Seventeen years after its sudden collapse, the Israeli solar energy pioneer Luz is back in business with a new pilot facility in the Negev and California dreams
By ZIV HELLMAN07luz(photo credit: Luz)Extract of an article in Issue 7, July 21, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Reportclick here.
Arnold Goldman is probably the last person Hollywood would cast to play himself - the CEO of a start-up that has raised $160 million from A-list investors to resurrect a risky energy venture. Instead of a lean, hard-driven, square-jawed, clean-cut and pin-striped Michael Douglas barking orders, Goldman comes across as remarkably soft-spoken, mild-mannered and relaxed. With his slight build and somewhat cherubic face framed by white hair and a white beard, Goldman, 65, looks like he would be more in place delivering a spiritual seminar at a New Age retreat than leading Luz II, a company that is trying to raise itself, phoenix-like, from the ashes of a devastating collapse 17 years ago to reclaim a world-leading position.
But behind the unassuming exterior, Goldman's eyes shine with tremendous intensity as he speaks in his modestly spacious office at Luz II's corporate center in Jerusalem about his current project, past disappointments, and his vision for a sun-powered world. The story of the rise, fall and now reincarnation of the solar pioneer Luz is at once a tale of bold, even mystical, vision, top-notch Israeli innovation, and the uphill struggle to succeed in the turbulent world alternative-energy market.
In its prime, Luz was a global leader in solar electricity generation. Before its abrupt bankruptcy in 1991, the Israeli company, founded by Goldman, was the largest single solar-energy supplier in the world, supplying 350 megawatts of electricity to Californians, and one of Israel's top 10 exporters.
A sudden cancellation of alternative-energy tax exemptions by the State of California that year, coupled with plunging gas prices and a disastrous misreading of the political winds in California, brought down the surging Luz. But Arnold Goldman is not the type to give in. With the need for alternative energy sources today as pressing as ever, he single-handedly resurrected the company and, in June, Luz II inaugurated a pilot facility near the Rotem industrial zone in the Negev desert, not far from the town of Dimona. Luz II is the Israeli subsidiary of another Goldman-owned company, Oakland, California-based BrightSource Energy.
Techniques developed at Rotem will be transferred to a BrightSource Energy hybrid gas-solar generating station to be constructed next year in southern California, which will supply the Pacific Gas & Electric Company with up to 900 megawatts of electricity when completed in 2010. Goldman is confident that Luz II will succeed where Luz I failed - and so, apparently, are high-powered investors like Morgan Stanley, VantagePoint Venture Partners, BP, Chevron and Google, all of whom have put money into the revamped company.
Back in the 1980s, Luz I and Goldman were riding high, cresting on a series of successes like a California surfer catching an immense wave. With the energy crises of the mid-1970s and early 1980s still fresh in memory, the search for alternative energy sources was high on the agenda of both industries and governments. The American-born Goldman, who immigrated to Israel in 1977, gathered around him a group of young innovative Israeli engineers who, beginning in 1981, created breakthroughs in solar-thermal electricity production technology. Building on its proprietary technologies, Luz eventually designed, developed, built, financed and operated nine solar electricity generating stations in California's Mojave Desert. It reliably produced 354 megawatts of commercially competitive electricity during heavy use, peak load and daytime hours. At its zenith, the company was the single largest supplier of solar-generated utility electricity in the world, employing 2,500 in California and 500 in its research and development centers in Israel. Goldman's gamble on solar energy was paying off handsomely.
"With each successful generating station, we got our investors to put up more money for expanding to yet another one," says Goldman. "By 1991, we were in the early stages of constructing our tenth generating station in California."
And then it suddenly seemed as if someone had switched off the power. The tenth plant was never completed. By the end of 1991, Luz was out of business, and its thousands of employees were forced to seek new employment.
Goldman is quick to point out that there were no technological flaws in Luz's generating stations. "The first one we constructed, in 1984 [in Kramer Junction, California] is still operational and continues to generate electricity nearly 25 years later," he says.
