The Electricity Authority will review the opening of an investigation into the conduct of the Electric Company regarding its non-compliance with the goals of closing the coal-fired power plant 1-4 in Hadera in June of this year - without the delay, the rate of increase in the electricity tariff would have been significantly lower.
Authority officials say that to the extent that they come to the conclusion that the company did not conduct itself in a reasonable manner to reduce the damages, this may have financial consequences for the company.
This was learned by Israel Hayom.
Tomorrow the household electricity rate will jump by a significant rate of 8.6%, which will add hundreds of shekels to household expenses per year.
However, it should be noted that this is a significantly lower increase in price compared to what is happening in Europe, in some countries prices have jumped by more than 200% in the last year, while in Israel only about 12% in the last year.
This was made possible thanks to the massive reduction in the use of coal in recent years - a policy led by former energy minister Dr. Yuval Steinitz.
However, it is hard not to wonder why Israel, with two active gas reserves and one more on the way, still produces close to a quarter of its total electricity with expensive and polluting coal?
The regulators in the electricity sector blame the war between Russia and Ukraine, which made coal more expensive in the world, and the corona virus - that Israel has not made progress over the past year in reducing its use.
However, although it is convenient to blame Putin and the corona, not everything depends on them, it may be possible, if not to prevent, at least to reduce the amount of future damage that will be caused to the consumer, if coal prices do not decrease.
Already in October of last year, the CEO of the Electric Company at the time, Ofer Bloch, announced that "the government's decision stating that units 1-4 at the Orot Rabin power plant, which operate on coal, will be closed by June 2022, cannot be implemented." However, the responsible regulators did not formulate an alternative plan that would accelerate the Meeting the coal reduction targets even though its price started to rise already at the end of last year.
So let's start from the beginning: a government decision in July 2018 stated that the activity of the coal-fired production units 1-4 at the Orot Rabin power plant must be stopped, and two new units operating with natural gas will be established in their place.
The decision determined that the operation of the first unit will be from June 2022, and accordingly the coal production units 1-4 will also stop operating at that time.
According to the electric company's financial reports for 2021, the estimated start of operation of the first gas turbine was postponed to January 2023 and the expected start of the second gas turbine to October 2023. According to the company, the delays in the construction of the units were due to the corona crisis, failures in the equipment provided to them by GE (General Electric) and Delays in the supply chain and availability of foreign experts and contractors.
In the hearing of the special committee regarding the fund for the citizens of Israel, which took place in May of this year, it was learned about another postponement - the commercial operation of the first unit will begin in April 2023 and of the second in January 2024. In the hearing it was also stated that the meaning of postponing the closure of the coal units is an addition of about 3.2 million tons of coal for production Electricity in 2022-2023 compared to the expected coal consumption if stations 1-4 were closed as planned.
From the estimate of the Knesset's Research and Information Center, it appears that the economic cost for not closing the coal stations by the date set for June 2022, is estimated at about one billion shekels for the year 2022.
However, the story does not end here, and even in 2023, the economic damage will continue to accumulate due to the failure to close the stations, assuming that the price of coal will continue to be high - something that depends on the duration of the war between Russia and Ukraine.
Is only the corona virus to blame for delaying the closing of the coal stations?
As mentioned, Chai postponed the start-up date of the gas turbines at Orot Rabin at least twice, and each time blamed the delay on the supplier GE. To the credit of the electric company, it can be said that it is not inevitable that a project of this type will certainly have delays during the Corona period and a crisis in the supply chains.
Chai warned in advance of the delays and gave explanations that put the Electric Authority's mind at ease. However, according to the sources at the Electric Authority, it is not inevitable that there was also procrastination on the part of the Electric Company, and in recent months updates have been received about additional delays with explanations that are less plausible, when again Chai doubts the delay.
These days, the Electricity Authority together with the Ministry of Energy are working to put pressure on the Electric Company in order to reduce the delays that greatly affect the consumer's pocket, and are even considering intervening in the processes with the supplier GE.
As mentioned, the damage caused and will be caused due to the delay in closing the coal stations is estimated at billions of shekels, and the question arises - will the state demand compensation from GE for the delay and malfunctions, in order to compensate electricity consumers for the damage caused to them?
After all, usually in procurement agreements of this type, the manufacturer is bound to a schedule.
The answer to this question is still unclear, the issue has not yet been examined by the Electricity Authority.
"Instead of converting in a column, converting at the same time"
We note that in November 2019 the Ministry of Energy published a document of policy principles, according to which by 2026 Chai must convert the remaining coal-fired units, except for the four in Orot Rabin - two units in Orot Rabin and four units in Rotenberg - so that they can operate using natural gas. According to Chen Herzog, Chief Economist of the consulting firm BDO, another plan could be drawn up to reduce the use of coal by accelerating the conversion of the additional 6 units or increasing the use of 4 gas units in the cluster.
In a Knesset debate in November 2021, after learning of the expected delay in closing the coal plants, Herzog said: "If we intended to close the coal plants in 2025, it is possible and necessary to close the coal plants at the end of 2023. There is a total process of converting six units here, which need to be converted from coal to gas. Instead of converting them in a column, one after the other after the third, you can convert them at the same time, two-two-two, and be in a situation where already in two years the film will be announced and cut on the end of the use of coal in Israel. It is possible, it is environmental and it is also economic. At today's coal prices , actually closing the coal will save us four billion shekels," he said.
We note that BDO provides financial advice to many entities in the energy sector, among others to the private electricity producers that produce electricity by using natural gas.
The Electric Authority responded: "Since the Electric Authority was informed of the expected delay, and in light of the high coal prices, it worked with the system manager and the Electric Company to examine options for reducing the use of coal in the short and medium term. Some of the options are still being examined these days. With regard to the use of units in the cluster , it should be noted that at the time of the announcement of the delay, the expectation according to the demand forecasts was that the permit limit does not prevent the use of units as a substitute for coal production, and in the first half of the year coal was not overused due to the non-use of the gas units in the cluster.
"Due to the high demand in the winter, there was increased use of the units in Eshkol, and after the Authority realized that the limit could lead to an increased use of coal later this year, it turned to the Ministry of Environmental Protection with a request to remove the limit. The Ministry of Environmental Protection did significantly reduce the effective limit, which allowed the Authority to reduce the increase in prices planned in the tariff, as published in the latest decision on the tariff update. As far as the conversions are concerned, the conversions cannot be accelerated in the short term due to the economic need for the units' capacity. However, this issue is being examined these days in order to examine whether in the longer term it will be possible to shorten the schedules" .
The Electric Company stated that "The Electric Company operates and will continue to operate with full transparency vis-à-vis all the relevant regulators. In essence, due to circumstances beyond the company's control, including the Corona waves, the war in Ukraine that created a global transportation crisis, and recall notices from the equipment supplier GE, unexpected delays were caused in the project. The company operates to reduce the timetables for the completion of the project in cooperation with the competent state authorities".
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