Challenge: Alternative Proteins
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Numbers: 45 companies of which 42 are startups (6% of all startups). These startups have raised a total of 364 million USD.
Technology Showcase: 5 startups in cultivated meat/dairy, 10 in fermentation, 21 in plant-based proteins. The number of startups is growing rapidly each year and investments increased 11- fold (1140%) between 2018 and 2021. Of the 42 startups, 34 were established from 2016 onwards, and 15 of these were established in 2019 and 2020. Four alternative protein companies are publicly traded on the Tel Aviv Stock Exchange (2 cultivated meat, 1 plant based protein and 1 fermentation company) which serves as a means to raise the capital needed to support the long path to market, even prior to commercialization.
Why Cultivated Meat? The traditional meat industry is responsible for high levels of greenhouse gas emissions (directly from livestock and indirectly through growth of livestock feed) in addition to its disproportionate use of resources such as land and water. As global demand for meat is not expected to decline, cultivated meat can provide a source of complete protein, valuable minerals, and vitamins while drastically decreasing emissions, water use and land use. One of the primary challenges for cultivated meat is to reduce the costs, such that it will be cost-competitive after scale-up.
Why Israel? Cultivated meat companies were established in Israel as early as 2015, and have raised 185 million USD, 51% of the total funding for Alternative Protein startups. Israel ranks second in the world (after the United States) in the total number of fermentation and cultivated meat companies.18
Challenge: Clean Energy Systems
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Numbers: 235 companies of which 119 are startups (18.6% of all startups). These startups have raised a total of 2 billion USD.
Technology Showcase: Of the 119 startups, 23 (20%) are solar energy companies, 34 (29%) are energy storage companies, and an additional 30 (25%) provide ‘software only’ solutions for energy management.
Why Energy Storage? Energy storage enables mass implementation of intermittent renewable energy such as solar, wind and waves. Storage makes it possible to better balance electricity supply with demand, enhances flexibility, reliability, and resilience of centralized and micro-grids, and can be deployed to avoid costly new transmission infrastructure and peaker plants. Electrification, widespread use of renewables, and behindthe- meter solutions have led many nations to increase the availability of financial incentives for storage investment.19 Li-ion batteries are the dominant and most cost-effective form of storage for mobile applications such as EVs but have limited performance and limited (and not always sustainable) raw material sources. Innovative solutions are required to increase capacity, improve performance, enhance durability (especially for grid-scale storage) and develop effective long duration energy storage, from 10 hours to several days, at scale. Storage innovations (based on technologies such as electrochemical, mechanical, thermal, chemical carriers, or any combination of these) will typically have multiple revenue streams, through deployment in an array of stationary and mobile systems.
Why Israel? Israel has a growing population of startups with impressive traction of private capital with nearly 30% of all Clean Energy Systems startups focusing on Energy Storage solutions. Of these 34 startups, 22 (65%) were established from 2016 onwards, and 12 (35%) of these were established in 2019 and 2020. Collectively, they have raised $265 million USD with 5 startups raising 85% of this sum.
Challenge: Climate Smart Agriculture
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Numbers: 212 companies of which 130 are startups (20% of all startups). These startups have raised a total of 950 million USD.
Technology Showcase: Of the 130 startups, 69 (53%) are precision agriculture companies.
Why Precision Agriculture? Precision agriculture increases agricultural productivity while optimizing farm management and more efficient use of water, pesticides, nutrients, and other inputs. This reduces emissions, increases soil health, and decreases expansion of agricultural areas and changes in land use.
A major challenge for precision agriculture is developing implementations that are suitable and accessible to farmers, especially in developing countries. These are mostly small farm holders with low financial capabilities to implement new technologies.
Why Israel? The historical innovation of Israeli water-tech has facilitated the development of Israel’s strength in precision agriculture. Israel’s preexisting strength in ICT, data mining and software, together with expertise in the fields of drones and satellites, enable the adaptation of existing technologies into innovative agricultural solutions such as soil mapping,smart irrigation and fertigation systems, and satellites for precision agriculture.
Of the 69 startups in precision agriculture, 42 (60%) were established from 2016 onwards, and 7 (10%) of these were established in 2019 and 2020. Collectively, they have raised 489 million USD, 51% of the total funding for Climate Smart Agriculture startups.
Challenge: Sustainable Mobility & Transport
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Numbers: 137 companies of which 75 are startups (12% of all startups). These startups have raised a total of 1.8 billion USD.
Technology Insights: Of the 75 startups, 25 (33%) are in New Mobility - technologies and infrastructure that facilitate shifts to low carbon transportation modes (notably in the area of shared mobility, micro-mobility and high-capacity public transport services), influence individual travel behavior, and provide alternatives to traditional vehicle ownership.
Why New Mobility? Integration and increased capacity of new mobility services such as shared, public, and low-carbon private transportation (e.g., bicycles, e-bikes, electric mopeds), have the potential to replace travel by personal singlepassenger cars. Digital connectivity can improve operations and enhance capacity, and, together with electrification, contribute to the reduction of energy use and emissions from urban transportation.
