Category: Electricity

As part of its research on benchmarking of electricity tariffs concluded at the beginning of 2010, in order to examine whether the tariff is too low as IEC has been claiming, the World Bank has reported that salaries at IEC are the highest compared to similar global electricity utilities and that the tariff is indeed low. Total wages cost 1.42 billion shekels a year and over 250 employees are earning more than 40,000 NIS per month gross. The World Bank has stated though that the number of employees in the company is comparable to other similar size monopolies. The World Bank says that Israel’s electricity tariffs at the end of 2008 were 20% lower than in countries to which it was compared. The average gross monthly salary at IEC was around NIS 30,000 in 2008, 38% higher than the average salary in other electricity monopolies which the World Bank used in its comparison. At the same time, IEC’s workforce is similar in size to the workforces in comparative utilities in South Korea, the Czech Republic, Malaysia, Ireland, Greece, and Portugal, among others. The World Bank adds that IEC has been forced to reduce investment in recent years to a less than desirable level because of the low electricity tariffs, high debt to equity ratio, and high salary costs. The World Bank concludes that IEC will find it difficult to finance the investment necessary in 2010-13 to meet expected electricity demand, given the electricity tariffs set by the Public Utilities Authority (Electricity). The World Bank also concludes that in order for IEC to finance half of investments from internal sources, and take on new debt to balance investment needs, it is necessary to raise electricity tariffs by 3-5% over the next four years.

On 1st February, 2010, The Electricity Authority unanimously approved new electricity rates, as the natural gas revolution begins to take hold in the energy sector. As of February 15 the electricity rate for residential consumers dropped by 9.6% to 41.32 agorot per kilowatt hour, down from 43.59 agorot per kilowatt hour. Rates for commercial and public institutions are dropping by 16.3% to 43.59 agorot per kilowatt from the current rate of 52.09 agorot. The rate for large-scale electricity consumers will fall by 8.6% to 12.5%, based on the voltage supplied. The plenum accepted an expert opinion prepared by Dr. Ilan Maoz, who said that an increase in electricity demand would still leave the company with double-digit production reserves. The rate decrease reflects a NIS 2.2 billion decline in the IEC’s annual fuel budget due to a greater reliance on natural gas, which comprises about 40% of its fuel consumption. Natural gas is also more efficient for electricity production. In total, the IEC’s fuel costs have been reduced by 24.6%. The rate adjustment was to have been implemented in April 2009, but was delayed.

The Electricity Authority also adjusted the IEC’s rate base for the first time since 2002. The rate base is a group of basic assumptions used to calculate the long-term price of electricity production, conduction and delivery, and serves as the foundation for setting consumer rates. The authority adjusted only operating costs, which increased by 7.8%, offsetting the lower fuel costs. Transmission and distribution elements will be adjusted later during 2010. The authority also adjusted its seasonal and peak consumption pricing method for large-scale consumers. It changed peak, shoulder and off-peak consumption load times, which are the basis for their rates. The winter season was reduced from four to three months, and summer from three to two months. Electricity rates in these seasons at peak hours increased by 11% to 13% (in winter) and 17% (in summer). Rates for heavy consumption times during the rest of the year, which is now seven months, were cut by 16% to 23%, and at peak hours by 35%. The return on equity in the generation segment will be 7.35% (9.5% before tax) compared to 7% in the former base.

MNI Minister Uzi Landau is saying that the cost of renewable energy for Israel will be $2 billion. He explained the state would invest $300 million and would then give 70% tax benefits to local and international companies. He explained that this would all lead to a hike in the electricity prices of about 18% between 2010 and 2020.
The PUA chairman Amnon Shapira explained that indeed the tariff was likely to increase due to $300 million a year needed to be invested in renewable energy and the need to approve within the tariff the cost of the upgrade of the electricity grid. The PUA has stated that the electricity prices would increase annually by 3-5% due to the penetration of renewable

Pros and cons of lower tariffs:

Pros
Tariffs are supposed to reflect the cost of producing electricity. Tariffs should rise when the price of fuels rises and should fall when the price of fuels falls. All other considerations such as encouraging energy savings, and energetic streamlining, should be encouraged through taxation or subsidies with the appropriate approvals. Lower tariffs reduce inflationary pressures and strengthen the competitiveness of exporters. Lower tariffs are also more social friendly and improve the situation of the disadvantaged. Lowering electricity rates will also indirectly result in other prices being lowered such as water and additional sectors where energy costs are a central factor.

Cons
Lowering the tariff of a product in excessive demand such as electricity will lead to increased consumption and in the long-term will require the construction of even more polluting power stations. Lowering electricity tariffs contradict government policy which is attempting to encourage energetic streamlining. Electricity tariffs in Israel were already among the lowest in the western world, so there is no reason to cut them further. These low tariffs are one of the main reasons for the difficult financial situation of IEC.
Low electricity tariffs create a negative incentive for the entrance of private electricity producers into the market. This may delay and even endanger implementation of the reform of Israel’s electricity sector, and in the long term the lack of competition from private producers may result in higher prices.

