Competition on electricity prices faces 6-12 month delay

electricity

Establishment of a government management company is stalled by disagreement over who will pay for it.

The reform in the electricity market and the switch to competition on electricity prices between the electricity producers is being delayed. The government system management company is about to ask the Minister of National Infrastructures, Energy, and Water Resources and the Minister of Finance to postpone its launch date by six months, sources inform "Globes."

The company, which is supposed to manage electricity trading after the electricity production market is opened to competition, was scheduled to begin operating on December 3, 2019, according to the planned electricity sector reform approved by the cabinet in June 2018. Eighteen months after the reform was approved, however, the way to establishing the company still stretches long into the future, and there has been no progress whatsoever on certain matters.

The Minister of National Infrastructure, Energy, and Water Resources and the Minister of Finance are expected to approve the postponement in founding the company, but power industry sources believe that even this extra time is unrealistic, and that at least a year more will be needed to put the company into operation. "The timetables set were not realistic; this is a complicated matter that requires difficult decisions," the sources said.

The main issue yet to be resolved is the amount of working capital that the company needs, and where it will come from. Initial assessments are that the company will need hundreds of millions of shekels in initial capital, and possibly as much as NIS 1 billion, to carry out its functions. This money is designed to enable the company to make its first investments, until it begins earning money.

The Public Utilities Authority (Electricity) says that it will not allow electricity consumers to be forced to fund the costs of setting up the company. Given the dimensions of its budget deficit, the state will be in no hurry to put hundreds of millions of shekels into the company. In any case, any discussion of injecting government capital on this scale will have to wait for the formation of a new government.

The electricity sector reform, approved by the cabinet on June 3, 2018, contained a long list of measures, including organizational changes in IEC and privatization of power stations. The core of the reform is opening the electricity sector to competition.

IEC currently manages the system: it decides from whom to buy electricity, and on what terms. This situation poses a problem in a free market in which IEC competes with private electricity producers. The key step in the reform is therefore removing the system management unit from IEC and transferring it to a new government company.

The new company is supposed to buy power from the private producers (and from IEC) in auctions held every hour, and to sell it to "suppliers," who will market it to home and other consumers. This model, known as a single buyer model, is designed to provide certainty, lower prices, and ensure that consumers pay a lower price.

The Public Utilities Authority (Electricity) says that regulation of the reform is on schedule, and that every new power station is already committed to the option of trading in electricity as soon as the system management company goes into operation. The Public Utilities Authority (electricity) intends to publish the principles for dividing the risk between the state and the various players in the electricity sector within two months.

Published by Globes, Israel business news - en.globes.co.il - on November 25, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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