A Solar Dream from Israeli Kibbutzim
The rising cost of water and a severe drought in Israel in recent years have forced kibbutzim in the desolate region to look for new sources of revenue. The persistent sunshine in southern Israel and the government’s desire for energy independence have Arava Power poised to cash in
A promise of double-digit returns nowadays might seem like just another Ponzi scheme to investors. But a group of solar energy fans from a kibbutz, or collective, in southern Israel believes it can offer just that, by using government backing to turn farmland into photovoltaic fields. With water an increasingly scarce commodity in Israel—and both sun and land in abundance—the band of new-age socialists envisages turning the desert into a vast solar power plant. The first 5-megawatt field at Kibbutz Ketura is expected to be up and running by early next year.
“Within five years we’ll have 200 megawatts of photovoltaic fields on more than a dozen kibbutzim in southern Israel,” predicts Yosef Abramowitz, president and founder of Arava Power Co. Under a recently announced Israeli government subsidy for electricity produced by solar power plants, that translates into $110 million in revenues. The money would go directly to the kibbutzim and a group of mostly American investors in Israel’s first green energy utility.
The subsidy is part of a government initiative approved last month to produce at least 10% of Israel’s electricity from renewable sources by 2020. Another recent decision requires the government-controlled Israel Electric Corp. to purchase electricity generated by renewable energy producers under 20-year contracts—a way of ensuring long-term demand and price stability, and thus encouraging investment.
“Southern Israel boasts some of the best solar conditions in the world, and the proximity to the grid makes the venture even more attractive,” says Amit Mor, chief executive of Eco-Energy, an Israeli energy consulting firm. Despite its ideal climatic conditions, the Jewish state was until recently slow to jump on the solar electricity bandwagon. This is true even though Israelis for decades have gotten most of their hot water from rooftop solar water systems, not to mention that Israel is home to several cutting-edge solar energy companies including Solel Solar Systems and richly funded BrightSource Energy, which is also working in Southern California’s Mojave Desert.
Now, for strategic reasons, Israel is more interested than ever in weaning itself off dependence on traditional fuel sources. Indeed, the country’s Defense Ministry is becoming a proponent of alternative energy partly because the recent military operations in Gaza underscored the vulnerability of Israel’s large power plants, two of which were in range of Hamas rockets. The military has expressed particular interest in solar power as a means of making electricity production more secure.
ENERGY VS. VEGETABLES
Abramowitz founded Arava Power three years ago after immigrating to Israel and settling in Ketura, situated 30 miles north of Eilat. The recent sharp drop in oil prices isn’t apparently a major concern: When the 44-year-old Boston native got started in 2006, oil was at $40 a barrel, just about where it is today. “The volatility of oil prices in the past few years only underscores the need for a country like Israel to sharply reduce its dependency on fossil fuel,” Abramowitz says.
The most convincing argument for the 600 members of Ketura was that solar energy could be far more profitable than growing fruits and vegetables—a traditional primary source of income for most of the kibbutzim in the region. “We realized that for our long-term economic survival agriculture was extremely risky,” says Ed Hofland, a 30-year veteran of the kibbutz who is Arava Power’s chairman. The rising cost of water and a severe drought in Israel in recent years have forced kibbutzim in the desolate region to look for new sources of revenue.
Solar isn’t the only alternative energy they’ve considered. Before taking a 40% stake in Arava Power, Ketura began growing algae for use as a food additive and potential fuel source. It requires far less water than traditional crops. Sales are expanding by 25% annually and are expected to reach $5 million this year. The kibbutz has signed an agreement with Boston-based based GreenFuel Technologies to develop algae strains for use in producing biofuel.
Once Ketura was on board, Arava began meeting with the 53 other kibbutzim in southern Israel. Thirty-two have been classified as suitable—namely, having available land and being close enough to the power grid. Arava Power already has signed agreements for 5,000 acres, which is enough to install photovoltaic panels to produce 500 megawatts. The company said it is in talks to double the amount of land under contract.
The fledgling solar energy utility has raised $2 million from mainly American investors to cover operating costs and hire top-notch management from outside the collective. Arava is planning to raise another $2 million in the coming weeks, but that’s a drop in the bucket of the $1 billion that will be needed to finance a boost to 200 megawatts of solar power production capacity. Those funds are expected to come from institutional investors, with project financing from commercial banks. “There is big potential for medium-size solar projects in the coming years, and we’re already looking at ways to finance them,” says Myriam Guez, head of project finance at Tel Aviv-based Bank Hapoalim (POLI.TA).
It’s too early to say whether Arava Power’s ambitious plan to turn the fields of the region into solar power plants will succeed. Between lower oil prices and tight financing, the timing hardly seems opportune. But so far the global financial crisis has not slowed the flow of local and foreign investors looking to cash in on the region’s unlimited sunshine.
Sandler is a correspondent for BusinessWeek in Jerusalem .
Source: Business Week