In March 2010, IEC has stated that they want to increase electricity tariffs by 5% to help pay for the emergency generation program, thus getting 2.7 billion shekels from the public over the next 2.5 years. IEC CEO Amos Lasker wrote of his request and IEC’s need in a letter to PUA Chairman Amnon Shapira to try to get an approval. In his letter Lasker explains that the new base for tariff for the generation sector does not even cover the current expenses that IEC will have to pay over the next few years and is certainly not sufficient to finance the multi-billion dollar emergency program and thus IEC has no choice but to turn to the public. If the tariff is increased by 5% for the next 2.5-3 years this will cover about 40% of the expenses needed to complete the emergency generation program, with the remainder 60% to be funded from suppliers’ credit (1.9 billion shekels). Lasker explained that the BoD forbade management to proceed with the 2nd phase of the development program without first obtaining significant external funding. He added that IEC cannot take on further debts as that would seriously jeopardize its ability to repay its debts and reminded all that in September 2009 Maalot rating agency warned that IEC’s credit rate could be decreased if it entered into further debts. He explained that IEC’s cash flow cannot provide for more than half a billion shekels a year as an internal source for funding any investment program. Lasker adds in his letter that completing the emergency program is vital to prevent electricity blackouts and meets the government’s policy as decided in 2008 which includes building five new CCGT power stations for a total capacity of 1,750 MW at a cost of 8 billion shekels in total. The plan has been divided into two stages: the first state at a cost of 2.4 billion shekels was implemented as of 2008 and to be concluded in 2010 and the second stage at a cost of 5.6 billion shekels to be implemented between 2010 and 2012. In 2009, the government allowed IEC to increase the electricity price by 4.2% to fund the first stage of the plan, but currently the PUA is opposed to a similar increase to fund the second state. The PUA’s view is that the existing reserves of electricity are sufficient to meet consumption needs and there is no need to construct any new stations yet.
In addition, IEC has stated that the February 2010 decrease in electricity tariffs would seriously damage the company’s financial standing, impair its ability to raise funds and its expected cash flow

MNI Minister Uzi Landau has set the goal for renewable energy (renewable energy masterplan) at 2,760 MW by 2020, less than the former goal of 4,000 MW. The minister stated that this would still represent 10% of the electricity generated at that date since the government was promoting a strong energy conservation program to reduce consumption by 20%. Solar systems are to represent 1,750 MW. The energy fuel mix for renewable is set to be in 2020 from 5 large solar power plants of each larger than 5 MW totaling 1,200 MW (35% of the total renewable) from both photovoltaic and thermo-solar technology. Medium size PV plants of between 50 KW to 5 MW will be limited to a maximum scope of 350 MW (300 MWs have already been met to date) and the other 50 MW will be allocated only by tender on industrial land in the periphery; the amount of generation from small PV facilities of up to 50 KW is unlimited in the periphery but is estimated that it will not increase above 200 MW. Regarding wind and biomass, the MNI estimates that wind will represent 800 MW and biomass 210 MW. In addition, the MNI is setting aside another 50 MW for local Israeli experimental technology. The MNI estimates that this penetration of renewable in the energy mix by 2020 will cost in 2010 terms $2.06 billion dollars and will cause an increase in the electricity tariff of a few percent each year.

A report by the international renewable energy research organization REN21 in October 2010 found that Israel is lagging far behind the rest of the world in producing electricity from renewable energy and that 18% of the world’s electricity is produced from renewable energy but only 0.4% in Israel.

17 July 2011 – Israel’s cabinet approved a plan to advance the production of energy from renewable resources, seeking 10 percent of electricity production from such methods by 2020. The aim of the plan is to reduce emissions and pollution in the electricity sector. The cabinet set a target of 1,550 megawatts (MW) of electricity from renewable resources by the end of 2014, and 2,760 MW by the end of 2020. Until 2014, quotas will be set allowing for 460 MW from large solar energy systems, 110 MW for systems targeted for self-consumption, 210 MW for production of electricity from biogas and waste, and 800 MW for wind energy. In 2014, the National Infrastructure Ministry will formulate policies to meet targets through 2020.

