Israel Weighs Limits on Data Center Expansion in Central Region

The Knesset Interior Committee discussed a government bill led by National Economic Council head Prof. Avi Simhon that would classify data centers as national infrastructure across Israel, allowing faster approval through the National Infrastructure Committee. The debate comes as the Finance and Energy ministries are pushing limits intended to prevent overload on Israel’s power grid, and the Electricity Authority has recently issued a policy giving priority to data centers in the periphery when connecting to the grid.

Data centers are considered critical for artificial intelligence, but their main operating cost is electricity, a particularly heavy burden in Israel because of rapid demographic and economic growth. The transmission grid is now the main bottleneck after years of neglect, and while the cheapest power generation is in the periphery, most electricity demand is in central Israel. Because electricity prices are the same nationwide, officials fear that placing more data centers in the center would worsen the difficulty of moving power from generation sites to consumers.

On June 10, shares of server and renewable-energy companies, including Mega Or, Nofar Energy, Meshak Energy and Doral, dropped sharply on fears of a special tax on data centers. The Finance Ministry said there was no concrete intention to impose new taxes, describing it only as one possible solution. The Energy Ministry, together with Shaldor, has also published an AI and energy strategic review that considers a moratorium on new data centers in central Israel, along with efficiency standards and easier construction in the periphery.

Simchon said all participants agreed on the importance of data centers for AI in Israel, arguing that there is no logic in an a priori legal restriction that leaves no flexibility in such a fast-changing field. Committee chairman MK Yitzhak Kroizer said, “Israel does not want to lag behind,” but added that there is an energy gap, especially regarding where data centers should be located, and that the legislation will be bounded by location and needs. Lobby 99 economist and public lobbyist Ofir Per said uncontrolled construction, especially in the center, would raise electricity prices, and said data centers should be built outside high-demand areas and rely as much as possible on renewable energy.