Israel’s energy future at risk without regulatory certainty
Gilad Oshri, Eytan Sheshinski, Niv Sever, Oved Debby, and Nurit Gal warn that Israel’s electricity demand is surging, while regulatory uncertainty, monopolization, and infrastructure challenges threaten long-term energy security.
"To meet the challenges and growing demand for electricity, regulatory certainty is needed to continue initiating projects," said Gilad Oshri, Head of Infrastructure and Energy at Bank Leumi, during a panel on energy security moderated by Amir Kurz at the Calcalist and Bank Leumi National Infrastructure Conference.
"The demand for electricity is rising—whether due to improved living standards, the expansion of data centers, or the transition to cleaner transportation—and this is where the challenges begin. The main issue lies in the transmission network, which faces significant difficulties. Another critical challenge is regulatory certainty. Energy projects require substantial financing, and the reason banks can support such projects is that we view the energy sector as vital to both the market and the country. Regulators must recognize that projects exist and that, throughout their construction, a stable regulatory framework is essential. Entrepreneurs need clarity on revenue sources, and banks must understand the 'rules of the game.' While banks are willing to take risks, those risks must be based on clear and predictable regulations," he explained.
Prof. (Emeritus) Eytan Sheshinski from the Department of Economics at the Hebrew University, who led government committees on Israel’s gas framework and pricing in 2010 and 2013, was asked what he would recommend if he were to head a similar committee today.
"In the gas sector, energy security for electricity depends on natural gas. We are already seeing signs of a looming problem, and it is worth preparing for it. Almost all of Israel’s electricity consumption—70-75% of total production—is generated by the Israel Electric Corporation (IEC), which is a major purchaser of natural gas. The key issue is the outlook for gas prices in the long term. Today, we are dealing with a monopoly: a single operator, Chevron, controls both of Israel’s largest gas reservoirs, Leviathan and Tamar. Tamar is almost entirely dedicated to local consumption, while Leviathan is primarily used for export. Since both reservoirs are managed by the same entity, there is no real competition between them. In fact, when the IEC issued a tender for gas supply in 2018, the two reservoirs submitted identical price bids."
"The solution will not come from expanding supply, as there is little expectation of major new gas discoveries in Israel. Any future discoveries are likely to be relatively small and insufficient to attract new players. The real concern is that gas prices, and consequently electricity prices, are expected to rise significantly by 2035. Energean's capacity from the Karish and Tanin reservoirs has already been sold off, meaning the Israeli economy remains reliant on a monopoly. I believe the only viable solution is to break up this monopoly by ensuring at least two separate operators manage Israel’s gas reservoirs. Other alternatives, such as requiring companies to sell gas separately, should also be explored. Bottom line: the government must act now to prevent a significant increase in energy costs," Sheshinski warned.
Niv Sever, Executive VP at Edeltech, was asked about the impact of privatizing power plants on competition and pricing.
"The results are already clear if we look at the Electricity Authority’s reports. Since the management and operation of four power stations were transferred to private hands, efficiency and availability have improved significantly—so much so that it is equivalent to adding a new power station to the grid. We are in an era where there is little expectation of new power plants being built in the near future, making this efficiency gain critical for the economy. I remember visiting the Alon Tavor power station before privatization—we couldn’t believe the amount of rust, and there were even reports of metal fragments flying off during operation. Today, all privatized power plants show improved availability, which ultimately translates into lower prices. In total, the state has gained 17 billion shekels from privatization, while also preventing a 20% increase in electricity tariffs."
"From my perspective, the solution to the expected electricity shortage in the coming decade is clear. Every remaining production unit should be privatized. The data proves that transferring power plants to private ownership increases efficiency and competition. However, the majority of electricity production is still controlled by the IEC. As more plants are privatized, we will see greater availability, higher supply, lower prices, and improved energy security," Sever stated.
Oved Debby, CEO of Dalia Energy Companies, emphasized the urgency of regulatory reforms.
"When discussing energy security, we must first ensure a stable electricity supply. It is clear that Israel is heading toward an energy crisis in the coming years. To prevent this, we need strong leadership, forward-thinking strategies, and proper planning," he said.
Debby explained that building new power generation units requires a minimum of 42 months and involves projects worth billions of shekels. "Securing financing is the easy part—there is funding available, and the projects themselves are viable. However, regulatory certainty is essential, and we have communicated this clearly to the Electricity Authority. This is not just a concern for banks but also for institutional investors, who hold a significant share of energy projects. We approach banks only after securing project initiatives. If developers and investors feel that returns are not guaranteed, they will not initiate projects. If they believe they are being treated unfairly, they will be deterred. Right now, the Electricity Authority must make decisions that provide long-term stability."
Dr. Nurit Gal, CEO of e-NRGY and former Deputy CEO of the Electricity Authority, warned of a looming supply shortage.
"We are expecting a significant increase in electricity demand, while at the same time, some power generation capacity is being lost due to the decommissioning of older stations. Over the next five years, several major developments must take place. Renewable energy projects need to be built by the end of the decade, requiring an additional 100,000 megawatts within just five years. Frankly, I fear this target is overly optimistic."
Gal pointed out that energy storage solutions are necessary but cannot function independently. "Storage facilities rely on renewable energy for charging, which means they are not a stand-alone solution. Another ongoing challenge is electricity supply. More than 50 private companies have entered the electricity supply sector, but they still need to purchase electricity from producers. If alternative sources are unavailable, these suppliers will struggle financially. These challenges are not just long-term concerns—they are already affecting the market today."
"We have transitioned from an environment of regulatory certainty for energy developers to one of increased risk. Previously, banks and investors had a clear framework to work within, but today, regulatory changes and unpredictable pricing structures create uncertainty. The market is not being managed in a way that provides the stability needed for long-term investment in energy infrastructure," she concluded.
