On June 2018, the Israeli government adopted decision no. 3859, entitled “The Reform in the Electricity Sector and Structural Change in the Israel Electric Corporation.” This decision constitutes a milestone in the long history of the IEC, which was incorporated in 1923.

Background

Today in Israel, the supply of electricity relies on five activities all under the IEC’s monopoly or overwhelming domination: system management, production, transmission, distribution, and supply of electricity.

Although independent power producers (IPPs) began to produce electricity in 2013, the quantities of electricity supplied by IPPs today represent only 30% of the national supply.

The decision is supposed to put an end to the IEC’s monopoly on each of these activities and to bring about the long-awaited dismantling of the IEC’s monopoly in the electricity sector.

The Reform

The reform represents a significant change to the IEC itself and to the entire electricity sector in Israel.

System Management

Today, the IEC holds the unique license to act as system manager. One of the IEC’s roles and prerogatives pursuant to this role is actually to decide from which power station it “pumps” electricity to meet the national demand.

As part of the reform, system management activity will be delegated to the system management company, a separate government-owned company.

This change is one of the most important contributions of the reform to the electricity sector, as it will end the IEC’s current conflict of interest in acting as both system manager and electricity producer.

It will also create favorable conditions to produce a free market of electricity, enabling IPPs to trade electricity among themselves and with the system manager.

Production Sector: Sale of Power Stations

Within a time period ranging from 18 months to 60 months following the decision, the IEC will sell the following gas power plants: Alon Tavor, Ramat Hovav, Ridding, Hagit, and Eshkol.

Part of the Rottenberg power station’s site will also be transferred to the Israel Land Authority in order to be sold.

Construction of Combined-Cycle Power Plants

As part of the reform, the IEC will also build, through a newly created fully-owned subsidiary, two natural gas production units at Orot Rabin, based on combined-cycle technology, with a total installed capacity of 1,200 MW.

The first unit is expected to be completed by no later than June 2022. The construction of the second unit will start following the sale of Alon Tavor’s power station and the publication of the tender for the sale of Ramat Hovav.

Apart from these two production units, the IEC will be prohibited from constructing new power plants in Israel.

Transmission, Distribution, and Supply of Electricity

The IEC will remain a monopoly in the sectors of transmission and distribution of electricity.

The supply of electricity will progressively become open to competition, to encourage private companies to enter this market. The IEC will not be allowed to intervene in the high and very high voltage supply markets. In the low voltage supply market, the IEC will be authorized to return and compete only after its market share decreases and remains under a 60% low point.

Structural Change

As part of the reform, the number of employees in the IEC will be reduced by approximately 1800 over eight years.

On May 17, 2018, a collective agreement was signed between the Histadrut (General Federation of Labor in Israel), the Ministry of Finance, and the IEC which aimed at implementing these changes.

The reform will be followed by significant amendments to current Israeli legislation, especially to the Electricity Sector Law, 1996.

The Ministry of Finance and the Ministry of Energy are due to circulate, within seven days of the decision, a draft bill of law amending the Electricity Sector Law, 1996 and implementing the changes inherent to the decision.