Israel's Electricity Reform Cuts Rates but Competition Stalls Amid Delays

A new report from the Knesset Research and Information Center reveals that Israel's electricity sector reform, which involved selling power plants from the state-owned Israel Electric Corporation (IEC) to private producers, has successfully lowered electricity tariffs and improved plant performance. The reform also shifted financial risks from the government to private investors. However, the report highlights significant delays in building and converting power plants by the IEC, which have negatively impacted electricity prices and consumer costs.

These implementation setbacks have hindered competition in the electricity market, resulting in excessive profits for private power producers. The report suggests that increasing the supply of power plants and adhering to construction schedules could enhance the reform's outcomes and further reduce electricity tariffs for consumers.

The reform, approved in 2018, aimed to fundamentally restructure the electricity market by reducing IEC's share in electricity production, boosting competition, and lowering consumer prices. Eight years later, while the privatization of power plants has met its goals, the state has not completed the second phase involving new plant construction and further sales to private producers, leaving competition limited.

The report was published amid renewed discussions about the electricity sector's structure. The Ministry of Energy is currently reviewing electricity production needs, including potentially expanding IEC's role in production, a move that contradicts the reform's principles and existing law. The reform involved a government expenditure of approximately 7.6 billion shekels to facilitate structural changes and open production to competition. Currently, IEC controls about 38% of electricity production, above the reform target of around 20%, and maintains a monopoly in electricity transmission.