The Treasury puts a halt to the entire solar industry in Israel

The first major solar energy field in Israel is about to go live, a coup for sustainable energy and a challenge to traditional power sources. Not everyone in the establishment is rushing to join the party. David Ben-Gurion, Israel’s first prime minister, was fond of quoting the prophet Isaiah’s designation of Israel as a “light unto the nations.” Ben- Gurion interpreted the phrase as an obligation on the state he founded to strive to serve as a moral, intellectual and innovative beacon to the world. The first prime minister also had a special fondness for Israel’s deserts, insisting that a significant amount of the country’s attention be devoted to making the most of the resources of these arid areas, rather than focusing solely on urban development.

And Ben-Gurion was also an early proponent of tapping into the potential of solar energy, remarking in a speech in 1956 that “the largest and most impressive source of energy in our world and the source of life for every plant and animal, yet a source so little used by mankind today, is the sun.”

It is therefore a sure bet that were he alive today, Ben-Gurion would probably be bursting with pride at the inauguration of Israel’s first major solar energy field at Kibbutz Ketura in the Arava desert, about 50 miles north of Eilat.

The Ketura energy field, consisting of photo-voltaic panels sitting on 80 dunams (20 acres) constructed at a cost of about 100 million shekels, will at full capacity generate 4.9 megawatts (MW) of electricity. It is owned and operated by the Arava Power Company (APC), a for-profit corporation founded in 2006 by David Rosenblatt and Yosef Abramowitz, two American immigrants and members of the kibbutz. The German industrial giant Siemens and the Jewish National Fund are also major shareholders.

The inauguration of the Ketura field on June 5th marks the completion of its construction.

Interconnection with the national electricity grid is expected at some point over the summer, pending a decision by the Israel Electric Corporation (IEC).

The solar energy field inauguration is considered so significant by the Israeli government that it is marking the event by issuing special commemorative medallions and stamps. The medallion, appropriately enough, features the image of Ben-Gurion, and paraphrases Isaiah by terming Israel “a renewable light unto the nations.”

But behind the scenes of the celebration, a struggle is taking place between advocates of strong state support for the rapid development of solar energy sources and those who warn against prematurely investing too heavily in expensive renewable energy at this stage, especially given the recent discovery of large natural gas deposits off Israel’s coasts, a development that is expected to significantly reduce the price for electricity paid by the average Israeli.

The argument is not academic: electricity production by renewable sources still costs much more than running turbines using coal or gas.

APC executives say that without some measure of financial support, the renewable energy industry will not be capable of taking off in the foreseeable future. They also claim that Israel is inconsistent in its policies towards solar energy, promising higher-thanstandard tariffs for payment to solar energy sources feeding into the electricity grid, but then seeking to reduce those tariffs – while at the same time imposing quotas on the total amount of energy generation that can benefit from the higher tariffs. A quota of 500 MW has been allotted for large solar fields. This limit, they say, is to the detriment of the country relative to other countries, such as Germany, that are moving forward rapidly in renewable energy development.

The event that most rankles the APC is a campaign launched by the Treasury in February to re-evaluate the price paid for alternative energy. Essentially, the Treasury has frozen all new licenses for large solar fields pending a Public Utility Authority review of tariffs paid for solar energy, seeking to reduce the tariff to 40 agorot per kilowatt hour (kWh) from a rate of over a shekel per kWh. Although this would not directly affect the Ketura solar field, it could limit the company’s plans for future growth.

“The Treasury insists that we reopen for review the entire system of quotas and tariffs that was long ago agreed on, and meanwhile freezes everything,” complains a source in the National Infrastructures Ministry, who requested anonymity because he was not authorized to speak to the press. “This is unacceptable, after we already granted licenses and made commitments to people who have invested time and money based on those commitments. We are fighting tooth and nail to get solar fields up and running, and then this happens.” “The cost to the economy of implementing the government’s [solar energy] target is at least 4 billion shekels ($1.14 billion) a year,” responds Hadar Horn, a spokeswoman for the Treasury. “Since the cost of paying for the electricity will fall on the citizenry, we do not feel it is right to extend the solar field quotas. The quotas already agreed to place Israel in one of the highest paces in the world in solar production of electricity.”

