Building Israel’s Cleantech Independence

Glenn YagoDirector, Milken Institute, USA

Prepared for:

Globes Conference 2009

Cleantech from Copenhagen to Jerusalem

December 13, 2009

“Towards Energy Independence” over the years

Source: EIA.

Carter: “This nation will never use more foreign oil than we did in 1977… never.”First

World oil crisis1973

Obama: “Eliminate our current imports from the Middle East and Venezuela within 10 years.”

Ford: “We must end vulnerability to economic disruption by foreign suppliers by 1985.”

Nixon: “In the year 1980, the United States will not be dependent on any other country for the energy we need.”

60% of all U.S. oil consumption came from foreign countries in 2008

Domestic production: 6736 barrels daily – 40.8%

Source: British Petroleum Statistical Review 2009.

Imports: 9756 barrels daily59.2%

Oil reserves are concentrated inthe Middle East

Source: BP Statistical Review of World Energy, 2009.

1980

2008

Billions of barrels

Beta Sites: Building New Markets

at Home for Abroad

?כיצד יוצרים שוק ראשוני וחדשני בישראלהנהגה והובלה ממשלתית•

רגולציה ממשלתית •עידוד חדשנות )כגון הקלות במתן אישורים לחדשנים(–

מימון•–Growth equity )late stage( – High risk project financing

מינוף תעשיות הידע הקיימות והפוטנציאל היזמי •המקומי

Partnershipsשותפויות

לשיתוף • כמוקד ישראל של ובינלאומי לאומי מיצובפעולה

זרות • ממשלות עם פעולה :שיתוףמימון–פיתוח –הטמעה/ניסוי–הדגמה–

הפעולה • בשיתופי חדשנות

ד

המימון מבנהידע עתירות לתעשיות

Venture Capital

Incubators

Growth Equity

Stock Exchange & Banks

R&D Grants

כלי מדען ראשי:

Private Equity

Mezzanine

Angels

Academia

כלי שוק פרטי:

Strategic Partners

התפלגות ההשקעה לפי שלבי הצמיחה בישראל וארה"ב

Source: PricewaterhouseCoopers’ Money Tree Reports

4%

38%

58%

15%12%

73%

0

10

20

30

40

50

60

70

80

90

100

late stageearly stageSeed

Per

cen

t

US Israel

ידע עתירות תעשייה חברות

מספר חברות בוגרות

מספר חברות

450 2,900 הייטק(ICT)

75 1,000 ביוטקBio-Pharma

Medical Devices

45 400 קלינטק

IVCמקור:

Israel’s VCs focus on Hi-Tech only

In Israel the Software, communications,

networking and semiconductors sectors

receive 70% of VC investments Vs. 32% in

the US

In Israel the Biotechnology & Healthcare

sectors receive only 10% of investments, Vs.

30% in the US

Israel’s OCS support focuses on

manufacturing R&D.

Diversification & SpecializationVC Investments by Industry – 2008,

Israel

Source: PricewaterhouseCoopers’ Money Tree Reports

Semiconductors14%

Software25%

Biotechnology & Healthcare

11%

Communications & Networking

31%

Internet, Cleantech, Media & Other

19%

Israel Total VC Investments $1.4 Billion

Oil receives more subsidies than alternative energy

So

urc

e:

En

viro

nm

en

tal L

aw

In

stitu

te.

Global investment in new clean energy

Source: New Energy Finance.

