It took years to develop, but Israel's young solar market is poised to accelerate if some needed grid upgrades come through.

After considerable pushing by a band of scrappy homegrown developers, solar power now delivers around 5 percent of the small country’s electricity generation, according to the Energy Ministry, as Israel chases a renewables target of 10 percent by 2020. That capacity is smaller than one might expect for a self-contained grid in some of the driest terrain in the world, which receives more than 300 days without rain even in its wettest regions.

Projects move slowly here, and navigating the web of intermingling bureaucracies requires a special kind of patience.

Recently, though, the pace has started to quicken. Reforms of the Israel Electric Corporation, the publicly owned utility, bifurcated generation from the wires business, and the government has prioritized grid improvements to give new solar generation a route to market.

The switch from a quota-based feed-in tariff system to competitive auctions portends downward pressure on price, which is better for customers, if not for the margins of local developers.

And the next phase of renewables targets means there’s more building to come.

“Even to reach our 17 percent target for 2030, which is not a very ambitious one, we need to construct around 6,000 megawatts of installed capacity of PV,” said Udi Adiri, director general of the Ministry of Energy, in a recent interview with GTM. “This is going to happen in Israel in the next six to seven years, if you want to be there by 2030 with everything in production.”

Other Middle Eastern countries drive more solar headlines with massive tenders and record-low prices, not all of which come to fruition. Israel’s slower-paced market hasn’t received that kind of international scrutiny, but it has nonetheless built itself into a significant business opportunity, with more than 1 gigawatt installed already and a region-leading distributed generation market.

Reaching the country’s deployment goals will require executing on the planned grid improvements and clearing up some of the murkiness around land use and permitting that has largely deterred foreign companies from entering.

Energy system in transition

After years of monopoly rule by the Israeli Electric Corporation, the power sector has entered a period of reform.

Independent power providers, including solar plants, can now supply electrons to the grid. The coal-burning units are winding down, while gas ramps up, following the discovery and exploitation of offshore sources in the Mediterranean. The Tamar and Leviathan sites generated excitement in Israeli energy circles because they promised greater self-sufficiency for a geographically isolated energy system.

“The state of Israel is an electric island; it’s not connected to any grid,” said Yiftah Ron-Tal, chairman of the IEC, at the Eilat-Eilot Renewable Energy Conference in Israel’s southernmost city last week.

As of 2018, coal is down to 28 percent of the electricity mix, natural gas is up to 66 percent and renewables make up the difference.

Solar contracts, too, are becoming more competitive.

Previously, the government issued quotas with a fixed tariff for whatever generation was produced. Currently, the government is finalizing its first transmission-connected solar auction. Without a set compensation rate or capacity size, the onus is on developers to bid at their most competitive level.

Solar markets benefit from predictability, which was lacking in the earlier system of occasional bursts of quotas. To make future deployments more streamlined, though, the grid needs an overhaul.

The IEC built the network to carry generation inland from large, centralized plants on the coast. The best solar resources are inland and south, in the Negev desert, and the eastern Arava, between the Dead Sea and the southern port of Eilat. These sparsely populated zones need substations and transmission lines to carry their bounty north to the major cities.

“The grid today between the central part of Israel and the south part of Israel is good enough to supply our needs, but not good enough to construct hundreds and hundreds of megawatts in the south part of Israel,” Adiri said.

The IEC has already approved a plan to double the transmission capacity from the Negev to central Israel. That should be done by 2023, he noted, albeit with the caveat, “In Israel, infrastructure projects will take a long time.”

Some large projects are already in motion that will get the renewable share to 7 percent, Adiri said. The government will make up the rest of the target with rooftop solar, which doesn’t need to wait for transmission upgrades; it opened up another 500 megawatts for rooftop generation in October.

The ministry will finalize an energy storage strategy in the coming year, to determine what resources will be needed to time-shift and integrate the intermittent renewable production. There’s also an effort to make all new vehicles sold in the country electric by 2030, and an expectation that by 2040 about 80 percent of electricity will come from decentralized sources rather than the big power stations, Ron-Tal said.

Distributed leader

Israel’s residential and commercial solar market sets it apart from its neighbors, which have largely initiated their solar industries through massive centralized tenders for enormous desert plants.

One difference is that, until the recent discoveries, Israel never had any abundant local fossil fuels to offer its populace. Instead, solar water heaters dot nearly every residential roof and solar PV offers real savings.

Helped by a recent streamlining of the permitting process, and average bill savings between 12 and 33 percent, the distributed market is on track to surpass 2 gigawatts of cumulative installations in 2022, said Benjamin Attia, a Wood Mackenzie analyst covering solar in the Middle East.

“In a region mostly driven by top-down, one-off, very competitive utility-scale tenders, Israel represents one of the few distributed generation growth markets,” he noted.

That bolsters the Energy Ministry's claim that distributed solar will close the distance to the 2020 goal. That requires building in a hurry, which means a relatively new style of deployment could take a larger role: floating solar.

Placing solar panels on existing reservoirs streamlines the otherwise lengthy process of rezoning other land for energy production. In a country where water is rare and highly valued, floating arrays block some of the evaporation that would otherwise occur.

One of the country's first commercial floating PV plants, 278 kilowatts equipped with DC optimizers and inverters from Israeli company SolarEdge, went live in October, atop an agricultural reservoir at Kibbutz Ashdot Ya'akov Ichud, south of the Sea of Galilee.