Abramowitz is by nature an optimist, who likes to stress the positive. But even he has difficulty hiding the frustration he has experienced fighting what he depicts as an ongoing uphill battle against an entrenched bureaucracy.

“When I started the project [in 2006], I thought it would be completed in six months,” he tells The Report. “Instead I have had nearly five years of daily hand-to-hand combat with 25 uncoordinated government offices lacking vision. We are dealing with endless uncertainty, which is undermining foreign investors who are willing to pour billions into Israel. If the Treasury’s position is adopted, then we are on the verge of killing the solar industry.”

THE SUN SHINES BRIGHTLY AND hotly in the Arava and it is easy to understand why someone living there would latch on to the idea of drawing on the seemingly endless source of the sun for energy.

Charismatic, energetic and fond of the expression “thinking out of the box,” Abramowitz exudes confidence about APC.

“From the air, the Ketura solar field looks like art!” he says, pointing to photographs in which orderly and gleaming sharp-edged rows of solar panels stand in stark contrast to the natural desert landscape in which they have been placed.

Prior to coming to Israel, Abramowitz founded and ran an empire of Jewish-related publications, operating under the umbrella of Jewish Family & Life Media (JFL), a Newton, Massachusetts-based nonprofit organization.

JFL’s portfolio of projects include the website, a magazine for middle schoolers, BabagaNewz, a journal titled Sh’ma, and a distance learning website for Jewish educators,

Under his leadership, JFL grew from a minor entity with an annual budget of $150,000 into a major player in the Jewish media world, raising $4 million a year from major Jewish foundations for its activities.

While running JFL, Abramowitz also found time to be president of the Union of Councils for Jews from the Former Soviet Union, serve on the Executive Board of the World Jewish Congress, and actively campaign for Ethiopian Jewry. Putting all that behind him, Abramowitz and his family made aliya in 2006, and went straight to living on Kibbutz Ketura in the Arava.

Kibbutz Ketura is in a way the quintessential location in Israel for a project with a mix of environmental idealism and an American-style can-do entrepreneurial attitude. Founded in 1973 by members of the Young Judaea youth movement, two-thirds of its approximately 130 members are immigrants, most from North America. It has pioneered ecologically oriented projects and is also the home of the Arava Institute for Environmental Studies, an accredited academic program for undergraduate and graduate studies that conducts research on desert ecology and renewable energy.

The first investors in APC were Abramowitz himself and Kibbutz Ketura, and Abramowitz still maintains a significant shareholding.

After a year of operation, he had raised nearly $1 million from friends and family.

Three further “friends and family” rounds over three years increased that investment take to $3 million. In 2009, Siemens invested $15 million, purchasing 36 percent of APC and appointing two out of the five board members of the company. The Jewish National Fund has invested $3 million.

The other co-founders of APC are David Rosenblatt, originally from New Jersey, who was a managing director at Blackrock, a financial services company in New York, and Ed Hofland, who came to Israel from the Netherlands; they serve, respectively, as vice chairman and chairman. The management team is led by Jon Cohen, originally from the United Kingdom, and Ira Green, originally from New York, along with a staff of 27.

Infrastructure Minister Uzi Landau approved a power purchase agreement that the Israel Electric Company signed with Ketura Sun (an APC subsidiary running the Ketura solar field) on November 21, 2010. The agreement, valid for 20 years and worth an estimated 250 million shekels, grants Ketura Sun the right to feed electricity produced on Kibbutz Ketura to the national electricity grid.

