Israel underwent one energy revolution a decade ago, when the first natural gas from offshore reserves began to flow. It is undergoing a second revolution today, a transition from fossil fuels to solar, wind and other renewable energy sources.
The revolution is just beginning. Despite the sector’s fast growth, last year renewables accounted for just 5% of energy production, compared with an average of 12.5% for countries belonging to the Organization for Economic Cooperation and Development.
“The energy market is aboil everywhere you go,” said Sagi Ben-Simon, a partner in the consulting firm Beta Finance. “The reason is that the industry has shown strong resilience in the face of the coronavirus crisis, and also because of the global mega-trend. All the players and investors understand that something very significant is happening now.”
Tiran Rothman, CEO of the Israeli office of the global consulting firm Frost & Sullivan, said the technology problems that had hindered the sector’s growth have almost disappeared. The real estate sector, which is often a competitor for institutional capital, is now shadowed by uncertainty due to the coronavirus. By comparison, green energy projects offer steady and reliable income streams.
“It’s been clear that institutional investors are entering the sector, replacing investment funds and private investors, which until now had led the way,” he said.
“Today every company has a consortium of institutions ready to provide an open credit line for new projects. There are a lot of projects, the potential is enormous, the government pushing them and entrepreneurs are taking advantage of the opportunity – in Israel and overseas.”
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One barometer of how hot alternative energy has become is the stock market. The share prices of renewable energy companies traded on the Tel Aviv Stock Exchange have soared.
Augwind Energy, which develops underground energy storage technology, has jumped 960%; Brenmiller Energy, a thermal-energy-storage company, has jumped 550%; Apollo Power, a maker of film for generating on-site solar power, is up 1450%; Electron, whose technology provides power to electric vehicles, has gained 350%; and Energix Group, which operates solar power facilities, has climbed 200%.
The rally is even more impressive against the background of an otherwise volatile TASE and large trading volume of these companies, even in comparison to blue chips such as banks and real estate.
Interest in renewables has grown so strong that the TASE is planning to launch a cleantech index November 8. It will include 12 companies with a combined market cap exceeding 30 billion shekels ($8.8 billion). The index will create a distinction between the traditional energy sector and the up-and-coming alternative sector and enable the creation of derivative products for investors.
Some say share prices for green energy companies are so high that the renewables sector is a bubble waiting to be burst. For now, however, the share price runup has led to a wave of initial public offerings amid strong investor appetite for green energy.
Companies that have held initial public offerings include Doral, a developer and operator of alternative energy facilities that went public in June; Meshek Energy, a kibbutz-owned provider of alterative power and Solaer Israel, the local subsidiary of the Spanish renewable-energy prover. Together, they have raised capital at valuations that reach into the billions of shekels.
This IPO fever has also attracted many smaller, riskier listings. These usually happen through the backdoor process of a closely held company merging with a shell company already listed on the TASE. An example of that is Nostromo Energy, which has developed a cold thermal energy storage system. In August, it merged with the TASE-listed company Somoto.
Merger and acquisition activity has also accelerated amid the sector’s takeoff, both inside Israel and across borders. OPC Energy, for example, announced last month that it would invest between $700 million and $800 million to buy the U.S. company Competitive Power Ventures, an operator of generating facilities using wind and natural gas. OPC is in talks with Migdal Insurance, Clal Insurance and Poalim Capital Markets to come in as partners in the deal.
Afcon Holdings is also seeking to line up institutional investors for a 150 million euro ($177 million) renewable energy fund that it is planning. In September it acquired 70% of Logia Power Systems, which develops alternative-energy projects, for 20 million shekels.
A key factor in all this activity is growing government support for renewables. Israel’s National Infrastructure, Energy and Water Ministry has set a target of increasing renewable energy generation to 30% of the mix by the year 2030, six times its current share.
To help reach that goal, the ministry has canceled plans to build four power stations using natural gas with a combined generating capacity of 5 megawatts. Instead, 12 photovoltaic plants with an aggregate capacity of 12 gigawatts will be developed, all of them with storage capacity to ensure round-the-clock supply.
Government backing has led to a surge of renewable-energy projects, mainly in the solar segment. “The builders can’t keep up with the pace of developers,” said one industry source about the pace of new facilities under constructions.
This week, for instance, Nofar Energy won a government contract to build solar facilities to supply 100 MW of power and S’energy Group another for 90 MW. Other winners in the tender were Zabar Solar, EDF Renewable Energy and Moshe Lasry Holdings, each for 50 MW, and Housing & Construction and Doral, with 30 and 10 MW, respectively.
“Prices for electricity generated by green energy have become about the same as for ‘ordinary’ energy,” said Rothman. He predicts that tariffs for green energy, now 19 agorot per kilowatt, will fall by 50% within the next two years. “In other words, green energy will become a commodity, like everything else.”
With solar power generation costs having fallen so much, attention has focused on storage solutions to ensure reliable power no matter what the weather. As part of the transition, Israel has been seeking bids for power projects with a storage element. In July, for example Enlight Energy, Doral and Ellomay Capital won a tender by the Electricity Authority for combined solar-generation and storage facilities with a combined capacity of 168 MW.