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Regulating state-owned CompaniesThe Israeli case
Adv. ORIT FARKASH-HACOHENIsrael Public Utility Authority Chairperson
Israeli context - Main Trends in the 2020 Electricity Market
40% IPP’s60% gas
~10% RES
The Share of IPPs is Growing Rapidly
3
36.6%
8%
IPP’s becoming ~40% from Electricity production
0
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016 2017 2018 2019 2020
(MW)RES
Cogen
IPP
IEC
Gas
Israel’s gas reform
Renewables
Government Targets 10% by 2020
0
20
40
60
80
2009 2020 (exp.)
65%25%
33% 65%
10%
Elec
rici
ty G
ener
atio
n (T
Wh)
Savings from Energy Efficiency program
Renewable Energy Sources
Natural Gas
Coal
Wind30%
Biomass21%
Large Thermo solar or PV
35%
Medium and small sized PV
14%
7
0
20
40
60
80
100
120
140
160
180
200
2008 2009 2010 2011 2012 2013 2014 2015 2016
PV ביתי
PV עסקי
PV חלוקה
PV הולכה
רוח
8
Evolution of Renewable Tariff
IEC generation cost
latest hearing
RE FITT cuts have saved the public above 12 billion NIS
However, Market not Structured (a bundled state owned Utility)
System Operator
Generation Segment
TransmissionSegment
Distribution Segment
SupplySegment
2.5% private
10% Renewables 25% IPP
10% private
PrivateIEC
Pwc 9
IEC - Status• Strong political power• Controls TPA access to grid and to end
consumers• Strongest Union labor in Israel• A distorted balance of power between IEC and
the state • Fully and heavily regulated but ignores the
regulated tariff signals completely (inefficient, poor financial condition)
The unbundling of the Utility is by law – for a decade – but not implementedExternal and internal challenges….
IPPs Facing challenges due to lack of structural reform
Growing mis-use of monopolistic power by the utility Labor Union
Self (physical) dispatch to avoid dependence on
system’s operator
Access to the grid might be denied
Lack of transparency
Regulated tariff serves as a cap for competitive
retail price
Competition limited to large consumers
Investors are facing higher risk and uncertainty to poor market structure
Capacity can be sold to the
monopoly to avoid demand risk
Capacity payments offered to IPPs in
addition to bilateral contracts
Gas purchase guarantee
War and terrorism insurance
12Over 3000 MW achieved financial closure and bring in investments
Challenges regulating IEC (state owned) in a world of change
Cont -
Conclusion
• The Israeli energy market is going through a great positive change
• In a reality of a strong Utility connected to the state as an owner, stirring private players had to be done in order to “move the cheese” and create a change in the mindset of the Utility.
• The next essential step is restructuring the market in order to support further progress.
www.wfer2015.netwww.wfer2015.org
COAL37%
GAS60%
מזוט0%
סולר0%
PV3%
2015
The use of gas decreased emission
COAL50%
GAS46%
מזוט0%
SOLER1% PV
3%2014
Gas dependency challenges
Pipeline redundancy
Antitrust issues
Gas contracts $5,00 $5,50 $6,00 $6,50 $7,00 $7,50 $8,00
2011 2016 2021 2026 2031
Pricing issues