The idealistic tradition of social concern that has characterized Kibbutz Ketura is being carried on in APC. Drawing on the Biblical injunction in Leviticus 19:9, “when ye reap the harvest of your land, thou shalt not wholly reap the corners of thy field, neither shalt thou gather the gleanings of thy harvest,” the management of APC is dedicating the income it will “reap” from the corners of its solar field to be donated to charitable causes. Officials refuse, however, to specify how much those “corners” represent, saying only that it is a “symbolic amount.”

Among the philanthropic causes that APC is supporting are Jewish Heart for Africa, the Elie Wiesel Foundation for Humanity, and Bustan. Jewish Heart for Africa is an organization dedicated to bringing sustainable Israeli technologies to rural African villages, such as agricultural practices and solar panels. It currently operates in Tanzania, Ethiopia, and Uganda, claiming to have impacted the lives of 150,000 villagers. The Elie Wiesel Foundation for Humanity is devoted to combating intolerance through international dialogue.

Bustan promotes sustainable development and equal rights in the Bedouin community of the Negev region. Its activities include building clinics, installing solar systems and running tree-planting projects. Donating to Bustan is part of a larger interest that APC has in cooperating with Bedouins in its vicinity.

The company has sought out Bedouin owners of large tracts of land on which it can construct future solar fields, and reports that it has already signed contracts giving it rights to build such fields on 500 dunams of Bedouinowned land.

THE AGREEMENTS WITH Bedouin landowners are part of an ambitious plan that APC has to construct solar fields throughout Israel’s desert area, towards the goal of one day producing perhaps as much as 1000 MW of electricity, thus becoming a significant figure in the Israeli energy landscape. The Report has learned that APC has already signed contract agreements with dozens of desert-area property holders, including kibbutzim and moshavim, granting it the right to construct solar panels in agricultural areas, industrial zones, rooftops and even atop sports facilities.

The contracts potentially grant APC access to solar field construction on more than 7,000 dunams. If the full potential of those areas can be attained, the company would be in a position to generate over 400 MW of electricity, at the cost of an investment it estimates at nearly $2 billion.

But access to the properties is not enough.

Each individual property, whether it consists of six dunams or 600 dunams, has to be shepherded through a process of rezoning, licensing, certification, building permits, Israel Lands Authority (ILA) approval for large solar fields, and negotiation with the IEC, Israel’s electric company.

And even if that process is successfully accomplished in each case, if APC were to grow beyond that point, it would risk running afoul of a national quota of 500 MW on large solar energy fields and 300 MW on medium-sized fields, despite a government decision, adopted in January 2009, which determined that 5 percent of Israel’s energy should come from renewable sources by 2014 and 10 percent by 2020.

A feed-in tariff is a policy mechanism designed to encourage the adoption of renewable energy sources by guaranteeing producers of electricity from renewable sources grid access along with a purchase price of electricity that is typically higher than the cost of producing electricity from non-renewable sources.

The Public Utility Authority approved a general feed-in tariff plan for Israel in June 2008.

Feed-in tariffs are needed because solar energy production is currently more expensive than electricity production using non-renewable energy sources. There are three main types of industrial-strength solar energy generation technologies. The solar thermal tower method and parabolic- trough system both ultimately generate electricity thermally by heating liquids in order to run turbines – the latter method by shining sunlight onto liquids pumped through pipes located between parabolic mirrors, and the former by concentrating sunlight directly onto one focal point by spreading a large field of flat mirrors surrounding a large tower.

The photovoltaic (PV) method works on entirely different principles. PV cells, usually placed in flat panels turned towards the sun, convert sunlight directly to electricity using the photoelectric effect, which was first explained by Albert Einstein and for which he was awarded the Nobel Prize in 1921. PVs have significant advantages over the thermal methods. No large-scale turbines need to be constructed for PV cells. PV light collectors needn’t be located on level ground, and can work in rugged landscapes.

