The Electricity Authority has halted the award of permits to connect new server farms to the power grid for 140 days, because of the load on the grid if all the applications for a connection are approved. Dozens of such applications were pending, amounting in aggregate to three times the average total power consumption in the Israeli economy. This has dramatic implications, and the government will have to examine fundamental assumptions about the construction of server farms in Israel. The emergency halting of permits is explained by the fact that up to now all applications have been approved, to the point that it is not possible to approve more.
Server farms are huge consumers of electricity, and fears arose recently over the ability of the power production sector, which is any case overloaded, to supply the wave of server farms under construction. Now it appears that they have crossed a line, and the Electricity Authority has decided to freeze applications altogether until a new policy is formulated.
Noga, the government company that manages the power grid, approved server farms of over 1,500 megawatts (the output of about three power stations), and thereby blocked up the system until 2035. The load of the applications is so great that the restriction imposed by the Electricity Authority is of secondary importance to the physical production capacity of power stations in Israel. Up to now, there has been no obstacle to filing an application, and it cost nothing to do so.
Because of this, the Electricity Authority published new regulations, the aim of which was to limit server farm power connection applications to those for which there were real development plans, with preference being given to the periphery of the country. But this actually resulted in a wave of new applications before the new regulations came into effect. Before that, applications for connecting server farms to power amounted to 8,000 megawatts, but within six weeks dozens more applications were added, amounting to another 19,000 megawatts. The total amounted to three times average consumption in the entire Israeli economy, as mentioned, and far more than maximum consumption measured at peak hours.
Inadequate production capacity
The problem is twofold. Not only does the transmission network struggle to cope with server farms in areas of high demand, but Israel’s physical power production capacity is simply not up to the task. The power grid in Israel is overloaded because of long neglect, a situation that has begun to change only in recent years. National Economic Council chairperson Avi Simhon is promoting legislation that will define server farms as national infrastructure and will make planning them easier. It does not appear at all certain, however, that the power grid is able to handle this.
The Electricity Authority said in a statement, "The Authority is aware of the difficulty that this decision creates, but after examining the situation, the Authority believes that it is a proportionate step required by the complicated circumstances that have come about, and represents a correct balance between the needs of the industry and the state’s obligation to ensure the reliability of the power supply to all citizens of the State of Israel."
Uzi Zrahia, VP of planning and development at Noga, says, "We had a forecast for connecting server farms. We estimated that server farms amounting to 1,000 megawatts would be connected. We managed to approve the connection of over 1,500 megawatts. But the quantity of applications was actually out of all proportion. We used up the capacity of the system until 2035."
Zrahia says that the quantity approved is equivalent to no less than three conventional power plants. According to the Electricity Authority, this is three to four times the amount recommended by the Nagel committee, which examined the matter. "If the State of Israel wants a lot more server farms, it will have to approve more production capacity," he says.
What about the approval of so many server farms? "Noga acted according to the criteria and the laws," he responds. "Our position is not to say ‘No’ to new consumers. But we have to maintain energy security."
The long neglect of Israel’s power grid makes it difficult to connect up solar energy installations on the one hand, and to connect big customers such as server farms on the other. Only in recent years has investment in the transmission network grown, to NIS 5.5 billion in 2025, but even this is not up to speed with the average annual investment required by the development plan, which is NIS 5.8 billion. Moreover, even with the required financial investment, the Electricity Authority admits that 80% of the projects on the network are behind schedule.
Speculative land purchases
The Electricity Authority’s decision puts server farm developers in a position of considerable uncertainty about their ability to obtain a connection to the power grid. This also greatly harms the ability to lease server farm capacity to customers, who generally require an explicit connection permit from the Israel Electric Corporation (IEC) before signing a deal. Developers raise millions of shekels to buy land in reliance on the promise that they will be able to obtain a permit to connect the server farm they construct to the grid. Israeli developers tend to take greater risks, sometimes buying land without securing a power supply. The banks are also nervous, having promised finance for many developers who could now be found by the IEC as not deserving a power connection.
