Just a quick note here about Israel’s electricity situation.
Over the past half a year, there has been an increasing amount of attention on the practices of the Israel Electric Corporation (IEC), which is a government owned company and the sole national provider of electricity in Israel. The monopoly has had a disastrous impact on Israel’s energy security, ranging from financial irregularities to abysmal power production planning.
Starting with the financial aspect, it should be known that the IEC is a black hole of government – and, therefore, public – funds. The company is under an NIS 70 billion (~ $17.5 billion) mountain of debt. In recent years, the IEC raised debt abroad in two offerings during the height of the global credit crunch, committing to pay out high interest rates financed by electricity consumers. It has also come to light that, between 1996-2008, IEC management distributed NIS 3.4 billion (~ $850 million) in illegal benefits to employees and pensioners. Most recently, the IEC is reporting an NIS 1.5 billion (~$375 million) cash shortfall, which the company attributes to rising fuel costs, and is asking the government to cover this loss – in addition to the NIS 5.5 billion (~$1.37 billion) the company already raised behind government guarantees earlier this year. The IEC is currently the second largest debtor in the country, only behind the national government itself.
In terms of power production planning, Israel underwent an energy crisis this past summer, as national electricity consumption was 10% higher than expected, coal-fired power stations broke down in July, and a natural gas import agreement with Egypt was terminated while gas from Israel’s only operational fields (Yam Tethys reserves) approached depletion. The result was that the IEC only had a production capacity of 12800 MW when local consumption of 12370 MW; or, in other words, just a 3.5% reserve margin. The result was brownouts across the country during portions of the summer.
Yet, Israel’s power generation capacity was a ticking time bomb, which predicative analysis could, and most likely did, foreshadow. Between 2000-2010, power consumption in Israel had been steadily rising by an average of 3.5% each year, which means the IEC was clearly falling behind in establishing the necessary capacity to meet predicted demand. Instead, the IEC has been slow to bring new power plants online (instead investing billions in personnel benefit packages), has reportedly stonewalled the development of independent power producers (IPPs), and has not invested in a single domestic renewable energy installation, which would have been immune to these fluctuations in fuel costs and supply.
For years there has been a steady buzz about privatizing the IEC and introducing market competition to force an overhaul of the company’s operations. However, there is no reason to believe that day is coming now, especially with gas from Tamar in 2013 expected to alleviate strain on power production costs. There is the chance, though, that the introduction of several solar and gas IPPs in the coming years, along with the new solar net metering scheme, may hit IEC’s profits and increase pressure on the company – and the government – to push through some much needed reforms. If privatization or broad reforms do occur there will be a tremendous amount of new opportunities in Israel’s power generation sector, which has been regulated, protected, and monopolized into inefficiency. For the time being, the IEC remains a problematic entity, leaving Israel’s electricity generation in a precarious situation, and serving as a harsh reminder of the mismanagement of public funds.