PVs, however, are relatively expensive because the materials out of which they are constructed are not cheap. Ongoing laboratory research aims at finding cheaper materials out of which PV solar panels can be made.

APC chose to work with PV technology because it causes no emissions or smoke, makes no noise, and uses no water. “The solar panels we use are made in China,” says Abramowitz.

“We are a green utility company, not a technology company, which is an advantage because we are not married to one technology solution.

We can make use of the best off-the-shelf technology available at the time. Prices will come down as technology improves.”

THE GOVERNMENT IN 2009 adopted a system composed of feed-in tariffs and quotas. The feed-in tariffs, originally set on a scale starting from 1.49 shekels per kWh, but later reduced to a figure closer to 1 shekel per kWh from medium and large solar fields (defined as those producing more than 5 MW), are significantly higher than the average cost for producing electricity from coal and gas, in order to enable renewable energy companies to make a profit. The national quota is intended to ensure that the overall cost of the feed-in tariff, which amounts to a subsidy for boosting the renewable energy sector, does not exceed a basic ceiling.

The entire system, however, was called into question by the Finance Ministry in February, when it used a regularly scheduled review of the 2009 law to insist on an entire reassessment of the costs of power generation from renewable energy, citing a formula that called for feed-in tariffs as low as 0.40 shekels per kWh. The Treasury calculations were based on a 0.28 shekel per kWh for coal production of electricity, plus an additional 0.12 shekels to take into account the cost of pollution from coal. The National Infrastructures Ministry and the Environmental Protection Ministry both opposed the Treasury’s position, setting up a conflict that has yet to be resolved. Until a resolution is attained, all licenses for large solar fields are effectively frozen, although licenses for medium-sized fields – which includes the field at Ketura, which at 4.9 MW just manages to sneak under the 5 MW bar beyond which a field is considered a “large field” – were unaffected.

“National Infrastructure Minister Uzi Landau had the original quotas and tariffs system reinstated by raising the issue for a re-vote at the Ministerial Committee for Promoting Renewable Energy,” says a source in the National Infrastructures Ministry. “We thought that ended it, but the Treasury opposed it so strongly that it filed an objection at the Prime Minister’s Office. The prime minister has referred the matter to his economics adviser, asking him to find a compromise. Right now, that is where things stand.

“We find it difficult to conceive how a policy that differs from the original one will help us meet the goal of 10 percent renewable energy.

The Treasury’s position puts a halt to the entire solar industry in Israel.”

Prior to the freezing of licensing, the Public Utilities Authority granted about 90 licenses for solar power generation. It has also licensed for over 500 MW of renewable energy sources in total, with half of that from solar power, and the rest from wind, biogas, biomass and hydro installations. The National Infrastructures Ministry and the ILA have continued to publish land tenders for solar fields in the Negev area, not waiting for the outcome of the dispute between the Treasury and the National Infrastructures Ministry.

Yarom Ariav, former director general of the Treasury (now managing a private consultancy) tells The Report that he believes the Treasury is fighting the wrong battle in trying to tamp down tariffs for solar energy. “Israel has an advantage in solar energy potential, and we need to make full use of that,” he says.

“Astudy I conducted shows that the tariff subsidy is actually much less than it may appear at first sight. First of all, solar energy production greatly overlaps peak demand hours, making it an attractive source. Secondly, taking into account the environmental impact [of carbon-based energy production] makes the cost of non-renewables high. There are additional advantages to promoting solar energy.

It strengthens our energy security, increases domestic employment, and spurs our research and development.”

In his report, jointly written with Dr. Meir Amir, Ariav notes that the costs of solar energy production have dropped by 85 percent over the past decade, with further gains in cost efficiency expected to continue. He also laments the fact that Israel is falling behind other countries, such as Germany, Spain, Italy, and Japan, in the race for establishing renewable energy sources. Given that the solar energy industry is still in its infancy, Ariav advocates the government taking positive steps to help it achieve its potential.