But Luz's financial success was always predicated on a property-tax exemption granted by California to businesses operating alternative-energy plants, without which its cost per kilowatt hour of electricity produced could not compete with standard natural gas and coal-powered generating stations. The property-tax exemption was guaranteed by law only through the end of 1990, but with 90 percent of the state legislature supporting its renewal, Luz was convinced it had nothing to worry about - only to be shocked when Governor George Deukmejian, Jr. vetoed the property-tax exemption bill in January 1991, literally in his last hours in office.
"But we knew Pete Wilson, the incoming governor, was on our side," says Goldman. "He had always supported investment tax credits for renewable energy initiatives when he was in the Senate." Convinced the new Sacramento administration would restore the tax exemption as one of its first orders of business, Luz management took a fateful decision: not to reduce running operations nor delay the construction of the tenth generating station, even as investors were balking at putting up money without iron-clad guarantees of tax exemptions.
But times had changed, and not to Luz's advantage. The United States was entering an era of cheap fuel prices, the pain of the 1970s oil crises was a distant memory and the search for alternative energy was now taking a back seat. Governor Wilson discovered he could not revive the tax exemption bill without conducting lengthy hearings in the state legislature. Meanwhile, Luz was burning through $20 million a month. By the time Wilson managed to shepherd a new renewable-energy tax-reduction bill through the legislature in late 1991, Luz had run out of money. It closed its doors, let go of its 3,000 employees and sold off its assets, including the California generating stations.
Goldman was "absolutely devastated on many levels" for years, he says, having lost the dream company he had founded and regarded as a second family.
Born in Rhode Island, Goldman grew up in an assimilated Jewish home in southern California. After attaining engineering degrees at UCLA and USC, he co-founded Lexitron, which he describes as "the first word processing company in the United States," in 1969.
"Back then, there were no personal computers or laptops," he recalls, his eyes lighting up at the old memories. "Creating a word processor meant putting together the hardware and the software, and selling the customer a computer. We were among Intel's first clients. In order to make the word processor seem less frightening to users used to typewriters, the monitor was constructed to the dimensions of a sheet of paper, and we put knobs [similar to those on typewriters] along the screen."
When Lexitron was purchased by Raytheon in 1977, Goldman, who headed engineering at the word-processing company, decided the time had come to take a long-delayed two-year break to complete a book he had been composing in his spare time for over 16 years. Entitled "A Working Paper on Luz," the book combined observations on scientific facts with mystical elements to promote what Goldman describes as "an elevation of consciousness," along with a vision of harmony between man and nature that included renewable solar energy as a major component. With mystical Jewish aspects playing a substantial role in the book - "Luz" is the Biblical city where Jacob dreamed of a ladder ascending to heaven - it seemed most natural to him to complete the writing of the book in Israel, moving there with his wife and three children.
Goldman's family loved being in Israel, and the two-year sabbatical became a permanent move. With the book done, he decided that his life's calling was not designing ever-improved word processors, but turning the book's ecological vision of moving towards a solar-energy powered world into a reality. The book on Luz begat the first incarnation of the company called Luz, a name Goldman stuck with despite the fact that it is pronounced "lose" - with all its negative connotations.
After the collapse of Luz I, Goldman co-founded Electric Fuel Ltd., an electric battery and fuel cell company. It is now a publicly traded company, listed as Aerotech on the NASDAQ (Goldman does not have an active position in the company today). He also wrote another book exploring "the relationship between consciousness and things," entitled "Moving Jewish Thought to the Center of Modern Science."
All the while though, he was studying what went wrong with Luz I with the goal of making a comeback. "By 2004, given conditions in the energy market, it began feeling like the 1970s again," he says. "The time was right for the creation of Luz II." Reassembling much of the old Luz team, he began once again paying calls to investors, vowing to complete his unfinished work. By 2005, the company had set up shop again, in Jerusalem's Har Hotzvim Industrial Park, and in June of this year, Luz II inaugurated its pilot facility in the Negev. It currently has 73 employees in Israel, with BrightSource employing a further 26 in California.
The red-and-white tower of Luz's "solar power tower," looming 60 meters high above the flat Negev desert ground, is visible from miles away. As you get closer, you can see that it is surrounded by thousands of square plates, spaced about 5 meters apart, dotting vast tracts of brown earth and slowly tilting themselves as the sun moves across the sky.
