Homegrown versus global

Navigating these complexities all but requires foreign renewables companies to leverage Hebrew-speaking local agents who can navigate the bureaucratic and geopolitical tensions. Indeed, Israel’s solar market started off as a largely homegrown, decentralized business, with kibbutzim in the Arava, not the national government, leading the charge for clean energy.

The Eilat region sources 70 percent of its daytime power from renewables, while the country overall only clocks a few percentage points.

“The idea is you have to show what is possible,” said Josef Abramowitz, a solar advocate who helped pioneer the Israeli industry as a founder of Arava Power, and more recently focused on African development with Gigawatt Global and the Power Africa initiative.

The small scale of early projects wasn’t enough to entice big global developers, but it incubated a cohort of local professionals better than a jump to large tenders would have. A new industry cannot leap from zero to hundreds of megawatts overnight; it has to work up to scale.

Israel now appears to be shedding its insularity and reaching for the internationalized tenders common in the region.

From Abramowitz’s perspective, the shift from first-come, first-served licenses to reverse auctions prematurely squeezed the developers who scraped an industry together during the tough early years.

“There used to be dozens of companies. We had a democratization of the energy market; it was very exciting for a brief moment in time,” Abramowitz said. “And then it’s only…[a] handful that have access to really dirt-cheap capital that can play in this market.”

“The local development market has been royally screwed,” he added.

Others see the market shift as a promising sign for delivering affordable, clean power to Israeli customers.

“We believe in competition; we are very welcoming of foreign companies to the electricity market,” said Adiri, from the Energy Ministry.

There’s a tension at play between what’s good for electricity customers (cheap, clean power) and what’s good for the solar industry (contracts without significant margin compression; more local jobs and revenue). There’s no reason those two forces can’t find an equilibrium, but the downward market pressure seems to be winning out.

Some local developers, concerned about gaining an adequate return on forthcoming projects, have already sold off their pipelines and shifted away from utility-scale work, WoodMac’s Attia said.

“Project returns for some of Israel’s early utility-scale projects were very high, and I think increasingly we’re seeing a realignment of expectations of returns from both the Ministry and from developers as costs come down globally, despite the higher-than-necessary local development costs,” Attia said. “I think we’ll see utility-scale deployments led by large players with local entities and know-how in the future.”

This transition won’t benefit all market participants equally, but it does serve the cause of total installed clean capacity.

Editor’s note: Foreign reporting for this article was conducted with travel and logistical support from the Israel Export and International Cooperation Institute, a Tel Aviv-based nonprofit.

Source: Greentechmedia.com