up that develops biocatalyst substitutes as an alternative to chemical catalysts, the latter of which are presently used for the production of biodiesel. The company has a pilot plant that produces small batches of biodiesel within 4 hours. Unlike chemical catalysts, biocatalysts are environmentally benign and lower the total production costs of biodiesel fuels.

It’s important to remember that renewable energy and biofuels have only entered the conversation in the past decade. As technological advancements continue to prove the environmental and economic value of biofuels, regulations will be lifted and bureaucracy will be streamlined in ways that could accelerate adoption.

Due to extensive and harmonized cooperation between private companies, academia, and government, along with a society and business environment conducive to innovation and change, and an experienced and well-established R&D sector, Israel is poised to lead the world into our new alternative energy future.

Eilat-Eilot Renewable Energy Conference: Quotas and Kandel

The other week was the 5th annual Eilat-Eilot Renewable Energy Conference, which was attended by thousands of people in the industry, including ministers, government regulators, state officials, media, academics, and entrepreneurs. While there was certainly some excitement surrounding a number of new technologies being showcased, most of the anticipation centered on the release of additional quotas, as the country gears up to meet its interim renewable energy (RE) goals.

Indeed, there is an increasing amount of attention being given to how far away Israel still stands from its stated RE goals of 5% by 2015 and 10% by 2020. Currently, the country derives less than 1% of its total energy needs from renewables and will need about  1.3 GW of additional RE to reach its 2015 target. At present, solar provides the largest portion of Israel’s RE capacity, generating approximately 250 MW of clean energy for the local market. As there are already some 1000 MW of approved solar projects in the pipeline, solar energy has the best chance of providing the country with the additional volume needed to hit its interim goal. The government seems to agree, and, on Dec. 2., approved an additional 300 MW of solar quotas.

It needs to be noted, however, that the additional 300 MW quota was actually reallocated from an existing quota for wind energy. However, Israel’s wind industry, which had an 800 MW quota initially set by the government almost four years ago, has not seen a single new commercial installation in the past two decades. While the potential for wind energy in Israel was debated at Eilat-Eilot, with regulators claiming just a few 100 MW of potential existed and industry representatives suggesting totals closer to a gigawatt, this most recent reduction of quotas is likely the proverbial nail in the coffin for the local wind industry. Moreover, several conversations with wind energy executives revealed a much more layered opposition to the development of a domestic wind industry:

• Israel apparently sits on a major migration path for birds, and environmentalists fear wind turbines may interfere with their migratory patterns.
• The Israeli military fears that wind turbines may interfere with surveillance and radar across the country.
• Some local entrepreneurs argue that the country’s national electricity provider, the Israel Electric Corporation (IEC), has vested interests in obstructing the establishment of independent power producers that could serve as competition. That includes the further development of the alternative energy industry – especially wind, which, on a per unit basis, has significant power generation potential.

Yet while the local wind industry is now effectively moribund, the announcement of the new quotas certainly augurs well for the domestic solar sector – Israel now stands to be a $1bn market for solar over the next two years (~$1 per watt x 1.3 GW).

In addition to the quotas, another big announcement for the solar industry was made at the conference, as Prof. Eugene Kandel, Chairman of the National Economic Council, presented his committee’s findings on the appropriate pricing point for renewable energy.

Over the past year, after the government made several impromptu adjustments to the FiT and was met with a strong backlash (and rightfully so) from the solar industry, Prof. Kandel was tasked with determining the true price of solar energy to help inform national policy in this area. The Kandel committee adopted an intriguing and unique approach, deciding to measure the net benefits – rather than focusing on the drawbacks – of solar energy. It is a unique approach because the committee sought to quantify solar energy’s benefits, including aspects like reduced emissions, enhanced energy security, and stimulated regional development – three blatantly clear advantages of solar, yet elements that are often deemed too economically difficult and politically sensitive to incorporate into such a study. That being said, the Kandel committee undertook a total examination of four main areas:

• Fuel and capital savings
• Reduction of emissions
• Energy security and price stability
• Regional development influence

To bring balance and credibility to the study, the committee was comprised of an inter-ministerial team, ensuring that all relevant branches of the government got their fair say, and included a simulation by the Israel Electric Corporation (IEC) assessing the implications of additional renewable energy fed into the national grid. The study projected greenhouse gas prices by examining carbon market forecasts and estimated the value of energy security through “revealed preferences” of hedging and fuel diversification. Taken together, this methodology brought to light the huge benefits that could be derived in the areas of fuel savings, capital investment, and emissions.

