Israel's Electricity Market Faces Scrutiny Over Competition Rules
Israel's electricity market is at a crossroads regarding competition, with regulators considering new structural limitations on private producers. The core question is not merely the number of companies, but whether they exert genuine competitive pressure, invest in new capacity, and provide reliable, affordable electricity. Currently, private producers are projected to supply 61% of the nation's electricity by 2025, surpassing the state-owned Electric Company's 39%. This shift signifies a move away from a market dominated by a monopoly towards one with diverse players in gas, renewables, and storage.
Existing law prohibits any single entity from holding 30% or more of the generation capacity, with a temporary 20% cap specifically for natural gas units. The Electricity Authority is now contemplating a new, potentially lower, unified cap for the entire market, possibly around 10%. This hypothetical scenario raises concerns about whether such fragmentation would foster true competition or simply create a market pre-designed with equal, small shares.
Comparisons to European markets show that defining a "significant" electricity producer as one holding at least 5% of national production is common. In 2023, countries like Germany and Spain had four such producers, while others had three or five. No EU country exceeded five, with an average of three. This suggests that a core of three to five major producers, alongside smaller ones, is a common and economically logical structure, given the capital-intensive nature of electricity generation.
Economically, larger entities can diversify risks, reduce financing costs, and absorb project failures. Forced fragmentation could increase capital costs and hinder investment. A more nuanced approach to market power, beyond simple market share, is needed. This includes analyzing "pivotal" producers, those essential to meeting demand at specific times, even with a smaller annual share. The analysis should also consider factors like residual demand, transmission constraints, and peak hours.
Furthermore, the asymmetry between private producers and the state-owned Electric Company, which operates under a cost-plus regulatory model and faces different investment risks, is a key issue. A rigid, low cap on private competitors while the public entity remains dominant could be counterproductive. Effective competitive regulation should aim for symmetrical rules, continuous monitoring of market power, and targeted enforcement, while also removing investment barriers and recognizing economies of scale. True competition is measured by effective rivalry and investment capacity, not by a predetermined number of players.
