Building Israel’s Cleantech Independence

Glenn YagoDirector, Milken Institute, USA

Prepared for:Globes Conference 2009

Cleantech from Copenhagen to JerusalemDecember 13, 2009

“Towards Energy Independence” over the years

Source: EIA.

0%

10%

20%

30%

40%

50%

60%

70%

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

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2008

2009

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

0

100

200

300

400

500

600

700

800

North America

S. & Cent. America

Europe & Eurasia

Middle East Africa Asia Pacific

Beta Sites: Building New Markets at Home for Abroad

?כיצד יוצרים שוק ראשוני וחדשני בישראלהנהגה והובלה ממשלתית•

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

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

מינוף תעשיות הידע הקיימות והפוטנציאל היזמי המקומי•

Partnershipsשותפויות

מיצוב לאומי ובינלאומי של ישראל כמוקד לשיתוף •פעולה

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

חדשנות בשיתופי הפעולה•

ד

מבנה המימון לתעשיות עתירות ידע

Venture Capital

Incubators

Growth Equity

Stock Exchange & Banks

R&D Grants

:כלי מדען ראשי

Private Equity

Mezzanine

Angels

Academia Seed Early Stage Late Stage Maturity

:כלי שוק פרטי

Strategic Partners

התפלגות ההשקעה לפי ב"שלבי הצמיחה בישראל וארה

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

Perc

ent

US Israel

חברות תעשייה עתירות ידע

מספר חברות מספר חברותבוגרות

הייטק(ICT)

2,900450

ביוטקBio-Pharma

Medical Devices

1,00075

40045קלינטק

IVC: מקור

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

Sour

ce: E

nviro

nmen

tal L

aw In

stitu

te.

Global investment in new clean energy

Source: New Energy Finance.

0

5

10

15

20

25

30

35

40

45

Q1 04

Q2 04

Q3 04

Q4 04

Q1 05

Q2 05

Q3 05

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Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

US$ billions

Funding challenges for AlternativeEnergy

Technologyincumbent

Seed/Start-up Early stage Expansion Late 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 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

Bus

hels

/Acr

e

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

Cos

t per

uni

t

Units produced

Oil

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

Cos

t per

uni

t

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.

Energy , 49.7

Infrastructure , 80.9

Low income aid , 82.5

Education , 90.9

Healthcar, 148

Tax cuts , 288

Scientific Research, 8.9

Housing, 12.7Other, 25.4

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

Sour

ce: T

he A

mer

ican

Rec

over

y an

d R

einv

estm

ent A

ct o

f 200

9.

Infrastructure and energy represent 15 % of ARRA

Total measures worth $787 billion

Other stimulus $646.4Infrastructure $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