Kenon to build Kiryat Gat power station

Idan Ofer

Kenon subsidiary IC Power Israel announced the acquisition of Zomet Energy, which is negotiating to build a gas power plant license.

IC Power Israel, a subsidiary of Kenon Holdings Ltd (TASE:KEN: NYSE: KEN-WI) subsidiary IC Power, today announced that it had signed an option agreement for the acquisition of 95% of the rights in Zomet Energy. Zomet Energy is negotiating with the Public Utilities Authority (Electricity) for the construction of a 396-megawatt open cycle power plant west of Plugot Junction, near Kiryat Gat, on open territory near Highway 35. The controlling shareholder in Kenon is Idan Ofer.

According to a report to the Tel Aviv Stock Exchange (TASE) by Rapac Communication and Infrastructure Ltd. (TASE: RPAC), the 47.5% stake in the power plant project of its subsidiary, Rapac Energy, will be sold for $2.9 million if the option is exercised by February 2018 and the financing for the project is closed. An equal share of the project, owned by Denham Capital, is likely to be sold for the same amount.

Zomet Energy obtained a conditional license in late 2010 to build a 360-megawatt combined cycle power plant at Plugot Junction. The company was scheduled to close the financing for the project in 2015, but failed to do so. At the same time, the Public Utilities Authority (Electricity) asked the company to consider changing the technology for the power plant to open cycle, so that the power could go into operation quickly in the event of an electricity shortage, and its main revenues would come from its availability to the system. Payment for availability is usually NIS 0.06-0.07 per kilowatt-hour, compared with an average payment of about four times as much power per kilowatt-hour produced.

On January 4, 2016, the National Infrastructure Committee approved a National Plan 55 for construction of a power station according to its old specifications. At the request of the Public Utilities Authority (Electricity), the plan was revised in later January 2017 to a 396-megawatt open cycle power station. Two weeks following the decision of the first National Infrastructure Committee, on January 18, 2016, the cabinet approved National Plan 55, and the Kiryat Gat municipality petitioned the High Court of Justice against the plan a week later, asserting that the power plan was too close to future residential neighborhoods.

According to the presentation by the National Infrastructure Committee in January 2017, the size of the chimneys in the new plan will be 35 meters, compared with 50 meters in the original plan. The Israel Electric Corporation (IEC) (TASE: ELEC.B22) system manager expects such an open cycle plant to work 600 hours a year, while the Public Utilities Authority (Electricity) expects 1,000 hours of activity. Combined cycle plants producing electricity from natural gas and from the steam producing in the process will be more efficient; these plants usually operate 4,500-6,000 hours a year.

IC Power Israel, managed by CEO Giora Almogy, owns 80% of the 440-megawatt OPC power station at Mishor Rotem and has the rights to build a 140-megawatt combined cycle power station at Hadera Paper Ltd. (TASE: AIP; Pink Sheets: HAIPF). IC Power, the parent company of IC Power Israel, operates gas-powered private hydro power stations in the US and Latin America with an aggregate capacity of 4,000 megawatts. The company also owns an electricity distribution company in Guetamala.

Decision contravenes National Outline Plan 35 for environmental protection

In two weeks, the High Court of Justice will hear the Kiryat Gat municipality's petition against the Zomet Energy power station. The petition is based on a response submitted to the court by the Adam Teva V'Din environmental organization, which argues that the decisions by the National Infrastructure Committee and the cabinet are improper, and should therefore be voided. According to Rapac Communications' reports, "Zomet Energy's legal advisors are unable to estimate the chances that the petition will be accepted."

An investigative report about the power station submitted to the National Infrastructure Committee in July 2014 by Adv. Gideon Witkon shows the reasons for this lack of confidence by Rapac. In his report, Witkon writes that he "recommends accepting the objection by the Kiryat Gat municipality, the Local Planning and Building Commission, Adam Teva V'Din, Sapir Academic College, and the Sustainable Development for the Negev NGO, which oppose the location of the power station near the northwestern entrance to the city… I recommend accept the object that the plan in an agricultural area, which is an open area, not adjacent to an industrial zone, should not be approved."

Adv. Witkon notes that the plan contravenes National Outline Plan 35, which states planning and community dispersal policy in Israel until 2020. One of the declared objectives of this plan is "to provide a solution for the country's construction and development needs while maintaining open spaces and the land reserves for future generations."

In the report, Witkon recommends accepting the objection by the Israel Land Authority (ILA), which asserts, "Approval of construction of the power station at the northwestern entrance to Kiryat Gat is liable to jeopardize marketing of the land in the plan for construction of residential neighborhoods with 20,000 housing units. Planning for 7,000 of these housing units has already been completed, and they are in the marketing process…" The ILA claims that there is enough land for plant in the industrial zone in southern Kiryat Gat.

"Construction of a power station in Alternative 7A is likely to serve in the future as an anchor for development of an industrial zone adjoining the power plant. Location of an industrial zone in northwest Kiryat Gat is not proper for the city's development, nor does it correspond to the appearance of the city. Its effects are likely to interfere with attracting new residents to the planned neighborhoods."

The Southern District Planning and Building Commission also opposes the location of the power station, and Witkon presents its arguments. "The location of the proposed power station is in an open area according to both the district outline plan and the local plans. There is no justification for locating a power station there, as proposed in the plan. It should also be stressed that the Lakhish River, which flows near the proposed plan, is a stream for planning and an open vacation spot.

The committee emphasizes that the sewage treatment facility bordering the power station does not constitute existing infrastructure that can be relied on in adjacent construction, because the sewage treatment facility needs a location in open areas. It is also important to stress that establishing a power plant in the open area can become a future development focus for an additional power plant and/or another natural gas-based venture."

The District Planning and Building Commission recommends accepting the objections by the Kiryat Gat municipality and ILA, due to concern that marketing of the nearby planned housing units could be damaged, concluding, "The Committee protests the fact that a plan for power stations with a capacity and quantity greatly exceeding the demand in the area has been approved."

In response, the developers claimed that there were many power stations not located in industrial zones, and that industrial zones are not necessarily the most suitable for power stations. They also argued that the area of the sewage treatment plant was in any case violated, and had low environmental values, as was the case with the Gezer power station, located next to the Ayalon sewage treatment facility.

Published by Globes [online], Israel Business News - www.globes-online.com - on April 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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