Knesset Research Finds Electricity Privatization Saved Over 10 Billion Shekels for Israel
The Knesset Research and Information Center (MAMAM) released an analysis on Monday evaluating the privatization of Israel Electric Corporation's power plants as part of the country's major electricity reform. According to the report, selling the power plants to private developers generated 9.8 billion shekels in revenue, which was fully passed on to consumers, resulting in an average electricity bill reduction of 6.2% between 2020 and 2025. Additionally, privatization improved power plant availability from 73.3% to 84.1%, enabling more efficient use of the grid and yielding an extra 1.33 billion shekels in benefits to the electricity sector.
The report highlights that private ownership also shifts construction risks away from the public, citing cost overruns and delays in new units built by the Israel Electric Corporation, such as at the Orot Rabin plant in Hadera. However, MAMAM notes that competition among private producers remains insufficient, leading to significant price disparities between peak and off-peak hours and resulting in high profit margins for power plants, including net profits of 25% and returns on equity of 54%. Complementary tariffs paid to power plants for minimal operation in 2023 totaled 440 million shekels, some of which could be avoided through improved pricing mechanisms.
The report criticizes the lack of progress on the Rading power plant in Tel Aviv, which remains unsold and inactive with no clear future plan. It also points to concerns over market dominance by the largest private producer, Adaltak, which has influenced decisions such as opposing the expansion of the Dorad power plant. The interministerial committee overseeing the reform is divided, with the Finance Ministry advocating for Israel Electric to exit electricity production entirely to avoid conflicts of interest, while the company argues its regulated pricing and market presence are necessary to maintain competition.
In conclusion, MAMAM states that while the reform has achieved some goals like lowering tariffs and improving availability, supply shortages due to delays in new plant construction and incomplete privatization have harmed market competitiveness and led to excessive profits for private producers. The center recommends increasing power plant supply and adhering to construction timelines to enhance competition and meet growing electricity demand at lower costs.
