Subscribe to Print Edition | Thu., November 26, 2009 Kislev 9, 5770 | | Israel Time: 21:56 (EST+7)
Haaretz israel news English
web haaretz.com
Jewish World Haaretz Toolbar
Diplomacy
Defense Opinion National
Print Edition
Car Rental
Focus U.S.A. Strenger than Fiction Business Travel Magazine Week's End Anglo File Books
Share |
Catching the sunshine
By Yoram Gabison
Tags: Israel news

The press conference held in Munich about a month ago announced Israel's first successful sale of a solar-energy venture: German engineering giant Siemens signed a $418-million contract to buy Solel Solar Systems, a Beit Shemesh-based developer and manufacturer of systems that generate electrical power using solar energy. As part of the deal, Siemens has committed to leaving the company headquarters and some of its manufacturing facilities in Israel for at least five years.

This is a lucrative transaction for Solel's main shareholders - British investment firm Ecofin, which holds 53 percent of the stock, and Belgian investor Louis Begeau, who has a 32-percent stake. It is also, to a great extent, a personal victory for Avi Brenmiller, Solel's CEO and a 10-percent shareholder.

Brenmiller, who stands to make $40 million from the sale of his shares, and who will be the first Israeli to profit to such an extent in the field of alternative energy, is now at the end of a long and difficult road, one on which he embarked in 1988. He was then a mechanical engineer for Luz Industries in Jerusalem, the company that would later evolve into Solel Solar Systems. One of Israel's most promising technological enterprises of the 1980s, Luz built nine solar-thermal power plants, with a combined production capacity of 354 megawatts, in the Mojave Desert in California before the company collapsed in early 1991. The plants use parabolic mirrors to capture solar energy, which is transformed into steam that is used to drive turbines and produce electricity.
Advertisement
But Luz's shareholders, including the Bronfman family, lost all their money, and the 600 employees lost their jobs and scattered. The solar-energy dream had been fueled by the trauma of the Arab oil embargo after the Yom Kippur War in 1973, but it faded out and by the end of 1991 Luz's assets were of interest to no one. No one, that is, except for Belgian investor and philanthropist Begeau, who bought the company's assets from the receiver for $2 million and established Solel Solar Systems.

After leaving Luz, Brenmiller took a job with Elisra Electronic Systems in Bnei Brak, which develops electronic-warfare systems. He led a peaceful, comfortable life earning a good salary managing its mechanical plant, with only a five-minute commute from his home in Tel Aviv. Then, in 1994, after three years at Elisra, Brenmiller was summoned back to Solel by then-CEO Gaby Kenan.

"I decided to leave," he recalls, "although I had no financial incentive to do so. I figured it would take at least 10 years for the solar energy market to wake up, but I considered it a challenge, and I was willing to wait."

Solel's attractiveness has now also increased dramatically because Siemens and other engineering corporations launched preparations for the Desertec project - a joined initiative undertaken by 12 companies, most of them German, to build solar-power systems the Middle East and North Africa, and to transmit the resulting electricity to Europe via undersea cables. By 2050 the project is supposed to supply 15 percent of the Continent's electricity, as well as most of that in Middle Eastern and North African countries where the solar sites will be based, such as Morocco, Tunisia and Algieria.

The aim of Desertec is to create an industrial and economic infrastructure to exploit - in a commercially profitable, yet ecologically clean way - the potential energy of desert sunshine. The project's economic viability has been boosted by improvements in high-voltage direct-current technology, which makes it possible to convey electricity across great distances with an energy loss of only 3 percent per 1,000 kilometers, substantially less than the loss incurred in alternating-current transmission.

The whole enterprise originated with a circle of intellectuals, the Club of Rome, who began to meet in 1968 and in 1972 published the book "The Limits to Growth," which predicted that the finitude of natural resources, especially oil, would effectively curb the world's ability to sustain economic growth over time - a scenario realized in the oil crisis of 1973.

The scope of the investment in Desertec, expected to reach some $600 billion, explains why engineering companies such as ABB Group, Abengoa Solar and RWE AG are eager to claim their piece of the action, even if the results will not be evident for another eight years.

'Things will happen'

Desertec is in many ways the technologically sophisticated West's war of self-liberation from its dependence on the non-technological world, mainly that of the Arabs and Russians. Ironically, the sites slated for the solar electricity plants, which will reduce Western dependence on oil and natural gas, are located within the borders of such quintessential oil producers as Saudi Arabia and Libya, or in countries allied with them politically, such as Morocco and Tunisia - a fact that makes one wonder about the political viability of such a project.

The technology that will be used to turn solar energy into electrical power in the 150- to 200-megawatt plants is known as concentrated solar power - the same technology in which Solel specializes. In fact, the company is known as a world leader in this field, which is why, upon finalizing the deal, Siemens CEO Peter Loescher declared that now, "the picture puzzle in the growth market of solar thermal energy is complete." The new acquisition gives Siemens all the components it needs to undertake projects like Desertec: Siemens manufactures the turbines, condensers, cooling towers and transformers, while Solel makes the thermal solar field, including the parabolic mirrors and solar receivers.

