Israel Must Rapidly Expand Local Power Production to Support AI Growth

Artificial intelligence has shifted from a technological trend to a central concern for CEOs, investors, and policymakers worldwide, including in Israel. The rapid advancement of AI models and data centers demands enormous amounts of electricity, outpacing many countries' ability to expand their energy infrastructure. Israel is already experiencing this gap, exemplified by the Electricity Authority's recent freeze on new data center connection requests, reflecting a growing mismatch between electricity demand and grid development.

The traditional approach of building new power plants and expanding the national grid, while necessary, is too slow to meet urgent needs. Israel must implement significant regulatory reforms to enable the rapid establishment of power generation and cogeneration facilities of at least 50 megawatts near data centers and large energy consumers within months. Current licensing processes are complex and lengthy, effectively blocking local power production where it is most needed.

A broader strategic shift is also required to accelerate distributed electricity generation at customer sites such as factories, hospitals, campuses, logistics centers, and data farms. Combining natural gas, cogeneration, energy storage, and smart demand management can enhance operational continuity, reduce grid strain, and improve national energy security.

Countries aiming to attract AI investments invest heavily in energy infrastructure, recognizing that data centers are primarily major energy consumers. Israel has the human capital, innovation, and entrepreneurship to be a significant player in the AI revolution, but without immediate investment in local power production, the biggest obstacle to AI development will be megawatt shortages rather than talent shortages, warns Yair Hirsch, CEO of Aluma Infrastructure Fund and former Interior Ministry director general.