Shamir Energy Enters Israel's Data Center Market

Shamir Energy, the energy arm of Migdal Shamir, is entering Israel's data center market. The real estate company Yessodot Itanim announced that Shamir Energy has signed a ten-year exclusive option agreement to use land in the Kenneret Industrial Park, located in Kibbutz Ashdot Yaakov Meuhad. Shamir plans to construct a 100-megawatt data center on a portion of the 106-dunam site. Adjacent to the data center, a small power station or energy storage facility is planned to meet its electricity needs.

Yessodot Itanim holds a 24.64% stake in the industrial park, alongside Grofit Company and the kibbutz. The agreement outlines milestones Shamir must achieve during the option period, including feasibility studies, obtaining certifications, securing building permits, and reaching financial closure. If the option is exercised, the land usage period will extend to nearly 25 years. Additionally, the Kenneret Industrial Park may become a partner in the data center's operating company, holding up to 18% of its shares in exchange for financing.

This move follows the Electricity Authority's introduction of new regulations for data centers, which plan to add only 1,000 megawatts to the sector's electricity consumption. This is despite existing applications for data center grid connections totaling 27,000 megawatts, creating intense competition for grid access. Shamir Energy may circumvent this limitation by establishing independent power generation through gas turbines or energy storage facilities. However, building a new natural gas-fired power plant involves complex licensing, including a production license from the Electricity Authority, emission permits from the Ministry of Environmental Protection, and building permits from the District Planning and Building Commission, and is likely to face local opposition.

Alternatively, establishing energy storage facilities, which have a simpler construction process than gas power plants, is an option. This could leverage existing large-scale energy infrastructure and storage facilities in the area, though it would still need to address the data center's high electricity demand. Shamir Energy, controlled by Migdal Shamir (72% ownership), is already active in electricity generation, holding stakes in Alon Tavor and the under-construction Qesem power stations. It is also involved in other natural gas projects and renewable energy and waste-to-energy initiatives. The company has prepared a draft prospectus for an IPO of its energy operations on the Tel Aviv Stock Exchange, valuing it at an estimated NIS 5 billion, though the IPO timing is uncertain.

Shamir Energy's entry into the data center sector could signal a shift in market players. Previously, most data center development applications came from real estate firms like Azrieli, Mega Or, and Melisron, or specialized companies like SDS. However, the immense electricity demand and the grid's limited capacity may open the market to energy companies with expertise and infrastructure in power generation. A model where data center developers also manage their own power supply, known as 'Bring Your Own Power,' has emerged in the U.S. and could potentially develop in Israel, but new private power plant construction for data centers faces significant planning, licensing, and environmental hurdles.