Almost 300,000 households have switched their electricity accounts away from Israel Electricity Corp. (IEC) as of Monday January 13, following the electricity reform, which was launched six months ago, Noga Electricity Systems Management, which manages Israel’s electricity structure, has reported. This figure is three times higher than expected. According to Noga 158,700 who have switched away from IEC have smart meters and 141,100 have basic meters.
The high demand to switch electricity suppliers has also created uncertain challenges in the process. There is concern about the implications of the 3.5% hike in electricity rates on the new electricity companies and market sources believe it is only a matter of time before the number of current players will decrease, following closure of operations and consolidation.
The reform also allows customers with basic electricity meters, rather than smart meters that allow remote reading, to switch electricity companies. IEC is responsible for accelerating the installation of smart meters, which have been installed in only 1.3 million households, out of 3.1 million households in Israel. Contracts with households are conducted on the basis of a discount on IEC's household electricity tariff (NIS 0.64.02 including VAT), which includes production charges, infrastructure charges and system management.
The only component that the new suppliers are allowed to purchase at a discount is the production component, while the infrastructure tariff is paid to the IEC and Noga. Added to this challenge is the small amount of production supply. With 2.8 million households having not yet transferred their electricity accounts, suppliers are struggling to purchase electricity at worthwhile prices.
Only power plants with arrangements from more than a decade ago are allowed to sell electricity directly to the new suppliers, and this does not include the power plants that IEC sold following the reform of the electricity sector (Ramat Hovav, Hagit Mizrah, Alon Tavor and Eshkol). These transfer energy to Noga, which has created a kind of energy exchange, where the companies claim that unfavorable tariffs are created. IEC has not adapted this regulation, even though more direct contact between the production and supply sectors is encouraged worldwide, and the "exchange" method is used less.
Increased consumer awareness of discount options
The increase in electricity rates at the start of this month has raised consumer awareness of the existing option to cut the monthly electricity bill. From the consumer's perspective, this option is even more beneficial after the rate increase, since a discount is now derived from a bill with a higher initial rate.
On the other hand, this is worrying for the new companies, because for them the costs are rising. These are some of the reasons why, after updating their electricity rate, Bezeq and Pazgas decided to reduce the amount of the fixed discount offered to new customers from 7% to 6%.
Another issue is the Electricity Authority's decision to hold a hearing about a dramatic hike in costs. A letter sent by HOT, Pazgas, Amisragas, Electra Power, Bezeq and Partner said that the Electricity Authority is proposing, together with the electricity rate hike, to raise the costs of the system management rate by nearly 50%, and the costs of the variable network component rate by an average of about 14% for low voltage needs.
"From a review of the hearing, the impression is given that the Authority has not considered the impact of what is proposed on virtual suppliers in general and the electricity supply sector for household consumers in particular," the companies said in the letter.
"Conventional power stations should also be opened"
A senior industry figure tells "Globes" that the Electricity Authority does not need to change tariffs, but to retroactively change the rules of the game and allow the new companies to purchase more electricity from power plants. "In the end, there are not enough solar energy fields and we need to open up conventional power plants as well. The Electricity Authority is moving forward on this this slowly."
Electra Power CEO Amit Pergament explains that the major increase in overall payments to network users and the system manager has hit some suppliers dramatically. "For players without production sources, this is a loss of NIS 300-400 shekels a year from each private customer. This is a mega-event, regardless of whether it is a large or small player. As a result, we see the market going backwards with cuts in discounts and cuts in marketing."
There are also problems with meter reading on basic meters, which is cumbersome and requires customers to send photos of the reading two days before the end of each month.
As a result of all these challenges, senior industry figures tell "Globes" that this year we will see some of the seven existing new players leaving the sector. Some may merge with other companies while others might simply close down.
Published by Globes, Israel business news - en.globes.co.il - on January 21, 2025.
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