US$ billions

Funding challenges for AlternativeEnergy

TechnologyTechnologyincumbentincumbent

Seed/Seed/Start-upStart-up

Early stageEarly stage ExpansionExpansion Late stageLate stage

Venture capital Project financeAngel investor

First generation - Scaling up- Further R&D- Upgrading pipeline - Increase market share- Mezzanine and bridge finance for IPO or M&A- Collapsing market/Falling prices

Third generation - R&D- Initial investment in demonstration projects

Second generation - Achieve commercial-scale operation- Bringing down costs- Further investment in facilities

Funding challenges

Public grants and tax incentives

Valley of deathValley of death

Source: Milken Institute

The Water-Energy Nexus

Energy productionand generationrequire water

Water pumping,treatment anddistribution requireenergy

Reduced water conveyance and increased water recycling

Decreased energy consumption and smaller carbon footprint

Energy productionand generationrequire water

Water pumping,treatment anddistribution requireenergy

Reduced water conveyance and increased water recycling

Decreased energy consumption and smaller carbon footprint

Source: Y. Cohen, UCLA Water Center, 2009

• Encouraging Economic Growth by:– Absorptive Capacity

– Job Creation )+high skilled(

• Developing a science-intense industry

• Improving current account balance )export(

• Lowering risks of private funding by financing high-risk/early stage projects

Valley of Death

The Cash Flow Valley of Death- as a function of development stage )Enhancing Commercial Outcomes from R&D,2007( Source: NREL, 2008

Market Failure I:

Cleantech Water Finance

Market Failure 2: Water Project FinanceInternational Private Investment in Infrastructure

Sources: Ti Le-Huu, Sustainable Development and Water Resources Section, UNESCAP.

US$ billion 1990-2009

A Shift in Water Resources & Management Paradigm

Source: Y. Cohen, UCLA WaTeR Center, 2009.

Alternative Energy IssuesAdditional Information

A perfect day for biofuels…

Energy Security• Insufficient domestic

supply• Oil supply primarily

in unstable regions

Demand Trends• Oil consumption

outpacing discovery

• China & India• Consumer

awareness

Supply Trends• Nationalization of

reserves• High oil prices• Peak production• New technology

improving efficiency of production

Environmental• Carbon

emissions• Offshore drilling• Green

legislation

Pressure to create a significant, renewable,

domestic source of liquid fuelsSource: CERES.

The advances in biofuels technology is game changing

Open-PollinatedDouble Cross

Biotechnology

Single-CrossHybrids

Average U.S. Corn Yields

Bu

shel

s/A

cre

Hybrid genetics & biotechnology have driven a five-fold increase in average U.S. corn yields since 1940.

Source: USDA.

Oil and biofuels: Two different business models

Co

st

pe

r u

nit

Units produced

Oil

- High entrance barrier- High initial investment )for lease and facilities(- Low )and stable( marginal cost once scalability is achieved

Co

st

pe

r u

nit

Units produced

Biofuel

- Low entrance barrier- Higher marginal cost even after scalability is achieved- Profitability is subject to uncertainty in raw material price- Possibility to reduce cost with future technology breakthroughs

Source: Milken Institute.

The American Recovery and Reinvestment Act of 2009 (ARRA)Total measures worth $787 billion

So

urc

e:

Th

e A

me

rica

n R

eco

very

an

d R

ein

vest

me

nt

Act

of

20

09

.

Infrastructure and energy represent 15 % of ARRA

Total measures worth $787 billion

Other stimulus $646.4

Infrastructure $80.9B

Energy $49.7B

Source: The American Recovery and Reinvestment Act of 2009.

Energy expenditures within ARRA

Energy efficient smart grid $4.5B

Transmission lines $6.5B

State and local energyInvestment $6.3B

Radioactive cleanup $6BWeatherizing medium incomeHomes $6B

Federal building Efficiency $4.5B

Carbon capture experiments $3.4B

Energy efficiency research $2.5B

Advanced car battery $2B

Energy efficiency andconservation grants $3.2 B

Other $3.7B

Source: The American Recovery and Reinvestment Act of 2009.

$16.8 billion designated for the Office of Energy Efficiency and

Renewable Energy

Source: The U.S. Department of Energy.

Energy Efficiency and

Conservation Block Grants$3.2 billion

Retrofit ramp-

ups in energy efficiency - $454 million

Weatherization Assistance Program$5 billion

State Energy Program$3.1 billion

Energy Efficiency Research $2.5 billion

Others - $3 billion

DOE Recovery Act Funding: $36.7 billion