To what extent was the Desertec project a factor in striking the deal with Siemens?

Brenmiller: "Clearly, it is tied to the deal. You need only look at who is helping promote Desertec, German Chancellor Angela Merkel and French President Nicolas Sarkozy, and who it was that competed over Solel - Siemens from Germany, Alstom and Areva from France - to understand what's going on. That's where it begins. Each of these companies is trying to get a piece of the pie.

"Siemens, one of the world's leading technology companies, examined us and decided that buying Solel and its technology would be a shortcut to the project. You have to remember that they want to start on a large scale. Solar-energy production is not a simple process, although it may seem that way. People forget that the sun is not a constant energy source. The angle and intensity of its radiation changes every few seconds, which affects the efficiency of the system.

"The problem is that there are only two companies that manufacture solar receivers: us and Schott in Germany. Siemens decided that Solel had the most efficient receiver on the market and was the undisputed leader in thermal solar energy. In addition, Solel makes 40 percent of the components needed for creating a solar field, while Schott only makes 10 percent of them."

How likely is Desertec to overcome the political obstacles in its path? Will the fact that Solel is an Israeli company pose a problem for Siemens?

"Once there is a decision and such strong motivation, things will happen. There is a commitment to the project at the head-of-state level. That's where you see the difference between countries in which such projects actually happen and others where they never do. Politically, no one is going to wave the Israeli flag, but at the same time, it is an acknowledged fact that Solel is an Israeli company, which will operate from here, under my management. Siemens went to great lengths to keep me and several dozen other top employees.

"As for production, it was Solel's policy to build production sites all over the world even before the Siemens deal, both because no client wants to rely on a single production source, and because it is only fair and logical that someone who uses the technology and pays what is still a higher price than that for conventional energy production, should get some of the jobs the project creates.

"At the same time, our production even today is done using a 'black box' method - that is, the worker in China or Spain pushes a button, but the production process is overseen from here, so that the worker cannot change the process in terms of either quality or quantity.

"The factories in Israel will make the new models of receivers and mirrors, because the plant where the prototype is manufactured must be part of the development process. The next factories will be duplicated elsewhere, according to the markets where we carry out projects."

Didn't the commitment to leave Solel's headquarters in Israel for a minimum of five years scare away potential buyers?

"I refused to have Israel become nothing more than a development center. To me that was a deal-breaker, because production does not end on the drawing board. It's a factor that is more important than just keeping jobs in Israel. Production technology is what determines whether you are efficient or not, and you can only know this if you produce a lot. I made it clear to all potential investors that the company would not succeed if its first production line was established outside Israel. There were some contenders for the deal, including some bigger than Siemens, that dropped out because of this condition.

"Siemens, by contrast, came with this [business] model itself, and I didn't have to ask for anything. In October 2004 Siemens bought Bonus in Denmark, which makes turbines for wind energy, and it announced from day one that it meant to leave the technology in the same place as those who developed it and specialize in it. Other than the CEO, who retired, the senior management all stayed on. Since then the company has grown to six times its former size, with a revenue of 2 billion euros. Instead of seven sales people, it now has 200, and instead of 400 employees it now has 5,000. Siemens did something similar in India, and although the deals are all different, one can consider this to be their model."

What gave you the authority to make these demands? After all, you are the CEO and own 10 percent of the company, but the rest belongs to Ecofin and Louis Begeau.

"True, but beyond the formal level of ownership, there are people who add value to a company, and their opinion is usually taken into account."

Around the time the deal was signed, you said Solel could not keep growing as an independent company. Why?

"To keep growing without suffering major shocks, you need to have the backing of a large technological and financial corporation that can compete with the energy giants. When you are up against companies of that kind, the biggest gap you can have between yourself and them in terms of the volume of activity is 1 to 10, and that's also true of other businesses."

What does Siemens get in exchange for $418 million and the financial commitments Solel is undertaking?

"Beyond the concrete assets such as factories, Siemens is getting knowledge, technology and manpower. They discovered we have the ability to industrialize and grow, and to save them years of research, development and efforts to prove viability, which is the path every company has to travel before it reaches the market.

"Solel is providing receivers for two projects undertaken by large companies in Western Europe. These companies have invested 300 million euros in each project, and for over a year, since the completion of the projects they have been stuck at a production level of 70-80 percent, and instead of making 40 million euros a year, they are making 30 million.

"Just think what kind of a bind these companies are in. They asked us to help them. I'm not saying they won't learn in the end, but when Siemens buys us, it is buying a company that within a month or two of completing the project, will have a power station supplying power to the grid at full capacity."

'Plug and pray'

Solel changed its business model twice. It started out as a maker of solar receivers, in 2006 turned to a model of entrepreneurship - and in 2008 reverted back to the old model. Why?

