As part of its project to install solar panels on 100,000 roofs in Israel, the Ministry of Energy and Infrastructure will initiate two new incentive tracks to be discussed by the Electricity Authority, for those interested in putting solar panels on their homes. The two tracks are: a more rapid return of the initial investment by receiving a higher tariff for electricity produced in the first five years, balanced by a lower tariff after that; and a track linked to the Consumer Price Index to protect against inflation with a lower tariff initially but rising along with inflation.
The Ministry of Energy and Infrastructure estimates that if there were solar panels on 100,000 homes, these tracks would result in a net cost of an additional NIS 51 million per year for the Israel Electricity Corp., but in the long term these extra costs should balance out, so the total compensation would not change.
Anyone who installs solar panels on the roof of their home today is entitled to an especially high tariff of NIS 0.48 per kWh, and an additional NIS 0.06 in large cities, locked in for 25-years. This rate is several times higher than that received by new power plants and solar energy fields. This stems from the advantages that the Ministry of Energy sees in installing solar panels on roofs, including energy efficiency (sometimes there is no need to transfer the electricity to high voltage), decentralization of energy production, and meeting Israel's renewable energy goals.
Nevertheless, not many choose this option, which is mainly suitable for private homes in suburban communities that are not necessarily wealthy. Therefore, to encourage installation of solar panels on roofs, the Ministry of Energy is initiating the two new investment return tracks in response to public concerns about installing them. In recent days, the Electricity Authority has published for a public hearing the exact numbers that people will be able to receive in the new tracks.
Two tracks
One concern is the time it takes to recoup the investment, which can take six years or even longer. Consequently the "rapid payback track" will provide an even higher tariff of NIS 0.60 cents per kWh instead of NIS 0.48 in the first five years. But after these 5 years, the tariff will be cut to only NIS 0.60. In this way, the repayment for installing the solar panels will be brought forward to bring about a quick return on investment within 5 years, thus reducing the risks of installing solar panels on roofs.
A second concern is inflation, which has risen in recent years and could continue to be high in the coming years. Tariffs paid are fixed for 25 years, but if inflation is high, the real value of the fixed amount will erode over time. Therefore, a CPI-linked track has been set that starts with a lower tariff (only NIS 0.39) but increases with inflation. If inflation is low - the tariff remains low, but if it increases - the tariff rises accordingly.
As the target is for the total tariff payments to remain the same, the Electricity Authority had to estimate now what the expected inflation will be In over next 25 years. Since there is no such official estimate, the experts used the Bank of Israel's inflation forecast for the first 10 years, and for the years after that - the Bank of Israel's forecast for years 5-10. Of course, if inflation is actually higher than the forecast - whoever chooses this path will profit compared with the normal path, while if it is lower, they will lose out.
As part of the public hearing, the Electricity Authority has also estimated the costs of the proposed tracks in the short term: If there are solar panels installed on 100,000 roofs, of which 50% are on the fast payback track, 20% index-linked, and 30% on the regular track - the fast payback track will result in an excess cost of NIS 129 million per year, and the inflation-linked track will result in savings of NIS 67 million per year, so that the total cost in the short term will be about NIS 51 million per year. But of course, in the long term this is meant to balance out: payments for the fast payback track decrease, and the payments for the inflation-linked track increase. So overall, the Electricity Authority calculates that the total cost to the economy should be the same as continuing with the regular track.
Published by Globes, Israel business news - en.globes.co.il - on March 23, 2025.
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