Developers and senior figures in the server farm industry describe the decision as "a failure that indicates a lack of understanding of the market, and that delays the development of Israel’s technology sector and the ability to fulfil the national AI policy that the government itself set."
Other developers, however, actually welcome the decision as one that could clear the market of unserious developers who received approval for a power connection on the strength of very basic information. "Developers obtained electricity approvals on the basis of mere promises. It’s about time that Noga and the Electricity Authority should set clear criteria before they issue electricity approvals," one developer said.
The Electricity Authority did give an assurance that promised power connections would not be affected, but the circular released yesterday states that a special hearing will be held on commitments that do not meet the threshold criteria that will be set, and for developers found unsuitable according to financial strength criteria that will be determined later on. One of the conditions being considered is an annual payment of NIS 1-2 million as a pledge of seriousness until construction of the server farm is completed, in order to winnow out players without serious intentions or the financial capacity to meet the demands of construction. The cost of constructing a one gigawatt sever farm is in the tens of billions of shekels.
Uncertainty for Mega Or
One of the companies immediately impacted by the Electricity Authority’s decision is Zahi Nahmias’s Mega Or (TASE:MGOR). The company, which has become the most active builder of server farms in Israel, holds power connection permits for large sites that it purchased to build server farms, in Bet Shemesh, Sde Yoav, Haifa, and Mevo Carmel.
There is however uncertainty over its application for a one gigawatt connection for a site it bought in Hadera to construct a server farm and power plant for NIS 1 billion cash. There is a power connection at the site, and even a sub-station, but it can produce only 40 megawatts, far below the amount of power that Mega Or subsidiary Mega DC is demanding from Noga - 1 megawatt. The wait for the review of a permit for such a large power supply for the Hadera site will be an anxious one for the company’s management, which is estimated to have applied for approvals from Noga for about fourteen gigawatts, amounting to more than half the aggregate of all the applications on Noga’s desk.
So even if a decision like that of the Electricity Authority has no immediate effect on existing contracts, it could affect the future growth of companies in this industry.
Beneficiaries of the decision are US server farm companies active in Israel such as EdgeConneX, MedOne, and Serverfarm, which operate very conservatively and rarely make new purchases of land, certainly not of sites without an existing power connection.
Enlight may have to wait
Enlight Renewable Energy’s (TASE: ENLT) planned 100- megawatt installation at Ashalim has yet to receive final approval for a connection, and approval could be delayed under the new rules. Enlight seeks to build a power plant to run a server farm alongside it, as is the general practice in the US, but existing Electricity Authority regulations do not allow a server farm to be without a connection to the national power grid.
Until that happens, the company is dependent on approval for connection to the grid from Noga, which is now not certain to be forthcoming. However, the new rules will probably not exclude investors like Enlight and Mega Or, which are financially strong, but rather smaller and financially weaker developers. Still, the regulation is likely to delay the construction of installations by large companies because of the need to reduce the number of approvals allocated for building new server farms and a reordering of the priorities of the Electricity Authority and Noga.
Strategic infrastructure
Yonit Goldberg, chairperson of the Israel Data Centers Association, said, "We understand the responsibility of the Electricity Authority and the managers of the system to maintain the stability and reliability of the power supply. At the same time, the decision brings home how much Israel needs an orderly national policy for AI infrastructure and server farms. This is a matter of strategic infrastructure for the State of Israel, with an impact on national security, the economy, innovation, and Israel’s ability to compete internationally, and not of just another large consumer of electricity.
"The solution is not to bring the industry to a halt, but to create a transparent and swift regulatory mechanism that will ensure that the limited power capacity is allocated to projects that are genuinely feasible, financially sound, and that contribute to the economy, and that will prevent capacity from being blocked by speculative applications. Investment in production and distribution should be accelerated to make the power infrastructure suitable for the needs of the next decade."
Published by Globes, Israel business news - en.globes.co.il - on July 22, 2026.
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