"Entrepreneurship was never Solel's business model, and yet we did some projects as entrepreneurs wherever we thought that it would not work otherwise. I saw that in Spain companies were building projects that would not work; they did not understand that it's 'plug and pray,' not 'plug and play.' I thought that the thermal solar power stations would become operational there, but would not function properly, and that the banks would then draw conclusions about funding projects by, and buying equipment from, manufacturers like ourselves. I concluded that Solel had to build at least one project to show that the thermal-solar model and our equipment met their goals. But I never intended for Solel to act permanently as an entrepreneur in Spain. We believe that the thermal-solar market is going to grow, and if you, as an equipment provider, believe in that market and in your technology, and want to exhaust the growth potential, you need the whole world to be your client.

"Still, today we give clients the option of letting us operate the project, because people consider it important for those who provided the thermal-solar technology also to operate the plant."

How did Solel go from raising investor capital to agreeing to full ownership?

"The Ecofin fund is a financial investor that came on board in January 2008, with an investment of $125 million. Ecofin tried to support [Solel Solar], but it's hard for a financial investor to deal with a rapidly growing technological company, and hard to assess the risk versus the reward. Therefore, in the long run it's better to find a strategic investor. In January 2009 we planned to raise $100 million from investors, and hired Credit Suisse [for this purpose], but some of the investors were not interested in anything less than full ownership, and others would not take anything less than majority control."

At any point over the years, did you have doubts about Solel's ability to succeed, or about the growth of the solar market?

"In 1988 I came to Luz, on whose ruins Solel was built, as an engineer looking for something interesting to do in life. I wanted to help things happen, with the naive desire to do some good in the world and maybe, if it worked out, get something for myself out of it.

"The main crisis was in 1996, when we [Solel] finished making spare parts for the solar field that Luz built in California. Gaby Kenan, who was then CEO, left the company for Hadera Paper. I met with the Belgian investor, Louis Begeau, and he pledged to keep supporting the company until the time was ripe for the technology, and promised us that we would be involved in technological development.

"At the time the company had 70 employees, and we made replacement parts, at a revenue level of $2-3 million a year. We kept developing the technology, and that, I think, is what eventually made us technological leaders. The turning point came in 2006, when we developed [the solar receiver] UVAC 2008, which made replacing the receivers in a field in the Mojave desert in California extremely viable economically, because we could raise electricity production by 30 percent. It was a $60-million project, which promised the client a quick return on the investment and let us embark on a whole new road."
PROMOTION: Mamilla Hotel
Bookmark to del.icio.us  
 
Settlement freeze
Netanyahu declares 10-month settlement freeze in a bid to restart stalled peace talks.
'Kick a Jew Day'
Florida students suspended for taking part in the 'South Park' TV show inspired day.
Special Offers
Advertisement
Eldan Rent a Car
Israel's leading car rental company offers you a 20% discount on online reservations
Award-Winning 'Obsession'
Watch 'Obsession: Radical Islam's War Against the West' Online FOR FREE!
Protea Hills
A Retirement Village in Nature Nestled in the Foothills of Jerusalem
Date Local Jewish Singles
Ready to meet your match? Join Jdate today!
Junkyard
Junk a car - get free towing nationwide and a tax-deductible receipt
More Headlines
20:47 IDF foils terror attack along Egypt border
21:35 Barak to IDF: Issue the order to freeze settlement construction
19:32 Two Israelis stabbed near Hebron; attacker shot
21:22 Likud Min.: We are in the hands of a terrible U.S. government
20:18 Report: Lebanon says Hezbollah has right to fight Israel
11:26 Report: Israel will release Barghouti in Shalit deal
21:08 Are Bar Refaeli and Leonardo DiCaprio together again?
22:21 TV ROUND-UP: Netanyahu declares 10-month settlement freeze
21:55 Statistics bureau: Muslim growth rate on the decline in Israel
19:49 Medvedev to European Jewish Congress: Iran threat very real
18:06 Israel wages campaign to win support for settlement freeze
15:18 Report: IDF troops allegedly abused comrade for eight months
18:23 23-year-old Israeli backpacker missing in South America
14:02 Israeli doctors in Romania egg-trafficking probe return home
Home | TV | Print Edition | Diplomacy | Opinion | Arts & Leisure | Sports | Jewish World | Site rules |
| Advert: Recommended Restaurants | Makom: Engaging on Israel
| Search engine marketing
Haaretz.com, the online edition of Haaretz Newspaper in Israel, offers real-time breaking news, opinions and analysis from Israel and the Middle East. Haaretz.com provides extensive and in-depth coverage of Israel, the Jewish World and the Middle East, including defense, diplomacy, the Arab-Israeli conflict, the peace process, Israeli politics, Jerusalem affairs, international relations, Iran, Iraq, Syria, Lebanon, the Palestinian Authority, the West Bank and the Gaza Strip, the Israeli business world and Jewish life in Israel and the Diaspora.
© Copyright  Haaretz. All rights reserved