Developer Ofer Yannay, founder of early commercial solar entrant Nofar Energy, said floating projects provide a rare point of agreement among stakeholders, which means developers can move fast.

“If you want to do it on land, it takes you years; if you want to do it on water, it takes you months,” he said.

The uniformity of the aquatic surface contrasts positively with the obstacles that pop up on roofs or plots of land.

“It is so much fun for us to build this stuff,” Yannay added. “Just put it in, then you put in some more; it’s so simple.”

He has another 20 megawatts of floating PV contracted with the local agricultural union, but he estimates the nationwide floating solar potential at around 2 gigawatts. Another developer pegged it at 1 to 1.5 gigawatts. If those numbers bear out, Israel would become a rare major market for floating PV, which shines in places with scarce or expensive open land.

"That's dreaming big, but within the realm of the possible," said analyst Ben Gallagher, who tracks this technology at Wood Mackenzie.

For context, his research indicates 2017 saw only 100 megawatts of floating PV installed worldwide, and cumulative global installments now have reached around 1 gigawatt.

Intricate dynamics

Evolving as it did out of socialist agricultural communes known as kibbutzim, Israeli society remains quite centralized in terms of state control of resources. Solar developers in particular must navigate a complex and enigmatic web of interlocking agencies and jurisdictions if they want to get anything done.

Thus, the nation’s largest solar plant, Ashalim, began development as early as 2002 and will only reach full operation in early 2019. Selected from the hottest bids of 2012, the government-backed development in the middle of the Negev features a 121-megawatt solar thermal power tower plant, a 121-megawatt parabolic trough facility with molten salt storage, and a 30-megawatt conventional photovoltaic field, all right next to each other.

In the time it took to finish the project, PV module economics swamped the other two technologies like Pharaoh’s army in the Red Sea, and the PV contract winner, SunEdison, vanished like the Ark of the Covenant.

Solar development requires navigating numerous government bodies. The state owns 93 percent of the country’s landmass, so projects must work with the Israel Land Authority, which manages those lands. Siting requires a delicate dance around natural conservation areas, agricultural land and military training zones. The Ministry of Finance, the Energy Ministry and the regulators at the Electricity Authority all have influence over solar contracts.

Thus, explained Yuval Zohar, head of policy planning and energy security at the Electricity Authority, an upcoming tender for 300 megawatts in the Negev town of Dimona will remain upcoming pending the completion of: a sand-mining operation, to extract useful sand resources from the area; construction of a substation and accompanying wires upgrades; relocation of an oxygenation pond; and scrubbing the landscape of duds, also known as unexploded ordinance.

A desired future tranche of the project hinges on the possibility of relocating the Orly Cactus Farm, which grows prickly pears.

No timeline has been fixed for the Dimona plant.

In the time it took to build the solar thermal power station at Ashalim, seen here in final commissioning, the economics of conventional PV surged ahead. (Photo credit: Julian Spector)

Homegrown versus global

Navigating these complexities all but requires foreign renewables companies to leverage Hebrew-speaking local agents who can navigate the bureaucratic and geopolitical tensions. Indeed, Israel’s solar market started off as a largely homegrown, decentralized business, with kibbutzim in the Arava, not the national government, leading the charge for clean energy.

The Eilat region sources 70 percent of its daytime power from renewables, while the country overall only clocks a few percentage points.

“The idea is you have to show what is possible,” said Josef Abramowitz, a solar advocate who helped pioneer the Israeli industry as a founder of Arava Power, and more recently focused on African development with Gigawatt Global and the Power Africa initiative.

The small scale of early projects wasn’t enough to entice big global developers, but it incubated a cohort of local professionals better than a jump to large tenders would have. A new industry cannot leap from zero to hundreds of megawatts overnight; it has to work up to scale.

Israel now appears to be shedding its insularity and reaching for the internationalized tenders common in the region.

From Abramowitz’s perspective, the shift from first-come, first-served licenses to reverse auctions prematurely squeezed the developers who scraped an industry together during the tough early years.

“There used to be dozens of companies. We had a democratization of the energy market; it was very exciting for a brief moment in time,” Abramowitz said. “And then it's only...[a] handful that have access to really dirt-cheap capital that can play in this market.”

“The local development market has been royally screwed,” he added.

Others see the market shift as a promising sign for delivering affordable, clean power to Israeli customers.

“We believe in competition; we are very welcoming of foreign companies to the electricity market,” said Adiri, from the Energy Ministry.

There’s a tension at play between what’s good for electricity customers (cheap, clean power) and what’s good for the solar industry (contracts without significant margin compression; more local jobs and revenue). There’s no reason those two forces can’t find an equilibrium, but the downward market pressure seems to be winning out.

Some local developers, concerned about gaining an adequate return on forthcoming projects, have already sold off their pipelines and shifted away from utility-scale work, WoodMac’s Attia said.

“Project returns for some of Israel’s early utility-scale projects were very high, and I think increasingly we’re seeing a realignment of expectations of returns from both the Ministry and from developers as costs come down globally, despite the higher-than-necessary local development costs,” Attia said. “I think we’ll see utility-scale deployments led by large players with local entities and know-how in the future.”

This transition won’t benefit all market participants equally, but it does serve the cause of total installed clean capacity.

Editor's note: Foreign reporting for this article was conducted with travel and logistical support from the Israel Export and International Cooperation Institute, a Tel Aviv-based nonprofit.