Alternative Energy & Power 2019

Last Updated August 07, 2019

Israel

Law and Practice

Authors



Krispin, Rubinstein, Blecher & Partners is one of the leading law firms in Israel, employing 25 advocates. Energy and infrastructure (including project finance) is one of the firm’s main areas of practice, where the team has developed broad knowledge and experience alongside unique expertise in both commercial and regulation aspects. The firm advises leading companies and institutes with respect to their ordinary activity, and represents international bodies that operate in the energy and infrastructure sector in Israel and globally. The firm's lawyers advise on a wide range of renewable and conventional energy projects, including private power plants, the establishment and operation of natural gas distribution infrastructure, natural gas purchase and transport agreements, tender proceedings, contractor and infrastructure companies, etc. The firm represents most of the companies that hold a conditional licence for electricity generation, including conventional electricity generation, co-generation, wind energy and solar energy.

The principal law that governs the ownership and structure of the power industry in Israel is the Electricity Sector Law, 5756-1996 (the "Law"), whose main goal is to: "…regulate activity in the electricity sector for the benefit of the public, while ensuring reliability, availability, quality and efficiency, while creating conditions for competition and minimizing costs."

In order to promote competition in the power industry, the Law divided activity in the market into several segments, including generation, system management and electricity trade, transmission, distribution and supply. Additionally, according to the Law, no activity shall be performed without an appropriate licence, and "an entity shall not be given a licence for more than one activity" (Section §4(b1) of the Law).

The Electricity Sector Regulations (the "Regulations") are derived from the Law and cover various aspects of the electricity sector, such as licensing and conventional and co-generation electricity production. The Book of Standards is published by the Israel Electricity Authority (the "EA") as a supplement to the Regulations, and details all aspects of all segments of the electricity market, including tariffs and licensing procedures.

Historically, government-owned company the Israel Electric Corporation Ltd. (the "IEC") was the sole monopoly in all segments of the electricity market, by franchise. When the IEC's franchise was set to expire in 1996, the Law was legislated in order to open the power industry for competition.

Following the implementation of the Law and the discovery of large natural gas reservoirs near the shores of Israel, independent power producers started to operate in the country. However, even today, more than 20 years after the implementation of the Law, the IEC is still fully operating in every segment of the industry, including system management, transmission, distribution, supply and generation. This shall be changed in the future, due to the Reform in the Electricity Market, which will be further elaborated below.

The IEC holds and operates the system management and transmission segments of the power industry in Israel. It also holds more than 90% of the distribution segment, approximately 80% of the installed power in the generation segment (in terms of actual generation, the IEC is responsible for approximately 65%), and approximately 75% in the supply segment.

In addition to the IEC, several IPPs operate in the generation and the supply segments.

The three largest players in the power generation segment are as follows:

  • Dalia Power Energies Ltd, which holds and operates a generation facility with installed capacity of approximately 900 MW;
  • Dorad Energy Ltd ("Dorad"), which holds and operates a generation power plant with installed capacity of approximately 860 MW; and
  • OPC Rotem, which holds and operates a power plant with installed capacity of approximately 460 MW.

There are also several entities holding and operating smaller power plants for generation, including co-generation plants and renewable energies power plants.

All three companies listed above, as well as seven other companies, hold a supply licence, which allows them to sell power to consumers.

As will be further explained, in accordance with the Reform and the amendment of the Law, there are several IEC-owned power plants, which are to be sold to private companies in the following years.

In the distribution segment, another company operates in addition to the IEC: the Jerusalem District Electricity Company Ltd, which is a joint-stock company owned by the municipalities of Jerusalem, Ramallah, Al-Bireh, Bethlehem, Beit Sahour, Beit Jala and Jericho, and by private shareholders. This company supplies power to East Jerusalem and the Palestinian Authority territory. Moreover, there are approximately 50 other distribution companies that operate in defined areas, mainly in collective settlements (kibbutz), and in some Druze settlements and several industrial areas. Other than power distribution, these companies also sell power to consumers in their areas of operation.

According to the Law, a licence owner must be an Israeli citizen or an Israeli corporation. However, such an Israeli corporation can be held by foreign investors.

Many of the current quotas for electricity production are allocated through tenders, which might require additional information or procedures from foreign investors. For example, if the investment of the foreign entity requires a land transaction, an additional procedure is conducted by the Israel Land Authority.   

