Israel's Electricity Authority Proposes New Wholesale Pricing Model to Stabilize Market by 2027

The Israel Electricity Authority and the system operator Noga have proposed a new wholesale electricity pricing model called MCP, set to take effect in January 2027. This model will replace the current SMP pricing system and aims to better reflect actual production costs while addressing network constraints and market distortions. The change is designed to increase the prices paid to electricity producers but reduce additional regulatory payments made outside the market, creating long-term financial and regulatory certainty.

The new model includes a price cap and stricter oversight to prevent private power stations from submitting inflated bids disconnected from production costs. This measure was introduced after investigations revealed ongoing price inflation by private producers. The combined approach aims to control costs, reduce market volatility, and incentivize investment in new production capacity, benefiting both producers and private electricity suppliers.

For consumers, the reform is expected to cause a moderate increase in electricity tariffs, estimated at around 100 to 150 million shekels annually, or roughly a 0.5% rise in the short term. The Electricity Authority considers this a reasonable price for enhanced market stability, reduced price swings, and long-term tariff reductions through increased supply capacity. The proposal was developed with international expert assistance and is currently open for public hearing.