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Construction of three new solar energy stations at Ashalim in the Negev, along with recently announced incentives for installing solar panels on rooftops, could cost an additional NIS 350 million annually for electricity production, raising prices by up to 1.5%.

With the plethora of plans for producing electricity with renewable energy, such as sun or wind, we sometimes forget that such production is dozens or even hundreds of percentage points more expensive than producing electricity based on coal or natural gas. Electricity rates are currently based on average production expenses of about NIS 0.40 per KW/hr.

To provide incentives for private production of electricity through solar technology, the state needs to ensure higher prices, to cover the high production costs and provide an effective risk premium. Manufacturers of electricity with thermal solar devices that produce 0.1 to 20 megawatts will receive NIS 0.90 per KW/hr when sold to the electricity grid, while larger producers of more than 20 megawatts will earn about NIS 0.70.

In addition, new incentives for self-production of electricity with photovoltaic technology that came into force last month entitle owners of facilities that produce 15 to 50 KW of electricity an even higher rate of NIS 2.01 per KW/hr for electricity sold to the grid.

The process of building three solar power stations at Ashalim began five months ago, and the state has issued minimum prerequisites for participation in the tenders. Two thermal solar stations with a production capacity of 80 to 125 MW each and a photovoltaic station with a capacity of 15 to 30 megawatts will be built through BOT tenders.

These, together with incentives for private production of up to 50 megawatts, lead the National Infrastructure Ministry to project that by 2013, 330 megawatts of electricity, or about 3% of all electricity, will be produced with solar energy.

Using current rates as a basis for the sale price for electricity to be produced by the projects reveals that the purchase of thermal solar electricity involves an extra cost of NIS 105 to 160 million annually (depending on production capacity), and electricity produced by photovoltaic technology will cost an extra NIS 35 million to NIS 70 million annually (depending on production capacity).

The extra cost involved in buying electricity privately produced by photovoltaic devices is estimated at up to NIS 120 million annually.

Based on these figures, electricity produced from solar power stations and private production could cost up to NIS 350 million more than production of the same amount of electricity by coal- or natural-gas-powered stations annually.

Incorporation of this extra cost into the cost of electricity to home and industrial consumers (taking into account increasing consumption of electricity in Israel) will result in an increase of 1.5% in the cost of electricity.

But the extra costs should be substantially higher in reality, amid government plans to build a new solar energy station every year over 20 years.

It is worthwhile to consider the plan in light of the costs that Israeli consumers will be asked to bear as a result of the rising cost of electricity. The National Infrastructure Ministry plans to produce 20% of the economy's electricity with renewable energy sources by 2020. By then, the cost of solar energy technology should be lower.

In a poll conducted by the Public Utilities Authority - Electricity on its Web site, 57% of the participants said they would be willing to pay more for electricity produced by green technologies.

In the poll, 31% said their willingness to bear additional costs is based on the size of the increase. In addition, 12% said they would not be willing to pay more for clean electricity.

Notably, the poll cannot be considered as representative, as only 160 people have responded so far.