Firms in state of 'hysteria' as darkness falls on Israel's solar industry

The market for solar-power technology ground to a halt this week after the Israel Electric Corporation unexpectedly announced that the state's quota for subsidizing solar installations for businesses has been used up. Its little bombshell threw the entire sector of companies that install and integrate solar panels into confusion, not to mention their clients.

It's a matter of state policy, handed down by the National Infrastructure Ministry, to encourage the use of solar power in Israel. The way to do so is incentives. Companies possessing solar-power devices generate electricity for their own use, and any excess they sell to the IEC. The incentive lies in the price the IEC pays them for the power - it's very high, about four times the price consumers pay the IEC for electricity. But that incentive is finite.

The direct regulator in charge of electricity, whether generated from the sun or fossil fuels, is the Public Utilities Authority (Electricity). Together, the ministry and the authority set a quota.

At the first stage (and so far the only stage) of the program to introduce solar panels to the people, the IEC may buy up to 50 megawatts of solar power from these private producers, at that high price. And that's where the IEC's announcement comes in.

Just last month the company said that only 55% of the quota had been used up. Suddenly the company essentially shrugged and said it's all gone. Ergo, inside a month, it says, it received 300 requests from businesses and agricultural enterprises for hookups to the national grid.

The incentives, announced about a year and a half ago, spawned a vibrant industry of companies that install solar technology. Solar-installation companies sprang up like mushrooms, either importing and installing solar panels for client companies and leaving the deal at that, or leasing roof space from client companies and selling the excess electricity to the IEC.

Now the companies that recently ordered expensive solar-energy equipment to install for client companies are flummoxed. They expected handsome returns and find themselves stuck with inventory for which they already made down payments. Will they still be eligible for subsidies, or have they missed the boat? They have no idea where they stand.

In any case, the state figured it would decide what to do next after the cap of 50 mW was filled. But it hasn't made any decisions yet, and the Utilities Authority doesn't want to just solve the problem by expanding the quota. It doesn't want the state to keep paying the same high price for electricity it buys from private solar generators, for one thing.

The IEC's role is to connect between the solar systems installed on rooftops and the national grid. Following the completion of the quota, it has frozen all requests for such connections. And there are the installers, sitting on gear that the IEC refuses, at this point at least, to hook up to the grid.

The money involved is not small. Israel's installation companies have invested some NIS 700 million so far in anticipation of handsome profit thanks to the incentives.

"The whole sector is in a state of hysteria," said a source at an installation company after the IEC's bombshell. "People ordered solar systems and paid part up front. Now they have no idea if they're included in the incentive program or not."

On Monday, immediately after the announcement, the Israeli association of renewable-energy companies wrote a hasty missive to the minister of national infrastructure, Uzi Landau. "Almost 100 companies active in the sector are in an impossible situation," the association wrote. "They have hundreds of [open] orders worth hundreds of millions of shekels."

About 1,000 people could lose their jobs on the spot, the association added. It asked Landau to intervene so the "vibrant, young" sector could continue to grow.

The Israel Electric Corporation's announcement didn't surprise just the companies but the regulators as well: the National Infrastructure Ministry and the Public Utilities Authority (Electricity). It caught them all completely unprepared.

Nobody has any idea what the ramifications could be of suddenly throwing the young sector into the deep freeze.

The companies find themselves facing huge potential losses. They ordered a great deal of equipment from foreign manufacturers - panels and converters - and made down payments. Some have equipment on hand in storage at the ports or elsewhere, but they can't do a thing with it until the situation clears up.

The Israel Electric Corporation never published any figures about the pace at which the state's subsidies were being exploited, so people were taken by surprise, explains an industry insider.

A number of business and agricultural companies (not homeowners) entered into deals to buy solar technology these very days, having no idea the quota was nearing exhaustion. There's no solution for them: The IEC refuses to hook up their systems. They have to wait for the state to decide its next step - will it increase the quota or maybe create a new one on new terms? They don't know.

The installation companies, meanwhile, are at risk of violating contracts. Even if the state expands its incentives program beyond 50 mW, it probably won't be at the same prices.

Meanwhile, as chaos rages, the installers' very survival is at risk. In the last 12 months alone, no less than 72 new installation companies were established, and there were already 30 in existence.

These companies employ about 1,000 people directly, say industry observers, and provide work for many hundreds more. If the entire solar scene is thrown into darkness, a ripple result will be the suspension of tenders issued by local authorities and canceled orders from real estate companies.

The banks are also in an uproar. In recent months they offered companies special financing packages for buying solar systems. The loans were to be backed by the revenues the companies would make from selling the power to the IEC. "This is a real solar salad," said a banker this week, voicing fears that the mess would spread.

Summing up the chaotic situation neatly, one capital-market animal pointed out this week that it's completely untenable for a buzzing industry with 100 companies and dozens of suppliers to suddenly run into a brick wall. Yet that's what's happened.

Howls are arising in the solar industry for an inquiry into the IEC's moves in the last couple of weeks.

The company itself shrugs innocently and says the sudden flood of requests to connect solar systems to the grid forced it to announce that it would accept no more such requests. To be accurate, it predicts that once these systems are connected, the quota will be used up. Industry sources complain that the "flood" includes a number of solar installations that don't have building permits yet and therefore are not entitled to approval.

Meanwhile, the National Infrastructure Ministry hastened to demand that the IEC provide it with exact figures on the connection approvals it has granted lately.

On Monday, representatives of Israel's 10 biggest solar-system installation companies convened for an emergency meeting at the law offices of Epstein, Rosenblum, Maoz, which advises the association of renewable-energy companies. TheMarker has learned that the union wants the ministry to appoint an external panel of inquiry.

The panel would investigate the mistake in creating a quota system without creating a strategy for when the quota is exhausted. Also, the panel will investigate how no tracking mechanisms were set up for the connection requests filed with the IEC.

And, the union would like the ministry to kindly arrange more quotas.