In his presentation, Kandel also made sure to stipulate that the level of benefits will depend on the degree of penetration; that dispatchability, i.e. the ability to store and control accumulated solar energy, would be crucial in determining net benefits; and that production facilities built near consumption centers will provide increased benefits by reducing overall losses.

Based on its analysis, the Kandel committee argues that the appropriate price per watt of solar energy in the Israel market is NIS 47.6 ($0.12) when built in remote locations, NIS 51.1 ($0.13) when built near consumption sites (i.e. cities), and NIS 65.3 ($0.17) when the facility also has a storage capacity. Anything above these prices, according to the committee’s analysis, should be deemed a subsidy. While the impact of the committee’s recommendations have yet to be seen, one can already be sure that this report will heavily influence the Public Utility Authority (PUA) when it is determining RE policy and future FiT rates.

Overall, it seems that solar was the big winner at this year’s Eilat-Eilot Conference. With an encroaching deadline, new quotas, a favorable Kandel committee report, and a net-metering scheme slated to be introduced in the coming months, it seems that the next two years will present a number of big opportunities for the expansion of the local solar industry and help bring Israel closer to its RE goals. Other countries looking to move their RE industries forward should also look to the Israel market to see how these new policies will play out, and effort to learn from both the successes and challenges that will undoubtedly arise.

Better Place: visions and dreams alone cannot power cars

In July of this past year I visited the Better Place (BP) visitor’s center in Glilot, right outside of Tel Aviv. The center is housed in an old oil silo, symbolic of the company’s attempts to help wean the world off of crude. While there I met with BP executives, saw an inspiring introductory video outlining the company’s vision (in a movie room that was furnished with seats from vintage cars and featured holograms of the company’s founder, Shai Agassi), and test drove the company’s first electric vehicle, the Renault Fluence. I’ll be the first to admit that by the end of the day I was a believer; which makes the company’s turn for the worse over the past few months all that more difficult to digest.

Established in 2007 by Shai Agassi, BP revolutionized the electric vehicle (EV) business model by introducing the concept of a swappable battery. Under this scheme, EVs would be able to swap depleted batteries for new ones at battery switch stations, which would extend the driving range of EVs in between charges. The swap of the batteries would be automated (similar to a carwash) and could be completed in less time than it takes to fill up a tank of gas. BP would be leasing the batteries and setting up the required market infrastructure, i.e. the switch stations and more numerous charging stations. Agassi’s initiative was lauded and received an initial capital investment of $200 million.

While the company has been rolling out its infrastructure package in several markets, like Australia and Denmark, it has made the most progress in Israel, which was viewed as an ideal beta site, since it is a transportation island: one cannot drive beyond the country’s borders. Under such circumstances, the company had a contained market where it could expand its infrastructure in key transportation corridors, refine its deployment strategy, and work out any kinks before moving onto larger, more expansive markets. By mid-October, the company had opened 38 out of an anticipated 45 battery switch stations across the country and set up more than 2,000 recharging stations in public areas.

However, BP encountered a major blow in early October when the company’s board removed Agassi as CEO. While Agassi initially stayed on as board member, he vacated that position, too, just a week later. Then, in mid-November, the company saw the departure of its number two, Moshe Kaplinsky, and three other BP executives, including the VP of marketing, VP of infrastructures, and its spokeswoman. To top it all off, BP also announced that it would be laying off some 200 staff from its Israel operations.

Although the reason for Agassi’s departure is still speculative, it has been reported that Agassi may have been forced out by Idan Ofer, CEO of Israel Corp., the main investor in BP, who clashed with him personally and felt the company was hemorrhaging too much money under Agassi’s watch.

Which leads to the next hit. Since it was founded, BP has raised $750 million, but lost almost $500 million. Israel Corp., which holds 28% of BP, saw $160 million in losses from this total. And this wasn’t just an initial bump in the road: in the first half of 2012 the company posted losses of $132 million and had a negative cash flow of $104 million since January 1.

The last challenge, and perhaps the most fundamental one facing BP, is lackluster sales in its most promising beta site. By the end of October, the company had sold just 490 cars in Israel, with only 33 deliveries coming that month. That is a long ways from its target of 4,000 by June 2013, which at this point seems unattainable.

