Behind the high price that Israel Electric Corporation (IEC) achieved in the auction for the sale of its power station at Ramat Hovav in southern Israel lies a battle between the local private power producers to gain dominance in the power production market, in advance of the switch to a competitive market, according to energy market sources.
Last week, Ramat Hovav Power, a limited partnership consisting of Shikun & Binui Holdings Ltd. (TASE: SKBN) (55%) and Edeltech (45%), won the auction for the sale of the Ramat Hovav power station. The winners bid no less than NIS 4.25 billion for the site, on which six IEC production units currently stand, with an aggregate output of 1,150 megawatts.
As far as IEC is concerned, this is an impressive success. The power plants, some of which are nearly 40 years old, were recorded in its books at NIS 1.96 billion, so as a result of the auction it will post a capital gain of up to NIS 2.5 billion. Most of the proceeds, incidentally, will go towards a reduction in the electricity tariff for 2021.
"Not an excessive price
Earlier estimates were that IEC would receive NIS 2-3 billion for the power station, but sources involved in the auction told "Globes" that even by the early stages, in October-November 2019, it was clear that the bids would top NIS 3 billion. In the end, the difference between the winner and the under-bidder, the OPC-Noy Fund consortium, was just NIS 38 million. "The fact that the two oldest private power producers in Israel reached the top places with almost identical bids indicates that the price is not excessive," a source connected to one of the consortia told "Globes".
For Edeltech, controlled by Ori Edelsburg, this is a substantial achievement, consolidating its status as Israel's largest private power producer. After the completion of the day, it will hold, it claims, 16.5% of the private power production sector in Israel (some of it with partners).
Edeltech was founded 30 years ago by Ori's father Joseph. It was one of the developers of Dorad, one of the largest private power plants in Israel (870 megawatt), which has operated since 2014 on land belonging to the Trans-Israel Pipeline in Ashkelon. Edeletech holds 18.75% of the plant.
Edeltech also constructed and operates Ramat Negev Energy, a medium-size power plant (125 megawatt) at Neot Hovav, not far from the IEC site, and Ashdod Energy, a small plant (65 megawatt) in the Ashdod Industrial Zone.
OPC, controlled by Idan Ofer, is a publicly traded company with a market cap of NIS 4.2 billion, which has competed with Edeltech almost from its first moment, and in fact preceded it by starting to operate its largest power plant (450 megawatt) on the Rotem Plain in July 2013.
Energy market sources say that the battle between OPC and Edeletech needs to be seen against the background of the expected transition to nationwide competition, under the reform of the power sector. The company managing the distribution network is supposed to hold hourly auctions between the producers (including IEC) throughout the day for the purchase of power. "The power trading model that is emerging will give economies of scale to whoever controls a substantial segment of the market and a large network of power plants, affording them extensive operating flexibility," the sources told "Globes".
For Shikin & Binui, an infrastructure and real estate giant controlled by Naty Saidoff and headed by Eyal Lapidot, the auction win represents a substantial first step in conventional power production. Up to now the company's energy activity has focused on renewable sources.
The fierce competition that has started to develop between the different natural gas reservoirs in Israel in the past few months, and the low in world gas prices, will help Ramat Hovav's new owners to obtain the lowest prices yet for gas. They will also benefit from considerable upside if they manage to expand the site's production capacity, whether by upgrading the existing plants or by building new plants alongside them, although this will also depend on expansion of the capacity of the conduction infrastructure from the site.
The assumption is that the period in which the state allowed developers to construct power plants from scratch is over, and that in the future construction will be allowed only on sites on which power plants already operate.
Edeltech and Shikun & Binui's immediate task is securing finance to close the Ramat Hovav deal. In that process, the question whether the price they bid is excessive or realistic will be examined in depth,
Published by Globes, Israel business news - en.globes.co.il - on June 15, 2020
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