A challenge facing new mobility is ensuring that full life cycle analysis confirms lower emissions for any new mobility mode in a particular setting, e.g., the impact of “deadheading” - the empty vehicle travel distance – in ride-sourcing schemes needs to be assessed. Emissions can depend also on capacity, occupancy, infrastructure, and maintenance, and all these need to be assessed alongside the user convenience of more multimodal travel.
Why Israel? As new mobility is predominantly software-based, the field can nurture itself from the proliferating Israeli ICT ecosystem and rely upon the well-established and experienced Israeli automotive innovation sector. Of the 25 startups in new mobility, 13 (50%) were established between 2016, and 6 (20%) of these were established in 2019 and 2020. Collectively, they have raised 1.19 billion USD.
In this section we reflect on the existing and potential strengths of the Israeli climate ecosystem and the global impact of the various climate tech domains. We highlight a number of technologies that provide solutions to global climate challenges and in which Israel is well positioned. This list is by no means exhaustive, and there are certainly additional technologies that could, and should, be promoted. For example, green hydrogen – its availability, storage, distribution, and implementation – is a crucial component of current and envisioned transformations in the energy and transportation sector, as it enables high temperature processes, long duration energy storage, and long-haul heavy-duty transportation for which electrification is not a solution. Israel has a prolific academic community with research focused on electrolyzers and fuel cells from which a number of startups have emerged. Joint R&D and collaborations with international players (from academia and industry) could further promote this field. Carbon capture, storage, and utilization (CCUS) is another field considered a global imperative for reaching net zero emissions, mitigating temperature increases caused by carbon pumped into the atmosphere in the past, and for achieving deep decarbonization in the industrial sector as it transitions to lower emission processes. CCUS requires both capture from point sources as well as direct air capture (to date, there are only 15 direct air capture plants in the world),16 and innovations that can progress to cost effective scale ups are essential.
Israel’s point of departure is similar to most other countries, and success would have an immense global impact.
Artificial Intelligence as a Technology Driver
Artificial Intelligence (AI) contributes to the fight against climate change across a wide variety of sectors including electricity, transportation, industry, buildings, forestry, land use, and many others. By supporting distributed energy grids, precision agriculture, sustainable supply chains, environmental monitoring, energy-efficient buildings, and enhanced weather and disaster prediction, AI-based innovations reduce greenhouse gas emissions and resource consumption, and aid in climate adaptation. By accelerating scientific discovery and improving computational simulations, AI acts as a primary technology driver in many additional cross-cutting domains from which climate innovations evolve.
Israel has proven capabilities in AI, is home to successful AI startups in a variety of fields and is ranked 6th in the 2020 The Global AI Index.17 This unique expertise can act as a platform to accelerate climate tech startups and provides opportunities for AI companies to pivot towards advancing solutions to fight climate change.
Barriers to Climate Tech in Israel
The challenge of decarbonization encompasses all areas of the economy and requires both technological advances and ways to contend with scaling complexity of the technologies. Climate tech entrepreneurs must navigate an intricate web of regulators and incumbent corporations, as well as existing infrastructure, manufacturing processes, and supply chains. They need to develop a product that meets and exceeds the specifications, standards, cost-effectiveness, and requirements of an existing integrated system and, in many cases, be ready for a changing industry landscape and new value chain. Success requires the collaboration of a wide set of partners and investors.
A survey conducted among nearly 200 Israeli climate tech companies revealed the main challenges that companies face during their development and growth stages (Figure 15). The three dominant self-reported challenges are:
Access to Capital
Climate tech startups face difficulties in obtaining venture capital investments. Although attracting a significant amount of capital and investment groups, the climate tech ecosystem still suffers from lack of diversity in type and focus of such investment groups. 85% of the survey respondents have hardware at the heart of their innovations. Capital requirements for hardware are higher than those for software at all developmental stages (i.e., product, proof of concept and pilot projects), and product development and physical system transformations simply take much longer and are more complex than software deployment. Large investments may be required before products are proven, and companies must often survive longer, while sustaining losses, before achieving scale or profitability. Because investors need to consider returns on a time vertical of decades rather than years, and the path to an exit is not always clear, a generalist VC partner finds it difficult to sign a term sheet.
Regulatory Hurdles
Regulation can be overly complex and can inhibit innovation. Utilities and public infrastructure are prominent clients for climate tech sectors such as energy and water and are tightly regulated markets, making it difficult for startups to navigate their way through the list of requirements. In Israel for example, more than 10 different regulatory approvals are necessary for an energy startup to deploy its solution. In addition, regulatory markets are fragmented and differ geographically making rapid expansion difficult.
Scaling up
The main barrier to deploying and scaling up a climate solution is the need for a mature value chain. A startup needs to consider many different players and stakeholders to successfully launch a product. Furthermore, scaling up climate tech often requires enormously large capital. This is often facilitated by financing mechanisms structured as project- or asset-based investments provided by debt or infrastructure investors or via dedicated large scale climate tech financiers. The barriers to companies’ scale up can exist even after a successful pilot, when technical risks have been overcome and unit economics are promising.