For a country whose innovation track record is world-beating in so many industries – for example, agtech, watertech, autotech, particularly in connectivity, cybersecurity 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 in March. The answers are illuminating and suggest that Israel may be about to do for energy what it has been doing over the past five years for automotive – connect, digitise, autonomise and secure.
One corporate venturer said: “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.” Like food and water, security, and the technological means to provide it, could also 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.
Solar heaters were first installed in Israel when the country experienced a fuel supply crisis in the early 1950s. The government responded by 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 used the sun to heat their water. A law was eventually passed requiring the installation of solar water heaters.
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 rollout 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 have plenty of sun and wind, like 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 are 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.
“We are 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.
Can Israel deliver on energy? Its track record in automotive, an industry facing challenges similar to those of 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, cybersecurity 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 venturing diners, a US-based investor: “We all know that content is king. But energy cannot 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 what an over-the-top solution would look like, he spoke of the possibility of free energy in return for data which could be monetised, or energy services which could be bundled with other higher-value services such as televised sport. Meanwhile, Israeli-based CVCs were more cautious. The conversations switched to old-school hydrocarbons, the promise of Israeli offshore 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 had 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 deal pipelines 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 and more.
Jonathan Tudor is optimistic. “The year 2013 was the beginning of the rapid growth of autotech venturing. Before 2013 autotech was about braking systems. Since then it has been about connectivity, electrification and autonomy. Today, it feels like there is something similar happening in energy as it begins to digitise. Look at the dealflow out of Israel and other innovation hot spots. Feel the buzz.”
Israeli energy innovators – outliers or a taste of the future?
Panoramic Power
Before being acquired by Centrica in 2015 for $63.86m, Panoramic’s corporate venturing 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.
APG Aero Systems
APG designs and manufactures solar-powered drones and provides broadcasting and internet communications. The Israel-based business raised €3m ($3.5m) from private investors in January this year.
Disclosure: Centrica sponsored GCV’s Israel conference