Siemens Acquires 40% Stake in Israel's Arava Power Company for $15 Million

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a recent development, Siemens Project Ventures GmbH (Erlangen, Germany), a wholly owned subsidiary of global engineering group Siemens AG (NYSE:SI) (Munich, Germany), purchased a stake of 40% in Arava Power Company (APC) (Chevel Eilot, Israel) for an estimated $15 million. The move is seen as Siemens' bid to support the development of renewable and alternative energy sources in Israel. Siemens's investment in APC is regarded as the biggest direct foreign investment in Israel. In March this year, APC and other Israeli companies received licenses from the Israeli government to set up renewable energy projects in the country. APC is the only company to have received permits to develop and produce power using solar photovoltaic cells.

APC will soon begin construction of a 4.9-megawatt (MW) solar photovoltaic power plant on eight hectares of land at Kibbutz-Ketura in the Arava desert region. The project was originally estimated to cost about $31.2 million. The firm recently indicated that the prevailing slump in the cost of plant and machinery, hardware and other components, is likely to bring down the cost. The company has received licenses to set up similar plants in other locations in the country. Although a relatively small country in the Middle East, Israel has a highly regulated energy sector. Company sources state that APC's competitive edge lies in a strong understanding of regulations and guidelines governing the Israeli energy sector, as well as a strong knowledge of the processes of receiving grants and approvals. Project officials are confident that APC will benefit tremendously from being the 'first mover' in this sector.

APC is expected to make announcements regarding the date of construction and commissioning of the solar photovoltaic power project after receiving communication about the feed-in tariff structure from the Ministry of Infrastructure. There are indications that the government is considering a proposal of paying US$0.50 per kilowatt-hour (kWh) for solar facilities that generate up to 50 kilowatts (kW). For installations that generate more than 50 kW but less than 5 MW of power, the tariff will be US$0.41 per kWh. Formal communication from the Ministry of Infrastructure is expected shortly. Earlier, the ministry indicated that the tariff structure would be designed to assist Israel in meeting the target of having 10% of the country's total generated power coming from renewable energy by 2020.

Israel has been focusing on developing renewable energy sources and reducing reliance on conventional energy. Earlier this year, the country signed an energy-cooperation agreement with the U.S. Some of the salient features of the agreement include:

• Development of joint ventures to promote alternate energy projects in Israel. About $2 million has been allocated for the initiative this fiscal year, with equal investments by both countries.
• Development of the Arava and Negev regions in Israel as 'National Priority Regions' for energy projects
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• Establishment of the Timna Renewable Energy Park, which will act as a center for research and development in this sector
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• The targeting of a 20% contribution of solar power to the overall energy mix by 2020.

Israel has also invited tenders for two 250-MW solar power projects in Timna and Ashalim. The Tel Arad solar power plant is in the planning stages.

Siemens is a leading name in developing and executing environmentally friendly energy equipment. The company's vast environmental portfolio includes projects in biomass, geothermal, wind and solar power, water, and carbon capture and storage. As part of the agreement with APC, Siemens will not only provide technical expertise to the company, but also will assist in the execution and management of all of APC's future solar projects. Siemens is part of the DESERTEC initiative in North Africa. Abengoa SA (MCE:ABG) (Seville, Spain), E.ON AG (OTC:EONGY) (Dusseldorf, Germany), Deutsche Bank AG (NYSE:DB) (Frankfurt, Germany), MAN Solar Millennium GmBH (Essen, Germany) and Schott Solar Incorporated (Roseville, California) will participate in the $550 billion program, which will develop solar and wind farms in the Sahara Desert. Power generated by this project will help meet power demand in the Middle East, North Africa and Europe. For further details, see previous articles - European Companies Plan $550 Billion Solar Project in Sahara Desert (June 19, 2009) and Europe's African Solar Project Moves Forward (July 20, 2009).

Siemens recently secured a $450 million contract to supply 88 SWT-3.6-107 wind turbines for the Sheringham Shoal offshore windfarm in England. Statkraft AS (Oslo, Norway) and StatoilHydro ASA (NYSE:STO) (Stavanger, Norway) are jointly developing the 315-MW windfarm, which is expected to be commissioned by 2011. The project will provide power to approximately 220,000 houses. Siemens is also working with Bright Source Energy Incorporated (Oakland, California) to supply turbines and generators for the 100-MW solar power plant in the Mojave Desert in California. When operational, the project will provide enough electricity to power an estimated 250,000 households and reduce carbon dioxide emissions by 500,000 tons. For the 2008 fiscal year, Siemens posted revenues of $109.85 billion, in which the contribution of the renewable energy and environmental portfolio was $27 billion.

Israel's sunny climate is conducive for solar power generation. The country's growing demand for power and favorable locations from the Red Sea to the Dead Sea for commercial solar installations have made solar power a good choice for energy production.

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