In addition to a considerably lenient policy regarding foreign investments in licence holders, there are also protections granted to the licence holders. The licences are usually granted for a period of 20 years, during which the tariff is guaranteed. At the financial closing date, the licence owner receivesa tariff approval, which sets the tariff the licence holder shall be entitled to for the services provided to the system manager for the licence period.

A licence owner (an Israeli corporation, as mentioned above) is entitled to every protection granted by Israeli law, even if its shares are held by foreign investors. In this case, of course, the relations with the regulator are subject to the Israeli law, and the Israeli courts have jurisdiction over any matter regarding differences or conflicts between the licence owner and the regulator.

According to the Law, any transfer of control in a licensed company and any purchase of ownership rights in a licensed partnership is subject to the approval of the EA. Similarly, any reform or reorganisation in a licensed corporation, including a merger, split, settlement or liquidation, requires the EA's approval, as does any control purchase of a licence owner by another licence owner. Such approval will be given following a request application submitted to the EA, which examines the restrictions of cross-holdings of control measures in the licence owner, according to the Law. In addition, the EA examines the restrictions on control measures holdings of the licence owner, including the question of whether the control purchaser had been convicted of a criminal offence that, according to the opinion of the Israeli Attorney General, is an "infamous offence". The EA may also take considerations regarding competition and concentration into account while examining the request for approval of the corporate changes listed above. The approval process usually takes about three months, although it can take longer in complex cases.

As stated above, the regulator responsible for the power industry is the EA, which was established by the Law. The EA is part of the Ministry of Energy, and operates in accordance with the purposes of the Law and the policies of the Minister of Energy and the Israeli government. The EA operates to promote the application of these policies, and to supervise the application of the Law and the requirements of the licences.

According to the Law, the EA's roles are as follows:

  • to set forth tariffs and tariff update methods, and to perform cost control, at the EA's professional discretion and in accordance with the Law;
  • licence provision and supervision of the fulfilment of licence requirements;
  • to set rules for conducting transactions between licence owners that are essential service providers (namely, licence owners for system management, transmission or distribution) and other licence owners; and
  • supervision and enforcement of licence owners' compliance with the Law.

The general assembly of the EA consists of five members:

  • the head of the assembly, appointed by the government;
  • the Director General of the Ministry of Energy (or whoever is appointed instead);
  • the Director of the Budgets Department in the Ministry of Finance (or another representative of the Ministry of Finance); and
  • two public representatives – one appointed according to the recommendation of the Minister of Finance, and the other appointed according to the recommendation of the Minister of Energy.

A licence application needs to be made in accordance with the Electricity Sector Regulations (Terms and Procedures for Granting Licences and Licence Owner's Obligations), 5758-1997.

Any entity that wishes to be given a licence is required to present its experience and means for providing the relevant services according to the requested licence. In a generation licence, the applicant is required to present its land rights over the land on which the generation facility shall be established, as well as an equity of no less than 20% of the facility's value.

According to the Law, part of the role of the system manager (who is defined as an essential service provider) is to submit development programmes for the power industry to the Minister of Energy. Such programmes should include reference to both the generation segment and the development of the transmission network.

Following the Reform and the amendment of the Law, the system manager will no longer be part of the IEC. The new government company which was established, called "The System Manager Ltd.", will conduct all system management activities. In accordance with the law, the licence of the System Manager shall be granted no later than 3 December 2019.

The system manager is responsible for managing the electricity system in the generation and transmission segments, including the following:

  • securing a constant balance between the supply and demand for electricity;
  • ensuring the survivability of the electricity generation and transmission system, purchasing and storing fuel types used by the electricity sector, allocating and selling them to production licence holders (or the facilities exempt from licence);
  • managing the transfer of energy from power stations through the electricity networks to substations with the required reliability and quality;
  • scheduling the execution of maintenance work in the generation units and the transmission and transformation system;
  • managing the activities of storage facilities;
  • managing the trade in electricity under competitive, egalitarian and optimal conditions; and
  • the planning and development of the transmission and transformation system.

On 17 May 2018, the Minister of Energy signed the Document of Principles for Structural Changes in the Electricity Sector and the Israel Electric Corporation (the “Reform”), which was followed by the government resolution signed on 3 June 2018 approving the principles of the Reform.

The Law was amended on 19 July 2018, embracing the principles set out in the Reform and government resolution. The Law is supplemented by secondary legislation and regulation updates by the EA.