Like robotic sun-worshipers, these "heliostatic" mirrors focus the sun's rays onto a single receiver on the 'solar power tower,' much like a camper using a magnifying glass to focus sunlight to start a fire. The heat collected from the light reflected by over 1,600 mirrors is used to convert water to superheated steam at 550 degrees Celsius (1022 degrees Fahrenheit). The kinetic energy in the steam created in the pilot is sufficient to generate 100 megawatts of electricity in a high-efficiency steam turbine. The commercial facility based on this technology, to be constructed in California's Mojave Desert in 2009, will supply up to 900 megawatts.
Will Luz II fare better than Luz I?
There are several auspicious elements in Luz II's favor. For one thing, the technology it is using today is more sophisticated and efficient than that available to Luz I. The solar power tower is an advance over the older parabolic trough method of collecting solar energy. In the parabolic trough, long lines of troughs constructed of parabolic mirrors concentrate rays of sunlight onto oil-filled tubes running along the focal point of the mirrors. The heated oil is then passed through a heat exchanger to generate steam for running turbines. The new solar tower method attains significantly better efficiency by using flat mirrors to beam the sun's rays to a collector tower for the generation of steam. The mirrors are computer controlled to be angled at every instant in an optimal alignment relative to the sun, at any given time, day and season. Luz II promotional material claims that its current technology raises solar-to-thermal conversion efficiency from about 35 percent (for the older parabolic trough technology) to above 40 percent, and that the second-generation tower it is developing will see a further increase to 50 percent.
Even at this cutting-edge level of efficiency, analysts expect solar-generated electricity to cost 10 to 12 cents per kilowatt hour - higher than the California benchmark of 8.5 to 9 cents per kilowatt hour generated by natural gas-driven turbines. Goldman, however, declines to answer questions regarding costs per kilowatt hour. "These estimates vary widely," he claims, "and they depend on too many factors. Do you include the costs of transmission lines? Taxation issues?"
"Luz II's technology looks very promising," says David Faiman, Professor of Physics at Ben-Gurion University and a solar energy researcher at the university's Blaustein Institutes at Sde Boker. "But they will have to show that they have a reliable product. The idea of a solar power tower has been around for decades - and all previous attempts to use that technology have been colossal economic failures. But Goldman is a genius, who in the past created cost-effective trough solar energy with technology that is extremely reliable. If it were anyone but Goldman, I would say building solar power towers is madness. With him, I'm willing to hold my breath."
Luz II, just like Luz I, is counting on Federal investment tax credits and California property tax exemptions, which have been restored, to give it a leg up in competitiveness. The Federal tax credit may expire in 2009, and the property tax exemption bill is scheduled for renewal in 2010 - which means that Luz could conceivably see history repeat itself and once again face the possibility of tax breaks being taken away while it is in the middle of constructing new generating stations. "Obviously, we won't make the same mistakes again," says Goldman with self-confidence. "This time, we will be fully prepared for that eventuality, with the appropriate financing strategy."
In Luz's favor is broad public receptiveness to alternative energy sources. With the price of a barrel of oil closing in on $140, natural gas prices rising in step, and growing concern about the environmental damage caused by carbon-emitting fuels, alternative energy is suddenly big business again. Several of the states in the United States have adopted Renewable Portfolio Standards, requiring utilities to purchase increasing percentages of their power from renewable energy sources, such as wind, water or solar. California has adopted one of the most stringent of current standards, with California utilities under a mandate to purchase 20 percent of their power from renewable sources by 2011 (compared to 12 percent at present), and 33 percent by 2020. Two years ago, a task force commissioned by the governors of America's western states identified 200 gigawatts worth of prime sites for solar-thermal power within their territory - equivalent to 20 percent of America's existing electricity-generation capacity
At present, the world's population consumes more than 15 terawatts (a terawatt is 1,000 gigawatts) of electric power, a business worth $6 trillion a year - about a tenth of the world's economic output. Although any serious transition to alternative power sources will likely be gradual, the potential size of the alternative energy market is so massive that it has caught the attention of entrepreneurs and venture capitalists, who are busy channeling money to promising alternative energy businesses.
But turning solar energy into a viable, cost-effective technology is not a simple challenge.
Extract of an article in Issue 7, July 21, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Reportclick here.
