Switching Israel on to energy venturing
For a country whose innovation track record is world-beating in so many industries – e.g. ag-tech, water-tech, auto-tech (particularly in connectivity, cyber-security, and computer vision) – the Start-up Nation’s contribution to solving energy problems is surprisingly weak.
Why is this? And is it about to change? These were the two main questions discussed on a non-attributable basis by leading Tel Aviv-based and Israel-focused corporate VCs at a GCV dinner the evening before our first conference in Israel. The answers are illuminating and suggest that Israel may be about to do for energy what it has been doing over the last five years for automotive – connect, digitize, autonomise and secure.
“Historically, the fundamental driver for Israeli innovation was survival, not doing good. We could easily import fuel for energy. Coal, oil and gas are highly commoditised markets. But water and food had to be produced at home,” said one of the corporate VCs. Like food and water, security too (and the technological means to provide it) could not be imported. Thus, home-based innovation flourished in these areas.
“Sure, Israel missed an opportunity in energy. We could have taken a lead. For example, we were early pioneers in solar thermal power.* But there were other, more pressing priorities,” said another.
This may be about to change. Twenty years ago, disruption of the energy industry was primarily an ethical calling; the domain of renewable technology pioneers and their ethical investor backers. Ten years ago, the roll-out of now proven renewable energy technologies such as solar and wind became an infrastructure investment opportunity, one which is still attractive, particularly in parts of the developing world, which lack energy, but which have plenty of sun and wind (e.g. India). But in the developed world, the energy investment opportunity is changing. The growth of renewables and electric vehicles are obliging inflexible ‘dumb’ centralised power systems to become flexible, responsive, digital, local and smart.
Better call Israel. Jonathan Tudor, Technology and Strategy Director of Centrica Innovations, already has.
“We’re looking to invest $140m in the very best ideas and businesses and believe that Israel offers access to both great tech and some of the world’s greatest entrepreneurs and innovators,” said Tudor, who switched to Centrica, the UK and US-based energy and services provider, from BP Ventures last year. (Disclosure: Centrica sponsored GCV’s Israel conference.)
“We’re particularly interested in the distribution of energy, electrification of transport and increasing connectivity through data, blockchain and the Internet of Things,” added Tudor.
Centrica’s readiness to make venture capital investments in Israel follows a successful acquisition three years ago. “Having acquired Panoramic Power, a leader in circuit level energy management solutions in 2015, we see Israel as an excellent candidate for investment,” he said. (See below)
Can Israel deliver on energy? Its track record in automotive, an industry facing similar challenges to energy, is encouraging.
“Only when the car became a connected device did corporate VCs come to Israel to commission technology solutions,” said one of our Corporate VCs over dinner. “Israel’s engineering expertise in security was easily transferable to the challenges of connectivity, cyber-security and computer vision faced by the automotive industry.”
Likewise, the challenges of digitisation, flexibility and responsiveness, should be right up Israel’s street. Indeed, a fresh perspective on energy may unlock problems that traditional energy has yet to solve.
In the opinion of one of our corporate VC diners, a US-based investor: “We all know that content is king. But energy can’t really be differentiated – electrons are just electrons. Ultimately, disruptive innovation in energy may therefore have to go ‘over the top’. No one wants a ‘down the pipe’ solution.”
Asked for examples of what an ‘over the top’ solution would look like he spoke of the possibility of free energy in return for data, data which could be monetised, or energy services which could be bundled with other higher value services such as televised sport. Meanwhile, the Israeli-based CVCs were more cautious. The conversations switched to ‘old school’ hydrocarbons, the promise of Israeli off-shore gas which may reduce, but not eliminate, Israel’s dependence on imported coal as its source of base-load power.
All of a sudden, we’d gone from the high-tech prospect of digital energy to the very old-tech world of coal, which has powered Israel’s economy since its foundation. As the coffees arrived, it was a sobering thought.
The overall impression left by GCV’s Israel conference is of deals being done and pipelines (in deals, not oil) being filled. There was a relaxed buzz in the room among entrepreneurs looking for corporate venture capital (some, but by no means all, focused on energy). The extent to which Israel gets switched on for energy-tech will be a function of energy’s need for what Israel is good at – connectivity, security, digitisation etc.
Jonathan Tudor is optimistic. “2013 was the beginning of the rapid growth of auto-tech venturing. Before 2013 auto-tech was about braking systems. Since then it’s been about connectivity, electrification and autonomy. Today, it feels like there’s something similar happening in energy as it begins to digitise. Look at the deal flow out of Israel and other innovation hot-spots. Feel the buzz.”
* Solar heaters were first installed in Israel when the country experienced a fuel supply crisis in the early 1950s. The government responded by severely restricting the times when water could be heated. Israelis in turn responded by purchasing huge quantities of solar water heaters. By 1983, 60% of the population heated their water with the sun. A law was eventually passed requiring the installation of solar water heater.
Israeli energy innovators – outliers or a taste of the future?
1. Panoramic Power Before being acquired by Centrica in 2015 for $63.86m, Panoramic’s corporate VC investors included Qualcomm Ventures. Based in Kfar Saba, but now integrated into Centrica’s global operations, Panoramic’s technology consists of wireless and self-powered circuit-level technology that can be retrofitted to provide owners and operators of energy assets with insights into energy usage and the potential to reduce costs.
2. APG Aero Systems (see photo above) APB designs and manufactures solar-powered drones and provides broadcasting and internet communications. The Netanya, Israel-based business raised €3m from private investors in January of this year.