“I feel like I’ve been to Chelm and hell, and back,” gripes Abramowitz, expressing his frustration with the bureaucracy. “Solar energy overlaps with peak hours of electricity use, 80 percent in the summer and 75 percent in the winter. We can have five percent renewable energy in this country by 2014, and can then get to 10 percent and even 20 percent in a short time period. We are talking about a potential $2 billion, made-in-Israel pipeline of 500 MW of energy. But to be competitive with other places in the world, to bring in the investment needed, we need a tariff of at least 1.49 shekels per kilowatt hour.”

There have even been calls for doing away entirely with the quota system. “What we would really like to see is a system that does not impose strict quotas,” the source at the ministry tells The Report. “Instead, we would institute a sliding scale of feed-in tariffs, with the tariff gradually reduced the more electricity a renewable field or plant generates, without a quota limit. That would achieve several aims at once: it encourages only the most efficient companies to compete in the industry, it spurs them to attain the greatest efficiency as quickly as possible, and it reduces the price we need to pay, overall. That is the quickest way we can get to renewable energy production.”

The expectation that efficiency gains will rapidly reduce the price of solar electricity production, however, is used by the Treasury as an argument against committing now to long-term feed-in tariffs. “Despite predictions indicating technology-driven cost reductions in the future, entrepreneurs in this field keep pressing for more quotas at higher tariffs,” says Horn, the Treasury spokeswoman.

“Noting that tariff rates granted to these entrepreneurs will remain unchanged for 20 years, the economic damage this will cause [by burdening citizens with high electricity costs] will be long-term. That is why we recommend waiting for the technology price to fall before making commitments.”

Rosenblatt, the co-founder and vice chair of APC, views it very differently. “The solar industry is asking for certainty for its business based on existing government policy and has loudly and clearly made it known that the industry would accept lower tariffs for longterm stability,” Rosenblatt tells The Report.

“This position benefits rate payers the most.

Today, the ministry has no choice but to act out of desperation and give the Israel Electric Corporation a blank check to fire up expensive and polluting diesel and jet fuel-powered generators during peak hours to provide electricity – exactly during the hours when solar can help most. Add to that the on-again, off-again Egyptian gas cut-offs and long-term stability, and growth for solar is not just good for the industry but it should be an absolute priority for the Finance Ministry.”

Ronsenblatt claims that at peak hours, by his calculation, solar energy is already cheaper than what the IEC is paying today. He estimates a 2 shekels per kWh cost for the IEC during peak hours when Egyptian gas supplies are disrupted – as they have been at least twice over the past several months – which he compares to the 1.49 shekels per kWh tariff that the Ketura solar field will receive. When APC launches a larger 40 MW field next year, they expect the price to be as low as 1.08 shekels per kWh.

“We are talking about $2 billion in investments,” says Abramowitz, “with all that that implies in terms of jobs and infrastructure.

How can the Treasury not take that into account?” Having come this far, overcoming hurdles raised by the Prime Minister’s Office, the ministries of Infrastructure, Agriculture, Interior, Environment, Housing, Negev/Galilee, and Trade and Industry, the Public Utilities Authority, the electricity governing board, the IEC, the ILA, regional councils, rezoning bodies and the Israel Defense Forces, Abramowitz appears as determined as ever to push forward, despite what he describes as “the great battle” against the latest Treasury attempts.

“We are going to generate solar power in Ketura,” he asserts. “We will do it even if it means that at the same time we will be carrying megaphones and signs protesting the attempt to kill off the solar energy industry in this country. The launch [of the Ketura solar field] is going to become a political rallying cry.”

On the medallion issued to mark the launching of the Ketura field, Ben-Gurion appears almost preternaturally serene. In his life, however, he was no stranger to stormy political disputes, and did not shy away from taking bold decisions. One can only wonder what he would say about the current dispute over the future of the solar energy industry.

Ziv Hellman,