Israel's Electricity Reform Falls Short of Mobile Revolution Savings

A significant reform aimed at opening Israel's electricity market to private suppliers, championed by former Energy Minister Eli Cohen as the most crucial consumer reform since the mobile market liberalization, is falling short of expectations. While Cohen boasted of breaking a monopoly and saving citizens hundreds of shekels annually, the reality is a more modest impact. Within two days of the reform's announcement, the number of private electricity suppliers decreased from seven to six following an acquisition, a minor transaction in the energy sector.

Over the past two years, approximately 450,000 households have switched to private electricity suppliers out of 3.5 million total households. However, this pales in comparison to the mobile reform, which saw around 3 million number portings in its first two years and reduced mobile package prices by two-thirds. The current electricity reform offers savings of only 5-7% on electricity bills, significantly less than the impact of the mobile reform. Private electricity suppliers argue that only half the work has been done, attributing the limited savings to the continued regulated monopoly of the state-owned Electric Company, unlike the fully dismantled mobile cartel.

Companies from the cooking gas and telecommunications sectors, such as Supergas, Amisragaz, Cellcom, Partner, and HOT, are participating in the private electricity market. They operate as virtual providers, purchasing electricity from private producers at lower rates and passing some savings to consumers. These companies are not building their own electricity infrastructure, as the state-owned Electric Company remains the natural infrastructure monopoly. Many of these companies are only recently moving from loss to profit in this sector, with relatively small profit margins.

Suppliers are bundling electricity services with other offerings, like gas or television packages, to retain customers and sell higher-margin services. While some companies are optimistic about future profitability with increased customer numbers, others find it difficult to significantly alter the market under current conditions. The Forum of Private Electricity Suppliers has appealed to the Electricity Authority, stating that current margins do not allow for profitability and make the supply segment unviable. They argue that the Electric Company receives excessively high tariffs for the remaining monopoly segments of transmission and supply.

Economist Chen Herzog advises the forum, noting that while there is sufficient electricity, competitive electricity is lacking. Some private electricity producers cannot sell to private suppliers but only to Noga, the electricity grid manager, though the Electricity Authority has indicated future allowance for this. The Electricity Authority has conducted tenders for discounted electricity, with limited success for private suppliers. Herzog also points to tariff structures that have not adapted to a competitive supply market, where the Electric Company can absorb losses in supply due to profits from transmission and distribution, a luxury private players lack.

Despite claims from the Ministry of Energy that the reform is a huge success with over two million citizens switching providers, the actual savings for consumers remain modest. The primary savings come from a 5-7% discount on the variable consumption portion of the bill, with additional discounts for off-peak hours. While these discounts can be more significant for electric vehicle owners, they offer limited impact for most households. The limited competition and the bundling of services suggest that, similar to the gas market, electricity providers are leveraging this reform to retain customers for their more profitable core businesses.