Following Agassi’s departure, institutional investors pledged an additional $100 million (but not the full $150 million BP was requesting), led by Israel Corp., which will be providing an additional $67 million in funding. Yet, it is unclear whether Israel’s largest holding corporation truly believes in this enterprise and is doubling down, or has just not reached the point of conceding defeat. Consider, also, that Mr. Ofer owns a direct 8% share in BP and is putting up $19 million himself.

While the BP concept is undeniably attractive and holds tremendous potential its future is far from certain. What is clear, though, is that the company has huge financial problems: the company is not yet profitable; some institutional investors are already refusing to pour in more money; and earlier this year, prior to the $100 million infusion, Agassi estimated that the company only had enough money to stay afloat till March 2013. A mass exodus of executives also doesn’t instill confidence. Low sales further compound its problems and actually raise questions as to long-term viability of the company.

EVs have always had detractors, typically over issues of reliability and driving range. However, the BP model seemed to address these concerns. Yet, for all the potential the BP model has, the company will need to re-think its strategy, including pricing-packages and partnerships, to get consumers on-board. I truly believe that many people, both in Israel and abroad, want to believe in the BP concept. But, unfortunately, EVs cannot run on vision and dreams alone, so BP will have to find a source of profits – and not just investment – if it wants to achieve what it set out to do.

BIRD Energy Reception

Earlier this week I attended a conference/dinner reception held by BIRD Energy, the energy-focused investment arm of the the BIRD Foundation (US-Israel Binational Industrial Research and Development). BIRD Energy, which formally launched in 2009, works in close cooperation with the US DoE to promote, stimulate, and support industrial R&D in the cleantech sector that would be of mutual benefit to the US and Israel. As a whole, the BIRD Foundation has invested more than $290 million to support over 800 companies whose total sales to date have been in excess of $8 billion. In particular, BIRD Energy has funded a number companies, such as HelioFocus, a concentrated solar power (CSP) developer, Tigo Energy, a company specializing in photovoltaic (PV) optimization technologies, and Virdia, which uses refined sugars in the development of biofuels.

In fact, the VP of Operation for Virdia, Yoram Shkedi, delivered a presentation at the reception highlighting a number of impressive results. The company has partnered with US-based Virent to convert – through a proprietary process – woody biomass, sugar cane, and corn into a synthetic jet fuel. Following tests by the American Air Force, the Virdia/Virent biofuel was shown to pass the most stringent tests under some conditions where conventional jet fuels would even fail.

Overall, the event was attended by a number of Israeli cleantech companies that are making interesting strides in the area of solar technology, wind energy, and – the holy grail of renewable energy research – enhanced energy storage options. Keep an eye out for developments in this latter area in the coming 12-16, especially from companies like ICL, considering the Israeli government has thrown a lot of its weight (Ministry-level planning and NIS 45 million [$11 million]) behind R&D initiatives this field. Several representatives from US DOE were also present and, all in all, it was a great preview of things to come.

BIRD Energy is expected to announce the winners of its fourth funding cycle within the next month. Stay tuned.

Update:

Four American-Israeli projects in renewable energy have been selected to take part in the $3.5 million research budget being allocated by BIRD Energy, which is run through the US DoE and Israel’s MoE.

Each project receiving funding involves one American and one Israeli partner and aims to address energy challenges that both countries are interested in tackling, BIRD Energy announced on Sunday. BIRD finances about 20 projects annually.

The four projects are:

-A Hydrogen-Halogen Regenerative Fuel Cell initiative between Bromine Compounds of Beersheba and Sustainable Innovations of Glastonbury, Connecticut. The fuel cell is aimed at generating a low-cost, modular, and mobile energy storage solution.

-Rechargeable magnesium batteries. The two firms working on the project, Bar-Ilan Research and Development Company of Ramat Gan and Pellion Technologies of Cambridge, Massachusetts, claim that the magnesium batteries are superior to lithium-ion technology in size, weight, lifetime and cost.

-A concentrated photovoltaic (CPV) system that employs a new cooling module, which is being jointly developed by B.G. Negev Technologies in Beersheba and Southwest Solar Technologies of Phoenix, Arizona.

-Windows capable of efficiently producing solar energy, built with integrated PV that have a high level of transparency and insulation. The solar windows are being developed by Pythagoras Solar of Petah Tikva and BISEM of Sacramento, California.