Building Israel s Cleantech Independence Glenn Yago Director Milken

Building Israel’s Cleantech Independence Glenn Yago Director, Milken Institute, USA Prepared for: Globes Conference 2009 Cleantech from Copenhagen to Jerusalem December 13, 2009

“Towards Energy Independence” over the years Nixon: “In the year 1980, the United States will not be dependent on any other country for the energy we need. ” First World oil crisis 1973 Source: EIA. Ford: “We must end vulnerability to economic disruption by foreign suppliers by 1985. ” Obama: “Eliminate our current imports from the Middle East and Venezuela within 10 years. ” Carter: “This nation will never use more foreign oil than we did in 1977… never. ”

60% of all U. S. oil consumption came from foreign countries in 2008 Imports: 9756 barrels daily 59. 2% Source: British Petroleum Statistical Review 2009. Domestic production: 6736 barrels daily – 40. 8%

Oil reserves are concentrated in the Middle East Billions of barrels 2008 1980 Source: BP Statistical Review of World Energy, 2009.

: Beta Sites Building New Markets at Home for Abroad כיצד יוצרים שוק ראשוני וחדשני בישראל? • הנהגה והובלה ממשלתית • רגולציה ממשלתית – עידוד חדשנות )כגון הקלות במתן אישורים לחדשנים( • מימון – ) Growth equity (late stage – High risk project financing • מינוף תעשיות הידע הקיימות והפוטנציאל היזמי המקומי

Partnerships שותפויות • מיצוב לאומי ובינלאומי של ישראל כמוקד לשיתוף פעולה • שיתוף פעולה עם ממשלות זרות: – – מימון פיתוח הטמעה/ניסוי הדגמה • חדשנות בשיתופי הפעולה

מבנה המימון לתעשיות עתירות ידע : כלי שוק פרטי Stock Exchange & Banks Strategic Partners Private Equity Mezzanine Growth Equity Venture Capital Angels : כלי מדען ראשי Incubators Academia Seed R&D Grants Early Stage ד Late Stage Maturity

התפלגות ההשקעה לפי שלבי הצמיחה בישראל וארה"ב Source: Pricewaterhouse. Coopers’ Money Tree Reports

חברות תעשייה עתירות ידע מספר חברות בוגרות הייטק ) (ICT 009, 2 054 ביוטק 000, 1 57 004 54 Bio-Pharma Medical Devices קלינטק מקור: IVC

Diversification & Specialization VC Investments by Industry – 2008, Israel Total VC Investments $1. 4 Billion § 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. Source: Pricewaterhouse. Coopers’ Money Tree Reports

Source: Environmental Law Institute. Oil receives more subsidies than alternative energy

Global investment in new clean energy US$ billions Source: New Energy Finance.

Funding challenges for Alternative Energy Public grants and tax incentives Valley of death Angel investor Technology incumbent Venture capital Seed/ Start-up Third generation - R&D - Initial investment in demonstration projects Early stage Second generation - Achieve commercial-scale operation - Bringing down costs - Further investment in facilities Funding challenges Source: Milken Institute Project finance Expansion Late stage 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

The Water-Energy Nexus Source: Y. Cohen, UCLA Water Center, 2009

Market Failure I: Cleantech Water Finance Valley of Death • 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 highrisk/early stage projects The Cash Flow Valley of Death- as a function of development stage (Enhancing Commercial Outcomes from R&D, 2007) Source: NREL, 2008

Market Failure 2: Water Project Finance International Private Investment in Infrastructure US$ billion 1990 -2009 Sources: Ti Le-Huu, Sustainable Development and Water Resources Section, UNESCAP.

A Shift in Water Resources & Management Paradigm Source: Y. Cohen, UCLA Wa. Te. R Center, 2009.

Alternative Energy Issues Additional Information

A perfect day for biofuels… 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 Energy Security • Insufficient domestic supply • Oil supply primarily in unstable regions Environmental • Carbon emissions • Offshore drilling • Green legislation Source: CERES. Pressure to create a significant, renewable, domestic source of liquid fuels

The advances in biofuels technology is game changing Average U. S. Corn Yields Bushels/Acre Biotechnology Single-Cross Hybrids Open-Pollinated Source: USDA. Double Cross Hybrid genetics & biotechnology have driven a five-fold increase in average U. S. corn yields since 1940.

Oil and biofuels: Two different business models Biofuel - High entrance barrier - High initial investment (for lease and facilities) - Low (and stable) marginal cost once scalability is achieved - 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 Cost per unit Oil Units produced Source: Milken Institute.

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

Infrastructure and energy represent 15 % of ARRA Total measures worth $787 billion Energy $49. 7 B Other stimulus $646. 4 Infrastructure $80. 9 B Source: The American Recovery and Reinvestment Act of 2009.

Energy expenditures within ARRA Other $3. 7 B Energy efficient smart grid $4. 5 B Energy efficiency and conservation grants $3. 2 B Advanced car battery $2 B Transmission lines $6. 5 B Energy efficiency research $2. 5 B Carbon capture experiments $3. 4 B State and local energy Investment $6. 3 B Federal building Efficiency $4. 5 B Weatherizing medium income Homes $6 B Source: The American Recovery and Reinvestment Act of 2009. Radioactive cleanup $6 B

$16. 8 billion designated for the Office of Energy Efficiency and Renewable Energy DOE Recovery Act Funding: $36. 7 billion Others - $3 billion Energy Efficiency Research $2. 5 billion 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 Source: The U. S. Department of Energy. -