The main provisions of the amendment of the Law are as follows:

  • The addition of terms and rules for electricity storage and requirements for storage licences.
  • Licensing:
    1. the threshold for exemption from the requirement for a production licence was increased from 5 MW facilities to 16 MW facilities; and
    2. an exemption from a storage licence may be granted to a person who stores in quantities that do not exceed a quantity determined in the EA rules.
  • With regard to the restrictions on granting a licence, it was determined that:
    1. a transmission licence may be given to a government company, together with a distribution licence and a supply licence, but it is not possible to separate a distribution licence from a supply licence; and
    2. a person may be given a storage licence together with another type of licence, taking into consideration, inter alia, the other type of licence.
  • Distribution and transmission:
    1. the IEC will continue to be a monopoly in the transmission and distribution segments;
    2. the "Historical Distributers" status was legislated;
    3. the IEC distribution licence will include responsibility regarding the metering system;
    4. the consumer is responsible for the distribution of electricity within the land division (his yard) and therefore institutions such as hospitals, universities, etc, can set up an electricity distribution system in their yard without a permit; and
    5. the prohibition on holding both a transmission licence and a distribution licence was cancelled.
  • System management:
    1. a system management licence and a transmission licence will only be granted to a government company, but the government company will not be able to hold both licences simultaneously.This means that the IEC will no longer hold the system management licence, in accordance with the Transitional Provisions; and
    2. the newly established government company – "The System Manager Ltd." – will conduct all system management activities. In accordance with the Transitional Provisions of the law, the licence of the System Manager shall be granted no later than 3 December 2019.
  • The IEC will not be able to engage in the generation of electricity, including the planning and construction of new stations beyond those for which it holds licences and the two stations that it may construct in accordance with the Transitional Provisions.
  • The Transitional Provisions determine the timetable for the sale of production sites that are currently owned by the IEC. The IEC generation licence will cease to be in force on the following dates:
    1. the generation units on the Alon Tavor site – 3 December 2019;
    2. the generation units at the Ramat Hovav site – 3 December 2020;
    3. the generation units at the Reading site – 3 June 2021;
    4. the generation units in the eastern part of the Hagit site – 3 June 2022;
    5. the generation units on the Eshkol site – 3 June 2023; and
    6. the remaining production sites owned by the IEC and not detailed in this list – until the end of the technical life span of the units, as will be determined by the EA.

Some IEC employees will continue to work at sold sites for five years after the sale.

A subsidiary of the IEC will establish two production units at the Orot Rabin (Hadera) site, and will operate and maintain them.

Please see 1.6 Recent Material Changes in Law or Regulation.

The State of Israel is an "electricity island" (ie, there is no import or export of power). The demand for electricity in Israel rises each year by approximately 2-3%, and it may be even higher – for example, as a result of the accelerated integration of electric vehicles.

Considering the electricity sector objectives set by the Israeli government, including the goal of limiting the use of coal in electricity generation and increasing power generation from renewable sources, together with the expected increase in demand, new projects and facilities will be initiated.

By 2030, natural gas power stations will need to be constructed with a capacity of 6,700 MW, with 3,800 MW of this quota replacing the existing old power stations operating today, and about 2,900 MW accounting for the expected growth in demand.

According to the Road Map for the Development of the Generation Segment in the Electricity Sector, published by the EA in June 2018, the total investment required by the private sector by the end of the next decade for the construction of gas production facilities and renewable energy facilities is estimated at about USD15 billion.

According to the Law, the EA sets the tariffs charged by the IEC, as an essential service provider, to consumers and other licence owners, as well as the tariffs paid by the IEC to the licence owners. The price of power sold by an IPP to a private supplier, or by a private supplier to the consumer, is not under supervision; however, the private supplier is required to purchase services from the IEC for a supervised price. Therefore, the power market in Israel is still not competitive, as the tariff is mostly supervised.

According to the Law, the EA shall set the tariffs based on the cost principle, considering, inter alia, the types of services and their quality. Each tariff shall reflect the cost of the specific service, and there shall not be any cross-subsidisation.

Also according to the Law, in order to set the tariffs, the EA will perform the cost control actions of licensed essential service providers. With respect to the tariffs, the EA may disregard expenses that are not required, in the EA's opinion, for the fulfilment of licence owners' obligations for providing essential services. When applying the cost principle in the tariff affixation process, the EA will acknowledge costs originated from the principles of the policy as determined by the Minister of Energy. With respect to the cost, the EA will consider the appropriate capital return rate, taking into account the rights and obligations of licence owners for providing essential services.

