The Electricity Authority announced on Monday that it plans to authorize a 9.6 percent increase in electricity rates from August, saying that a sharp rise in global coal prices necessitated a mid-year rate hike rather than waiting for the scheduled annual adjustment next year.
The authority’s council met twice last week to discuss the need for a rate increase. At the first meeting, council members refused to countenance a rise of 13 percent to 15 percent; at the second, they agreed to a two-stage increase – the first, in August, and the second to be spread out over several years, without specifying a timeframe.
The new rate as of August will be 49.54 agorot (14 U.S. cents) per kilowatt-hour (kWh), up from 44.86 agorot today.
The rate hike reflects the rising price of coal, which despite Israel’s growing reliance on natural gas still accounts for between 21 percent and 23 percent of the fuel used to generate the country’s electric power.
According to Electricity Authority calculations, electricity rates should have been increased by more than 20 percent in order to cover the higher costs being borne by Israel Electric Corp., the state-owned utility that supplies the lion’s share of Israel’s power. Given energy market conditions, the authority could have approved the rate rise without hearings or government approval.
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In its statement, the Electricity Authority noted that starting in the second half of 2021, a global energy crisis led to sharply rising prices for all kinds of energy. There were several factors responsible for the increase, with the war in Ukraine pushing prices even higher in the first quarter of 2022. As a result, energy and electricity prices in countries around the world have risen significantly. The authority noted that in Europe, whose energy supplies have been severely affected by the war, electricity prices are rising much faster than in Israel.
“In the last few months coal prices have continued to rise at a rate of more than 140 percent, compared to the price on which the last [electricity] tariff adjustment was made at the start of the year,” the authority said. “In addition, other cost indices have risen, in particular the [dollar] exchange rate, which has risen 12 percent, and the consumer price index, which has risen by 3 percent.”
The Electricity Authority approved a 5.7 percent hike in residential electricity rates in February, citing rising coal prices. In order to moderate the increase, the government subsequently reduced the excise tax on coal. As a result, the authority announced in April a 2.2 percent reduction in the electricity tariff to 44.86 agorot per kWh, effective May 1.
According to the regulations, if the price of fuel rises by more than 3.5 percent in a month, the Electricity Authority can authorize an unscheduled rate rise, a power that it employed on Monday.
IEC figures show that the average household in Israel uses 8,000 kilowatt hours of power a year, costing it 3,600 shekels under the current tariff rate. The new rate will add close to 360 shekels to the bill.
In spite of the rise slated for August, Israeli power rates will remain lower than they were in 2012 and 2013, when the country experienced a shortfall of natural gas for its power plants.
“The increased electricity rates is due to higher coal prices, but it is also due to the failure to reach national targets for reducing coal usage,” said Chen Herzog, chief economist at BDO Consulting Israel, an accounting and consulting firm. “The Israeli economy is burning too much coal, as was noted in the [Electricity Authority] minutes.
“The Energy Ministry must develop an emergency plan to double the rate at which coal usage is reduced, which will allow for a reduction in the size of tariff hikes and reduce emissions. In the coming year, coal usage could be cut by half, thereby moderating the tariff rise,” Herzog said.
He added that IEC had failed to keep to the timetable for closing coal-fired power plants. Earlier this year, the utility announced that it was delaying closure of a coal-fired unit from June 2022 to the start of 2024.