Regulation constricting renewable energy in Israel

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Israeli renewable energy entrepreneurs are going overseas.

Three years ago, Israeli entrepreneur Shlomi Palas founded Blue Sphere, which promotes ventures for producing electricity from biogas. After a successful investment in a large biogas facility in Charlotte, North Carolina, while expanding the company's business in Italy, Blue Sphere began to consider an investment in a biogas facility in Israel. The site selected is in the area of the Neot Hovav Eco Industrial Park, and Blue Sphere is in advanced negotiations to establish a 5-megawatt biogas facility in the heavy industry section.

Three years ago, the Public Utilities Authority (Electricity) allocated a production quota to the biogas facility, and promised its plants that Israel Electric Corporation (IEC) (TASE: ELEC.B22) would purchase all the electricity it produced at NIS 0.64 per kilowatt-hour, index-linked, for 20 years. Several small facilities have been hooked up to the electricity grid since then, but over 90% of the quota remains unused. "I realized that there were several entrepreneurs who wanted to build large facilities here, and that it hadn't succeeded because they lacked experience," Palas says. "We're an experienced group with know-how and ability, but some of our shareholders are worried about investing in Israel." Blue Sphere is listed for over-the-counter trading in New York.

"Globes": Are they worried about the security situation?

Palas: "No, most of the concern comes from Israel shareholders, who were worried about the uncertainty concerning regulation in the market. They told me, 'What happens if we invest NIS 100 million in a facility, and never get approval for being hooked up to the electricity grid?'"

Unclear where the local market is going

The case of Blue Sphere, a foreign company seeking to invest in the renewable energy sector in Israel, is unusual. The prevailing trend today in the sector is in the opposite direction: Israeli entrepreneurs are expanding their business overseas. Many of them have given up on the local market.

Yosef Abramowitz, a pioneer in the Israel solar energy sector, is currently promoting solar energy ventures in developing countries through Energiya. Energix, a leading Israeli solar energy company, recently invested in wind energy ventures in Poland. HelioFocus, one of Israel's oldest renewal energy companies, now does most of its business in China. Sunflower Sustainable Investments Ltd. (TASE: SNFL), which owns mainly solar fields in Italy and Spain, recently entered the wind energy sector in Finland, and Enlight Renewable Energy Solutions Ltd. (TASE:ENLT), one of Israel's most prominent in the Israeli solar sector, is considering an investment in wind ventures in Ireland, Finland, and Poland. Some less well known entrepreneurs are the owners of Focal Energy, which recently won tenders to build PV solar stations in India. Reports say that projects in India in the company's pipeline include ventures with an aggregate capacity of 300 megawatts. Noy Infrastructure and Energy Investment Fund has become a partner in solar fields in Italy, and the Israel Infrastructure Fund, its competitor, recently acquired 50% of a wind farm in Poland.

"In contrast to the past, a large proportion of our business advising renewal energy entrepreneurs is now taking place overseas," says ERM partner and projects department head Amnon Epstein. ERM specializes in overseas energy deals. "We're definitely seeing companies seeking investment opportunities in the form of overseas projects," he adds.

"Globes": What advantage do Israeli entrepreneurs have over local overseas entrepreneurs?

Epstein: "That reminds me that they used to ask a few years ago what Israelis were doing in real estate in Eastern Europe. Israelis are second to none in entrepreneurship. They usually aim at pushing the venture forward to a point where an offering can be held, and bringing in more institutionalized investors."

Why don't they do it here?

"These entrepreneurs feel that the local market has no clear lines of development right now, that there are no more production quotas."

Reading the map

Aviram specializes in wind energy, a field that does not lack available production quotas. Four years ago, the Public Utilities Authority (Electricity) approved a huge 800-megawatt production quota for large wind farms at a rate considered low at the time. Not a single wind farm has been hooked up to the electricity grid since then, but the authority decided not to wait, and slashed the rate promised to the entrepreneurs from NIS 0.467 per kilowatt-hour to NIS 0.40 per kilowatt hour, a 15% cut. The announced purpose of the cut was to adjust production tariffs to lower global wind turbine costs. Informally, however, authority sources say they wanted to "save electricity consumers billions of shekels."

The slashing of the tariff was greeted by anger by the main entrepreneurs operating in the sector. With Enlight, its partner, Aviram is trying to promote seven wind energy ventures in Israel in the Golan Heights, Galilee, and the Negev mountain range with an aggregate capacity of 600 megawatts. "As far as we're concerned, what the authority did amounted to a death sentence for the Israeli wind energy sector," says Aviram group owner Guy Rubinstein. Even before the cut, Aviram had begun to consider how to expand its business to new markets. "After three years of trying to promote projects here, we became convinced that things weren't moving. Regulation created too many barriers, was too slow, and created no horizon for investors," Rubinstein complains. "Since we had a model, and had studied the sector for several years, we looked for markets having regulation with a long-term horizon, stability and a clear arrangement, and a system that guarantees revenue. We chose the British market because we are convinced that electricity rates there will remain stable or rise. We founded nine fairly small projects there. 18 months ago, we changed our strategy and began working with projects of 5-20 megawatts."

"Globes": What advantage do you Israelis have in the British market?

Rubinstein: "We have no significant advantage. We created partnerships with locals, but Israelis know how to make decisions pretty quickly and eliminate risk the right way. It can work in very specific market segments. We're still on the outskirts of the outskirts, but we'll nevertheless do several hundred megawatts."

Do you see other entrepreneurs following in your footsteps?

"All the Israelis are reading the map, and I think it's a black mark for the economy that so much money is leaving the country. Personally, I'm sad that it's happening before even one turbine has been built here. On the other hand, we're doing wonderful things in the UK, so maybe I should thank the authority."

Published by Globes [online], Israel business news - - on July 23, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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