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Neil Auerbach, the Founder of the Hudson Clean Energy Partners Fund, that will participate in The Marker's Green Economy Conference, claims that Siemens purchased the Israeli solar energy company at an exorbitant price. According to him "Israel is still not attractive to business, and the government is not doing enough to deal with the bureaucracy"
By Avi Bar-Eli
>>"Israel has a lot of sun, it is a promising country, but it is still not attractive to business. In order to transform the promise to reality there needs to be a real effort to focus all of the bureaucracy in infra-structures in favor of encouragement of investments" – said Neil Auerbach, Founder and Manager of the Hudson Clean Energy private investment fund.
Auerbach, who will arrive in Israel in about a week for the Green Economy Conference, organized by the Ernst & Young firm in cooperation with TheMarker, follows the developing Israeli energy market from New York. According to him, the changes in the market are too slow: "Israel is a country washed in sun in which there is high demand for electricity at peak hours, and solar energy can be a perfect solution. "However, the regulation in the solar sector is still not
complete, and many of the issues which I raised in past conversations with Israeli business people still have not been dealt with. The tariff to produce solar electricity is not relevant – the bureaucracy is the material issue, and this is the situation in many other countries".
"The Government in Israel does not do enough"
In 2000, Auerbach became a Partner with the Goldman Sachs investment bank, and in his seven years there he founded the alternative energy investment branch, and was responsible for the three most profitable investments of the bank – in the wind power producer Horizon and the solar energy giants Sun-Edison and First Solar.
About two years ago Auerbach resigned, together with two of his deputies, and established Hudson Clean Energy. Poalim Capital Markets, the Australian Bank Macquarie, the Wolfson family of New York and Credit Suisse were seed investors in the fund. According to estimates, the fund raised approximately one billion dollars in the past year, which it intends to invest in companies and projects in the fields of renewable energy, alternative fuels, and in energy efficiency and energy storage.
Auerbach explains that "Hudson is looking for companies in the global renewable energy industry that have three central attributes". The threshold condition that he enumerates is more characteristic of mature companies in developing markets: "a strong management team, with preference for a team with prior significant experience in the renewable energy industry; distinguishable technology, product or combined strategy that responds to the needs of a target market; and actual income, with a realistic forecast for increase in sales and growth in EBITDA".
Are there companies in Israel that are likely to meet these criteria?
"The technological capabilities of Israel are known worldwide. Many companies present promising developments, but only the local solar energy industry is strong enough to attract capital for all stages in the value production chain, and therefore I think that development of such an industry will benefit the Israeli economy overall. We believe that with the personal capital in Israel and the potential of the sun there is a chance to produce an industry. At the moment, this is still in its infancy and still not realistic".
Where else does such a possibility exist?
"In the United States, Germany, Italy, France, Spain and China – which will probably speed up its entrance into the field, because it understands the need for clean, efficient and profitable energy. In addition, potential markets are developing in Japan, the Czech Republic and Greece".
What about Solel, that was recently purchased by Siemens?
"We do not need this transaction in order to prove the point that an Israeli company can succeed in the global renewable energy industry – Ormat already clearly proved this. I expect that other Israeli companies will also succeed in the upcoming 5-10 years.
"However, I think that the Israeli government does not do enough in order to encourage the growth of its renewable energy industry. Despite the fact that the market is small supporting it will strengthen the understanding that Israel is taking concrete and bold steps to adjust its energy infrastructure to two challenges – climate changes and energy assurance".
What do you think about the purchase price, 418 million dollars?
"Although the estimate of Solel is exorbitant, and in my opinion this is a gamble of Siemens not only on the future of Solel but also on the solar-thermal industry in general. Siemens is gambling that Solel will become the leading supplier of contract projects for developers of thermal-solar power stations; it is gambling that it will succeed in improving the ration of cost-benefit by offering a better value than any competing technology in the concentrated solar energy field and it is gambling that the development of Solel for pipes in thermal-solar facilities will remain strong worldwide, especially in the United States.
"In addition, Siemens believes that the Desertec project – coverage of the Sahara desert with solar power stations that will supply 15% of energy requirements to Europe – is really likely to succeed and yield significant fruits that will better ensure justification of the purchase of Solel".
"There are countries that are doing it right"
Auerbach, a resident of New York aged 50, is the son of a former Israeli that fought in the War of Independence and was even among the forces that broke through the road to Jerusalem. He regularly visits his family in Israel and he is well connected in the Israeli market. Maybe for this reason he does not hold back in his criticism of regulators in Israel, and his anger is blended with personal disappointment.
Despite the bureaucratic barriers, it must be remembered that solar energy is relatively expensive, and requires government subsidy.
"The industry is developing. This is a young technology that shows an annual growth curve of 60%, with each multiple in the scope of production, a parallel decline of 20% in costs is recorded. The best indication of this is that today a solar system is more attractive than peak stations (highest demand) that are derived from natural gas, and this is with a very modest subsidy, which in a few years will no longer be required. "When you invest in your natural environment, the price that you pay is lower, and it will further decline over time. It must also be remembered that investment in solar energy is more secure today, and in contrast to fossil fuels there is no variable fuel costs. It is possible to turn to the capital market when all of the expected costs are before you and to receive long-term financing at a fixed interest rate – this is important to consumers. "It must be understood that today there is global competition for capital in order to attract it to local industries lead to growth. The financial crisis brought rationalization in the marketing of solar systems, and the prices dropped in the last 18 months. Therefore it is even more worthwhile, because the profit margins are growing and the investment in the field is more attractive."
How do you see the regulatory debate in Israel between the promotion of photo-watt technology versus thermal-solar?
"I don’t understand why it is necessary to make a choice here. They are different technologies, and the investment in both together is logical. They compete in the use of fuel, not against one another".
What about the dispute between the supporters of the licensing system versus publication of tenders?
"The Feed-In Tariff model was very successful in Germany and in Spain, and now is also starting in California. Government tenders are an awkward and unsmooth process, whereas a properly designed incentive model can work better with minimum bureaucracy delaying the process.
"Germany will be responsible for 45% of the solar installations in the world this year. There are countries that do it right, and it is a pleasure to do business in them".
Other than regulation, how will the renewable energy sector survive the credit crisis?
"There is no doubt that the crisis affected the market. Everything slowed down, offerings were stopped and a sort of large traffic jam in which it is impossible to move was created. The crisis is still not behind us, but the traffic jam freed up a little.
"There is an improvement in bank credit policies, however there is not yet a return to full credit policies. We see a significant improvement in the price of capital and stability in commodities prices. The atmosphere indicates improvement and I hope it will continue".
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