Israeli energy management systems company Panoramic Power announced this Monday that its technology was going to market. The company’s self-powered circuit sensor can provide customers with real-time detailed data on an entire building’s energy use through a wireless mesh network.
Among Panoramic Power’s financial backers is Israel Cleantech Ventures (ICV), a five-year old Israeli-based venture capital firm that was founded by three Ivy-League-educated Israeli transplants who moved from the East Coast with vast professional networks in the United States. One of the partners, Jack Levy, met with Breaking Energy in ICV’s offices in the Green Village, a quiet Tel Aviv suburb filled not only with environmental education programs but also with peacocks and chickens that roam the dusty lanes between houses.
“I think there is something shared by Israeli entrepreneurs that creates a great environment for innovation,” Levy said, and “exceptional returns from the perspective of the investor. There is a certain, daringness, chutzpa.”
Because Israel is a relatively small and militaristic country, Levy says businessmen have been trained to be practical and find quick solutions in times of crisis. And the small concentrated high-tech hubs in the country’s major cities create fertile ground for cross-industry pollination similar to that of Silicon Valley.
But even as Israeli companies create energy solutions for the global marketplace, Israel itself is lagging behind other Western countries in terms of cleantech and energy efficiency installations.
“Our own local crisis is more acute than it has been for years,” Levy said.
Challenges and Opportunities
Although Israel found natural gas offshore in the Mediterranean, it was relying on importing the fuel from Egypt until adequate pipelines could be built. But since the Arab Spring that jolted the Middle East last year, the Egyptian gas supply has been shaky and was cut off completely this month. To compensate, the government announced this week that beginning May 31, customers can sign up for a program that will provide them a 20% discount on their electricity bills if they can reduce use by 10%.
But Israel has been slow to install renewable energy alternatives. Although it has committed to a 10% renewable energy goal by 2020, Levy said he thought it was unlikely the country would make the number if installations continue at their current pace.
“The 10% goal does not seem realistic with the fits and starts we’ve been approving renewables. Too much on and off, on and off,” Levy said.
But that does not mean he is worried about his firm. ICV has been so successful that is has opened a second fund for a new round of investors and investments.
“We’re venture capitalists and we’re looking for big markets and we’re looking for companies with big markets. And so the Israeli market while often relevant,” is not limiting the growth of any of ICV’s portfolio companies. If anything, Levy said, the relatively dry Israeli market has forced entrepreneurs to make their products globally accessible, making their sales even more successful.
“As an investor I am trying not to take a technology risk and market risk all at once,” – Levy
Levy said his goal is for cleantech companies to be profitable without government subsidies and he is therefore unconcerned with government incentives. A little help would be nice, but it’s not necessary, he said, with wind power nearly at grid parity and solar power close behind.
Over the next ten years, Levy predicts that hydrogen storage technology and algae-based fuel products will become particularly profitable, but he said ICV is holding off on investing there till the market shows real demand.
“As an investor I am trying not to take a technology risk and market risk all at once,” he said. “It’s good to know that if you’re taking a technology risk, the market demand is already there.”
He said the same is true for electric vehicles that have great potential to not only replace gasoline-powered cars, but advanced battery technology can be used for energy storage and grid management. But for now, the firm does not see adequate market demand.
There is market demand however for water and industrial chemicals, both industries in which ICV is investing. Portfolio company AqWise has created an innovative wastewater treatment technology and Emefcy has commercialized a bio-electro-chemical process that uses wastewater to generate electricity. FRX Polymers sells environmentally friendly plastics, a product already highly in demand by industrial customers.
Powering Through Down Cycles
But “the macroeconomic picture continues to be somewhat challenging,” Levy said. “We’re once again concerned about Europe and what will happen to the Euro block, things like that impact everyone’s business. If there is job contraction, it doesn’t matter what you’re selling, you’ll probably be selling less of it.”
He said the global economic slowdown is his firm’s biggest concern, because it is also totally out of his control.
“You have to adjust your own business accordingly,” he said. But he said he is proud that ICV and several of its portfolio companies weathered the 2008 recession. Some of the companies have even been able to capitalize on the slowdown to sell energy efficiency and monitoring products that help businesses save money. Panoramic Power, he said, is a clear example of this phenomenon. The products promises customers a 20-30% reduction in energy costs, something that is more attractive as budgets tighten.
Energy data is a crowded space and sub metering can be fairly expensive, Levy said, but if a technology can gather relevant information well with both excellent hardware and software, companies know it is extremely valuable. And once a metering device picks up on an inefficient industrial or commercial machine, a company can relay that information to partner business that may have the same compressor or lighting system. Then the return on investment comes quickly.
A former corporate lawyer that worked for many years as an executive at Register.com, Levy said he is optimistic the cleantech industry has many healthy years of growth ahead. He said that because Israel jumped on the cleantech bandwagon relatively late, it also managed to avoid the boom and bust cycle American investors faced.
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“We see it with our own deal flow,” he said. “That’s why I made the decision seven years ago that this is a great business opportunity and will remain a great business opportunity for a decade to come,” he said.