The EA determines the tariffs from time to time and updates them according to a formula determined by the EA.

The power tariff for large consumers is determined according to the electricity consumption time. The EA has set nine clusters (summer, transition and winter, with each day composed of peak, mid-peak and off-peak), which each have their own tariff.

The tariff itself is made up of three components: the generation component; the infrastructure component, which includes transmission and distribution; and the system management component. When a private supplier sells power to a consumer, that supplier needs to pay the infrastructure and system management components to the IEC.

An IPP is entitled to contract with the IEC in an energy transaction or in a capacity and energy transaction, according to the applicable regulation.

In an energy transaction, the power price is set by the EA according to the normative cost. The tariff is published by the EA. In a capacity and energy transaction, the IPP sells on the basis of the available capacity of the production unit, and the essential service provider decides on the availability in which it is interested, and accordingly the quantity of the energy it is interested in purchasing from said availability. The payment for availability is determined by the EA in accordance with normative costs set by the EA, and is intended to cover capital costs (at different rates) and fixed costs.

In relation to price, as of today there are:

  • facilities for which there is a fixed energy rate determined in accordance with the normative cost determined by the EA, which is linked to an index, as explained before;
  • facilities for which the tariff is determined in a competitive tender process; and
  • facilities for which the energy is sold at a "market price" - SMP (system marginal price).

Israel is an "electricity island", which means there is no import or export of power.

In 2018, most of the power generation in Israel originated from natural gas: approximately 67%. Approximately 30% originated from coal, almost 3% from renewable energies (approximately 1,300 MW installed capacity of solar, 27 MW installed capacity of wind and 13 MW installed capacity of biogas), and the rest originated from fuel oil and heavy fuel oil.

According to the Law, a power generation licence will not be granted if the applicant holds 30% or more of the generation capacity in the power industry.

Additionally, during 2018, the EA was working on setting a specified policy regarding concentration restrictions with respect to power generation licence holding, in order to limit the ability of certain entities to hold a large share of the generation capacity by certain technology.

As for the supply segment, the EA has set a restriction regarding supply licences, according to which a supplier shall not hold more than 30% of the private supply market.

The Law for Promotion of Competition and Reduction of Concentration was enacted in 2013, in order to implement the recommendations of the Government Committee to Encourage Competitiveness in the Economy. The committee found that the Israeli economy is characterised by excessive economy-wide concentration, in comparison to other economies. In accordance with Article 4(a) of this law, the committee will publish – in the official gazette and on the Ministry of Finance website – the list of concentrated entities, according to their area of activity and scope. The published companies are those that hold significant shares of the economy, and those that hold the rights to essential infrastructure.

In the allocation of rights in essential infrastructure to such concentrated entities, the regulator will examine the relevant considerations for the promotion of competition, in accordance with the nature of such essential infrastructure.

In addition, following the decision on the Reform and the Amendment of the Law, in September 2018 the Israel Competition Authority (the "ICA") published guidelines for the sale and tender procedures for certain IEC electricity production sites (the "Production Sites"). The guidelines state the following:

  • no entity shall win the tender of more than two of the sold Production Sites;
  • an entity that holds rights in a power station with a capacity of more than 30 MW that is operated by conventional technology will not be able to win a bid for more than one Production Site;
  • no entity shall hold more than 20% of the planned installed capacity the day after the sale of all the Production Sites; and
  • an entity that holds a right for an oil venture will not be able to win any bid for a sold Production Site.

The ICA and the Committee to Reduce Concentration are authorised to advise on competition and antitrust issues in the sale of the Production Sites and the allocation of rights in essential infrastructure. 

In January 2009, the Israeli government set a guiding target for generating power based on renewable energy, which should generate 10% of all electricity consumption in 2020.

In September 2015, at the Climate Committee in Paris, the Israeli government determined additional targets for renewable energy-based power generation of at least 17% of all power consumption by 2030.

In 2017, the Law was amended, so that the Minister of Energy shall form a multi-annual programme regarding renewable energy-based power generation, which will include actions for each year in order to comply with the targets for renewable energy-based power generation, as set forth in the government's decision. Furthermore, according to the amended Law, an inter-ministerial committee shall be constituted and will submit its recommendations regarding the promotion of power generation from renewable energies according to the government's decisions.

In addition, according to the amended Law, the Director General of the Ministry of Energy will report to the Israeli parliament (the Knesset) on a yearly basis, regarding compliance with the targets for power generation from renewable energies, and the application of the programme in that respect.

