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Israelis pay for delay in replacing coal-fired power stations

On January 1 2023 Israeli electricity rates will rise by 8.2%, having already risen by 8.6% in August 2022. Officially the reason for the rises is the war between Russia and Ukraine and the resulting global energy crisis, with coal prices soaring 150% over the past year while 22% of Israel’s electricity is still produced from coal.

More than a decade after Israel’s major offshore natural gas discoveries in the Tamar and Leviathan fields, the country has still not managed to achieve its declared aim of phasing out coal-fueled electricity production in favor of Israel’s own offshore natural gas, which is cleaner and cheaper, and not subject to the volatility of global markets.

But the Hadera and Ashkelon power stations have still not been fully converted from coal to natural gas production and Israeli electricity consumers must pay dearly for this delay. The 8.6% tariff rise next month could have been softened if the government decides to extend the suspension of excise on coal imports at a cost of NIS 500 million to the state’s coffers.

At present prices, every kWh of electricity produced from coal costs NIS 0.25 more than a kilowatt produced from natural gas. Israel currently produces 15 billion kWh from coal. In other words, the excess cost paid by the electricity sector for the use of coal compared to gas amounts to NIS 3.75 billion annually. All the conversions from coal to natural gas at power stations in Israel should be completed by the beginning of 2026, well behind schedule.

According to the original plan, Hadera’s Orot Rabin power station should have already almost been fully converted to electricity production from natural gas with the opening of new production units. The first new unit should have begun operating by September 2022 and the second unit in March 2023.

These targets are well behind schedule and sources close to the matter have told “Globes” that there are additional problems. The new units when operating will produce 15% less electricity from natural gas than the current units are producing from coal, resulting in a shortfall in available electricity on the national grid during peak use times (usually when it is very hot in the summer, or very cold in the winter).

The Public Utilities Authority (Electricity) blames the Israel Electric Corp. (IEC) on the matter, which in its turn blames General Electric (GE) for delays in supplying new turbines.

IEC is in talks with GE to set a new timetable for supply of the turbines, which should be approved by the regulators in the next two weeks. The schedule has not yet been disclosed, but from information learned by Globes, it appears that trial runs for the first new power unit from gas will begin at the end of February, 5 months later than the previous target. In the meantime, GE is paying fines for the delays

There is also a dispute regarding the length of time required from the moment of initial operations of the new units until it is possible to reach full commercial use and conduct electricity from it to the national grid. IEC estimates that about two months should be allowed, while GE says that six months are required. GE has even offered to sell to IEC a service that speeds up the run-in period from 6 months to 4 months.

On top of all this, the cost of the next conversion project is expected to be hundreds of millions of shekels more expensive. A recent assessment suggests that the construction prices may become tens of percent more expensive compared with the previous plan.

IEC said, “With the transition from coal to natural gas, no reduction in electricity output is expected. We note and emphasize that the delay in establishing the units at Orot Rabin was due to factors that are not dependent on IEC’s conduct. For example, the recall of GE equipment, and the global shipping crisis.”

Published by Globes, Israel business news – en.globes.co.il – on December 6, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

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