Electricity Strategies are sets of policies under the control of a government and other decision makers involved in making decisions about the supply of electricity or energy policy in general. These include decisions about the capacity of new generating plants and the types of fuel to be consumed; decisions about investments in supporting energy infrastructure, such as pipelines and LNG terminals; levels of mandated reserve generating capacity; rules setting minimum or maximum shares of generating capacity by fuel used; dispatch order of electricity generation; administrative controls on land use; policies to control GHG emission levels; policies regarding electricity pricing by segments; policies regarding subsidies offered; policies regarding desired offsets or trade-offs between security of supply, price and emission levels. The important issue is for decision makers to understand what the trade-offs are and what drives the differences between strategies, so that in the final analysis policy course will result from political processes and discourses and political trade-offs. A decision about priorities among different criteria, such as cost versus the depletion of indigenous natural gas supplies (namely where domestic depletion or cost is less of a concern. If cost is less of a concern then Israel can focus more on LNG)

Levelized cost represents the present value of the total cost of building and operating a generating plant over an assumed economic life, converted to equal annual payments and expressed in terms of real dollars to remove the impact of inflation. Levelized costs, which reflect overnight capital costs, fuel cost, fixed and variable O&M cost are a useful indicator of the competitiveness of different generation technologies. For technologies such as solar and wind generation tha have no fuel costs and relatively small O&M costs, levelized cost changes in rough proportion to the estimated overnight capital cost of generation capacity.

For technologies with significant fuel cost, both fuel cost and overnight cost estimates significantly affect levelized cost. For instance if natural gas supplies improve, then the levelized cost of gas fired generation will be improved and thus this type of technology will be more attractive to operate and the tendency will be to add more gas-fired generation technologies.

However, it is also important to note that actual investment decisions are affected by numerous factors other than levelized costs. The projected utilization rate which depends on the load shapre and the existing resource mix in an area where additional capacity is needed, is one such factor. The existing resource mix in a region can directly affect the economic viability of a new investment through its effect on the economics surrounding the displacement of existing resources. A wind resource that would primarily back out existing natural gas generation will generally have a higher value than one that would back out existing coal generation under fuel price conditions where the variable cost of operating existing gas fired plants exceeds that of operating existing coal fired plants.

The lifetime cost per KWh before subsidiaries. The calculation of the levelized cost of electricity (LCOE) provides a common way to compare the cost of energy across technologies because it takes into account the installed system price and associated costs such as financing, land, insurance, transmission, operation and maintenance, and depreciation, among other expenses.

Carbon emission costs and solar panel efficiency can also be taken into account.

The LCOE is a true apples-to-apples comparison. The levelised cost includes all the costs over the project’s lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital.

In July 2008, Israel’s Public Utilities Authority agreed to feed-in tariff of NIS 2.01 for small solar-power arrays of between 15 to 50 kW in the trade and agriculture sector or four times the average consumer price for entities that got a license in 2008. Those that start in 2009, the tariff has been decreased to 1.97 NIS per kwH.

In December 2009 The PUA approved the arrangement for medium size solar facilities of the PV type from 50 KW to 10 MW at a tariff of 1.49 NIS per KwH. The total maximum scope for such medium size facilities is up to 300 MW that is to be fulfilled gradually by 2014. Should there be greater demand during any given year it will be approved but at a different lower tariff. The tariff will also be reduced by 5% each year as of 2012. The PUA will require proof of financial capability of 20% of the project (a 5 MW solar field will cost about 100-120 million shekels), rights on land of at least 8 dunam for each MW of installed capacity, experience and supplying a bank guarantee of 5%. To set up such a facility, the companies will require to receive a generation license from the PUA.

In February 2010, the MNI approved the scope for setting up small solar system on the roofs of structures in the periphery up until 2014. These are systems of up to 50 KW with an unlimited scope for putting such systems on rooftops. The tariff for these facilities is 2.05 NIS. A limit of 30 MWs however have been placed on public structures, with emphasis on educational facilities.

July 2010 – The PUA approved the first eight licenses for mid-sized solar energy facilities of 50 kilowatts to 5 megawatts each, which will be placed on roofs of malls. Most of the solar power facilities built in Israel to date have been small facilities of up to 50 kilowatts, which do not need a license. Tariff has been set at NIS 1.49 per kilowatt/hour, which will be gradually reduced over several years. The Public Utilities Authority has set a quota of 300 megawatts for mid-sized solar facilities.

Electricity generation facilities use huge amounts of water, especially for cooling purposes. For example, the Rutenberg coal power station in Ashkelon requires 330 thousand liters of sea water per hour when it is working on full capacity. Thus, when such a station is working at full capacity for 13 days it requires more water than the annual production capacity of the Ashdod water desalination plant. The water needs of a nuclear power station are between 20-80% greater than that of a coal, natural gas or fueloil operated power station

E.g. Those standard practices, methods and procedures conforming to safety and legal requirements which are attained by exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced international operator of a power facility engaged in the same type of undertaking under the same or similar circumstances to those pertaining in the country

The West Bank project company under development, which was established inter alia to construct a private power station in the West Bank