Takeaways from Extantia’s trip to Israel — Part II
At Extantia, we are on a mission to mobilise all market players and catalyse the transition to a sustainable economy. Trust us, it’s easier said than done. One might be surprised how many other individuals, organisations, and governments are actually starting to walk the talk.
To advance towards our goals, we took the time to meet many Israeli players that are crucial for pushing this goal forward. This includes key industry leaders such as regulators and wealth managers as well as established companies on their decarbonisation journeys. The next takeaways are closely related to this part of the journey. Shall we jump right into it?
TAKEAWAY 2: SCALING IS THE NAME OF THE GAME.
2.1. Entrepreneurs need to focus on scale.
To address the climate crisis with speed and scale, we need deep tech solutions. Deep tech startups, by definition, develop high-tech innovation in engineering or significant scientific advances. In other words, scientists invent breakthrough solutions, and engineers bring these technologies from grams to tonnes. And they need to move fast (considering the climate crisis and current macroeconomics).
With that said, scaling is one of the main challenges climate tech startups face. To understand the magnitude of this challenge, let’s compare the hydrogen production of H2Pro and Bazan, one of the largest and most complex energy groups in Israel. In early 2021, H2Pro’s initial lab prototype had the capacity to produce about 100 grams of hydrogen a day, according to Bloomberg. H2Pro has been working to increase capacity to 1kg/day. In comparison, the Bazan Group has a production capacity of up to 8 tonnes per hour (2020 numbers). This is 192,000 times more! If we are to replace Bazan’s grey hydrogen with H2Pro’s green hydrogen then this is the scale it needs to grow to. Below you can see what a real utility scale looks like.
And here is another example. We visited the Ashalim power station, a solar power station in the Negev desert. It consists of three plots with three different solar technologies; parabolic trough, solar power tower, and photovoltaic. This huge solar farm that can even be seen on a sunny day from space produced last year a bit more than 700GWh, which is not even 1% of the entire Israeli electricity consumption. So imagine what it takes to cover the entire energy demand!
Closely related to scaling, having focus is also another major challenge for deep tech founders. Some of the climate tech developed could have a wide range of applications and it can be rather tricky to narrow down to the ones that show the most potential. How can entrepreneurs be sure that their technologies will work well after scaling, creating a substantial climate impact? How can these founders ensure their business models are accurate and address the market needs now and in the near future?
When scaling, the Brenmiller team had to choose the location for its market expansion, define correctly the customers and the value proposition, define the characteristics of their new factory in Israel and ensure supportive regulation. If you think about it, scaling and having laser focus are not simple tasks, but many different challenges combined under the same umbrella.
2.2. The startups need scale AND speed. One alone won’t cut it.
Speed needs to be top of mind for founders. If there’s a market for their solutions and their tech is ready to be deployed, then it’s time to acquire clients and aim for exponential growth. By definition, that’s what scaling means.
One way to reach this goal is to work closely with well-established companies committed to decarbonising their activities. They often have ambitious decarbonisation goals they need to meet, showing a willingness to work with innovative tech. When aligned in their long-term visions, climate tech startups and traditionally high-emitting companies can be a match made in heaven, as Prof. Francesco Pomponi, our Head of Carbon Math elaborates further.
“Only dreamers with limited understanding of today’s interconnected global economy can think we can switch off an industry overnight. All high-emitting sectors (construction, steel, cement, concrete, transportation, etc.) have established supply chains and supply routes, routes to market, huge customer bases, significant infrastructure etc. This can be a dream partnership for climate tech founders who are solving a real problem for this industry,” Francesco says.
“If someone cracks down the way to decarbonise cement it would be very silly not to engage with the cement industry, for instance, as that industry would be out of business and thus have a strong interest in collaboration and meaningful partnerships. The risk I see here is that of staying true to the original mission of a climate tech startup (save the world, isn’t it?) and be bold enough to stay away from corporate greed and vested interests.”
In Israel, we saw two great examples of this type of collaboration: ICL — Dead Sea Works, a leading global minerals company, and Bazan Group. The two companies are part of the biggest conglomerates in Israel. Even though some of their business activity is creating excessive environmental damage, they are also making a big effort to offset their impact and become greener. How so?
ICL has launched the “Green Sdom” Program aiming at reducing and offsetting the entire emissions of their operations in the Dead Sea by installing a 1GW (!) of solar installation, coupled with a 600MW electrolyser and the first ever high-voltage, direct current (HVDC) transmission lines in Israel that will take the renewable energy into their plant. The program is expected to be fully operational by 2035, and be the host of several test beds for new startup technologies. Good luck — excited to see this ambitious plan coming to life!
Bazan has a dedicated innovation division, which is hosting the pilots of several climate tech startups. Some of them got equity investments from the company directly or through ESIL, the innovation lab supported by the Israel Innovation Authority in partnership with EDF renewables & Johnson Matthey. The startups in their innovation courtyard are getting services like access to hydrogen or other flue gases, engineering advice and services and more. Additionally, they are launching the first hydrogen-based fueling station & some other projects.
Those efforts are impressive, despite being only “a drop in the sea’’, but they pave the way for more innovation and acceleration. High-emitting companies committed to net-zero goals not only create demand for these climate technologies but also help founders tackle the scale-up challenge. They have the resources and know-how that can be extremely useful to founders when dealing with scaling challenges. To tackle the complex issues of building a decarbonised economy, these players must collaborate and focus on nurturing promising solutions.
What’s your take on receiving investments or working side-by-side with companies from high-emitting sectors? If you were an entrepreneur, how would you tackle the scaling challenge without the money and infrastructure of big companies? Most importantly: Who has a bigger climate impact: an entrepreneur trying to change the world or a utility engineer adopting new technologies?
