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Energy Forum 45: Barriers to and incentives for constructing private electricity generation facilities in Israel

Researchers
Prof. Gershon Grossman , Naama Shapira
Cite As:
Grossman Gershon , Shapira Naama . Energy Forum 45: Barriers to and incentives for constructing private electricity generation facilities in Israel Haifa Israel: Samuel Neaman Institute, 2019. https://www.neaman.org.il/EN/Energy-Forum-45-Barriers-to-and-incentives-for-constructing-private-electricity-generation-facilities-in-Israel

The reform in the electricity sector has created a new reality that aims to gradually reduce the generation of electricity by the Israel Electric Company (IEC) and shift it to private electricity producers while keeping, at the same time, the transmission, distribution, and metering in the hands of the IEC. The management of the system and the PDT (Planning, Development, and Technology) branch of the IEC is planned to be entrusted in the hands of an independent government company.

Under these conditions, the advancement and development of the electricity sector face numerous barriers, most of which are not technological but regulation-related. When the entire electric sector was subject to one authority, there were no conflicts of interest between the different segments, which operated then in coordination, even if imperfect, between the generation segment and the transmission segment, including planning of the generation units and their connection to the transmission grid.

Today, the market has several players who compete for the resource of the transmission grid, each having different and possibly conflicting interests. In this situation, the importance of the company that will manage the entire system increases, because of its role to conduct the orchestra and balance the various players, while protecting the different interests.

The parties, some of which have different priorities and preferences, need to work in concert. Stated simply, if it is not known where the future power stations will be built, it would be impossible to plan the transmission grid. At the same time, the growth trends of the population in the foreseeable future, particularly in the center of the country, dictate to a great extent the development needs of the electricity transmission grid.

Israel is a densely populated country with long development times for energy infrastructure. The development of the electricity sector today is characterized by launching large gas-powered power plants, renewable energies, the development of the transmission grid and the supply of electricity to consumers. One of the major challenges facing the Ministry of Energy, the Electricity Authority and the company that will manage the system will be the implementation of long-term planning and the deciding on long-term development plans, first for the transmission system and later for the generation segment. Such long-term planning will enable the various players to conduct themselves accordingly while having access to full information regarding the forecasted development of the transmission grid against the anticipated need for generation capacity. This information will enable the private sector, which is supposed to establish the new generation capability, to prepare accordingly and direct its steps in light of the same development plans.

The State of Israel advances plans and policy measures based on the short-term scope - with the target year of 2030 only, which in terms of the energy economy is just around the corner. Thus, although the State does not have a real vision for its energy economy, power plants of different types are already being advanced in the planning institutions by virtue of government decisions (e.g., Cabinet Decision 2592 permitting the construction of 25,000 new megawatts) and statutory plans (NOP 41, plans of the National Infrastructure Committee) with no overall planning. These plans create facts on the ground for many years without the much needed long-term policy.

In order to remove barriers while protecting the public interest, joint work of all the players in the electricity market is needed.

Government mechanisms have a central role in setting long-term policies, adopting appropriate development programs, providing tools to the system management company to perform its function properly, and supervising all the relevant entities in order to ensure that each of them fulfills its role. It is hoped that the system management company, in coordination with the Electricity Authority, will be able to direct the market, so that it would be possible to expect an improvement in this area, at least for the next few years.

The continued increase in the demand for electricity, which puts Israel in a unique position among the OECD countries, requires the formulation of realistic scenarios as a basis for intelligent planning of the electricity sector. Against the background of the significant gas discoveries, generation from coal is still high, illustrating the need for a fundamental change in priorities in the market planning. Since the execution of the planning will be entrusted, to a large extent, in the hands of private entrepreneurs, the State must take steps to remove barriers in order to streamline the process and implement a government policy and action plans formulated by professionals.

The government in general and the Energy Minister, in particular, have set a clear policy to reduce the use of coal and supply the demand using natural gas and renewable energies, especially after the connection of the Leviathan, Karish and Tanin fields to the natural gas transmission system in the coming years. It seems that the assumptions regarding the scope of capacity by 2025 from renewable energies, and the capacity required until then from efficient power plants fueled by natural gas, are inaccurate and deficient. It is essential to base the planning of the necessary steps to implement the government policy in the transition to cleaner energy on solid and precise assumptions.

It is clear that among the tracks currently promoted by the government to increase the generation capacity from natural gas through relatively efficient facilities, the most advanced ones are those authorized by the Government Decision 2592. On the one hand, some of these projects reached a stage in the statutory procedures that will allow the construction of stations and their connection to the electricity grid beginning with 2023 until 2025. On the other hand, the absence of quotas and regulation to be applied to these stations constitutes the main obstacle preventing their construction. Thus, the State of Israel will have to continue and burn polluting coal at unnecessary rates while it is capable, in practice, to reduce these quantities if arrangements are made to promote the stations being developed under this government decision.

  • Recommendations:

Forecast of electricity demand:

  • Publication of base assumptions and derivative plans - the Electricity Authority should require the IEC to publicize the assumptions used to determine the expected demand in the coming decade, and the plans derived for the supply of demand, including demand during peak hours.
  • Objective forecast - In the future, it is recommended that the forecast of demand, from which the production increment is derived, shall be determined by an objective, reliable and acceptable authority that is capable of setting realistic forecasts for the economy as a basis for planning and policy making.

Planning:

  • A master plan for the energy sector - a master plan for the energy sector is required for 2050, which will serve as a basis for planning the economy. The plan will examine, from a broad and long-term perspective, the entire range of considerations and will determine Israel's energy policy, including the mix of energy sources, taking into account Israel's international commitments, and in particular the Paris Agreement, and the ambitious goals of renewable energies, including storage.
  • Setting a long-term policy - setting a long-term policy for the energy sector will enable the adoption of long-term development plans for both the generation and transmission segments, which will provide a long-term horizon and enable the various players to consider their steps accordingly.
  • Setting a policy that corresponds to the objectives - The Minister of Energy must establish a binding policy in accordance with the goals declared by the Ministry.
  • Energy sources - action should be taken to stop using coal until the middle of the next decade at the latest.

Regulation:

  • Guidelines for the professional parties - The Minister of Energy should instruct the professional parties, headed by the Electricity Authority, to take the necessary steps to implement the Ministry's policy, including the publication of quotas and regulations.
  • Uncertainty - the Electricity Authority must adopt appropriate regulations, while ensuring regulatory continuity, to avoid a situation in which players in the electricity sector will operate in a vacuum without a proper horizon. Continuity is required for those projects whose development began in recent years following government decision 2592.

System Management:

  • Steps should be taken to ensure that the system management company starts operating as soon as possible and will have at its disposal the full resources and means to enable it to plan and manage the electricity sector in Israel in an optimal manner while coping with the challenges and the various players in the economy.

Cooperation:

  • Increased cooperation - in order to remove barriers, the cooperation between the different parties involved, each having different priorities and not always acting coherently, should be encouraged and intensified.
  • Expert Forum - It is recommended to establish discussion forums by experts from all sectors, including the providers of funding.

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