Tel Aviv Energy Stocks Fall on Fears of a Special Tax on Data Centers
Energy stocks in Tel Aviv are falling sharply amid fears of a special tax on data centers. Mega Or was among the stocks leading the declines. The company, controlled by Tzahi Nahmias, has transformed from a traditional income-producing real estate and logistics company into a full-fledged technology and artificial intelligence stock. Its surge since the start of the year, which brought it into the flagship TA-35 index, came almost entirely from its data center division.
Additional energy stocks that reported initiatives in the data center field weighed on the TA-125 index, including Nofar Energy, Meshek Energy and Doral Energy. ● The collapse of Simad: the list of the biggest losers is revealed ● Including a Tel Aviv stock: Bitcoin's plunge hits treasury companies
One reason for the boom in Israel's energy sector in recent years, including renewable energy, which jumped 130% over the past year, is the expectation of massive data center construction following the artificial intelligence revolution. But the Treasury fears negative effects on grid load, supply reliability and the use of Israel's limited gas resources. Several solutions, including taxation, have been raised to address the problems.
Data centers could bring significant benefits to the Israeli market, the Budget Department's interim report, published a few months ago, emphasized. They would enable sovereignty over information in sensitive fields, create economic potential for increasing capital and economic productivity, and build an ecosystem around the high-tech industry. At the same time, however, there are serious concerns about the strain they will place on the electricity grid. "The electricity connection of even a not particularly large data center, about 50 megawatts, is equivalent to connecting about 10,000 households to the electricity grid." This would require extensive construction of many power plants, at a time when Israel's energy system is already under pressure and electricity demand keeps rising, and "the transmission and transformation infrastructure is at the limit of its capacity." As reported in Globes, Israel's electricity grid is under enormous strain, and work on expanding it is significantly behind schedule.
In addition, Israel's gas resource is limited, and while exports are being restricted, using gas for data centers serving foreign clients could simply amount to indirect gas exports. The interministerial team is examining solutions used abroad.
Therefore, the Treasury is considering several options. One of them, which has sparked panic in the market, is a special tax on data centers because of their significant impact on the electricity sector. The measure is considered relatively draconian, but other steps being considered by the Treasury could also significantly affect the sector. In parts of the United States, in Texas for example, it is common to require data centers to come with independent power-generation capacity and to buy electricity from the grid only rarely. But building generation capacity in Israel is much more difficult because of bureaucratic hurdles and a shortage of grid space, and such a step could be even harsher than taxation.
Other measures under consideration include moving data centers away from the central region, where huge electricity demand is expected later on anyway. This step has been taken in Ireland, where data centers were moved by special regulation away from Dublin, the capital, where most demand is concentrated. Also under consideration are dedicated "energy parks" in which generation capacity would be built alongside data centers, with the state incentivizing data centers to be established there rather than elsewhere.
All of these are essentially indirect ways to avoid what seems almost obvious on an economic level, differential electricity pricing. If the concern is excessive electricity consumption, electricity tariffs could simply be raised and data centers left to make their own economic decisions. But such a move would contradict a deep economic principle at the basis of Israel's electricity grid, namely the universal price. Every electricity consumer in Israel pays the same price, with a few rare exceptions. The concern is that this would become a "slippery slope" toward subsidizing electricity for preferred industries or geographic areas, which could create problematic political incentives to allocate cheap power without any clear benefit to the electricity system itself.
All that said, the panic may be premature. The interministerial team, consisting of the Finance Ministry, the Energy Ministry, the Electricity Authority, the news authority, the Ministry for Environmental Protection, the Planning Administration and the National AI Headquarters, is still working. It is not yet clear which solutions it prefers, and it is far from formulating final recommendations. Any practical implementation, if there is one, would happen only in the next Arrangements Law, which will be approved only by the next government after the election, or even in the one after that. It is also possible that the chosen solution will be no intervention at all, leaving the situation as it is. That would be the preferred solution if the team is convinced that there is a particularly great benefit to establishing data centers in Israel, and that this is a sector that should be encouraged. But for now, the Finance Ministry is skeptical of that argument and is expected to demand some kind of intervention.
The Finance Ministry said, "There is no concrete intention to impose new taxes on the issue. Following the interministerial team report published by the Finance Ministry in February, the data center sector raises questions and challenges in the electricity sector. The Finance Ministry is examining the team's recommendations, and further broad professional work is needed before formulating conclusions and policy on the matter."
A quarter of a million Israelis are already in crypto: "We're not waiting for the investment houses"
Please note: Globes strives for a diverse, substantive and respectful discourse in accordance with the ethical code appearing in the trust report by which we operate. Expressions of violence, racism, incitement or any other inappropriate discourse are automatically filtered and will not be published on the site.