The Clean Air Law, 5768-2008 is the main law that regulates emissions and air pollution. However, with regards to the early retirement of coal generation, in July 2018 the overnment approved the Minister of Energy's decision to shut down Units 1-4 in the "Orot Rabin" power station in Hedera. The Minister's decision was made by the virtue granted to him by the Law.

Units 1-4 are the oldest and most polluting power generation units in Israel, and in 2016 they contributed more than 25% of the total emissions in Israel. Each kilowatt produced in these units is 10-1000 times more polluting than the kilowatt produced in a natural gas power plant, and 3-8 times the kilowatt production of a coal-fired power plant. Therefore, promoting the operations that will ensure the closing of the units at the scheduled time, in addition to examining additional ways to reduce their use until the closing date, such as seasonal operation, will lead to an immediate reduction in air pollution.

Instead of coal-fired units, two new power plants will be built by an IEC subsidiary as part of the agreements on the Reform and the Law, and will produce electricity by natural gas.

The Israeli government has set a policy according to which renewable energy-based power generation shall constitute 10% of electricity consumption by 2020 and 17% by 2030. This policy is also based on the commitments of the Israeli government as part of the Paris Agreement. The decision determining this policy is Government Decision No. 542 and is outlined in further detail in Decision No. 1403, which set the required steps to achieve the targets determined in decision 542.

In order to comply with the government policy and meet the 2030 target, and since the production potential of solar energy is high and rapid, the EA recommended that the Minister of Energy should add a quota for solar power production and formulate an updated plan to ensure compliance with the 2020 target. In accordance with this recommendation, on 24 November 2017, the Minister of Energy set a policy for the addition of quotas in the cumulative amount of 1,600 MW of solar energy, which will be implemented by 2020. As for today, there is available quota of approximately 400 MW of solar generation, out of the additional 1600 MW.

Following that, a yearly average capacity addition of approximately 400 MW will be required in order to meet the 17% renewable energy target set for 2030. Thus, in 2030, the aggregate capacity of renewable energy facilities will reach about 8,600 MW, of which about 7,500 MW will be generated from solar facilities, compared with about 1,000 MW installed in Israel today.

The three main pillars where the EA sees potential to increase solar power production are as follows:

  • ground facilities in open areas or in large areas where consumption is required, such as airports or military bases;
  • non-ground facilities, such as large roofs and reservoirs; and
  • small roofs.

The method of competitive tender procedures has been proven as the preferred method for determining the rate of solar energy. However, very small facilities may not fit a competitive process, and will therefore be set with a feed-in tariff.

The excess cost of power generation in the renewable energy facilities was included in the cost determined by the IEC in order to set the power tariff. Therefore, it was funded by the power consumers as part of the power price.

With regards to wind power production, the quota is 730 MW, out of which approximately 100 MW are in the process of initiation. As for bio-gas power production, and pioneer technologies, the quota is 100. However, the EA estimated that the wind and bio gas quotas would be partially utilised by 2020, due to various difficulties, including the statutory planning process.

The EA is considering combining batteries and storage technologies in future competitive procedures for PV facilities.

According to the Law, power generation requires a production licence (it should be noted that power generation for self-consumption only and power generation with an installed capacity that does not exceed 16 MW are exempt from the licence requirements). The EA is the authorised entity to issue and grant production licences, but facilities of more than 100 MW capacity also require the additional approval of the Minister of Energy.

The establishment of a power generation facility requires construction permits, according to the Israeli Planning and Constructing Law, 5725-1965. Such permits are given by the local planning and construction committee, according to an approved statutory plan with designations for power plants as set out in the Planning and Constructing Law.

The establishment of power facilities for fossil fuels requires an emission permit, according to the Israeli Clean Air Law, 5768-2008. Such permit is given by the Israeli Ministry of Environmental Protection.

A power facility that pours brine or water into the sea is required to obtain a permit for such pouring, according to the Israeli Prevention of Sea Pollution from Land-Based Sources Law, 5748-1988. Such permit is given by the Israeli Ministry of Environmental Protection.

The commercial operation of the facility requires a business licence, which is given by the local authority.

The process of obtaining a power production licence starts with a conditional production licence, which guarantees that the licence owner will be entitled to a permanent production licence on the day of commercial operation if he meets the milestones listed in the conditional licence, after passing the acceptance tests. Applicants who participate in competitive procedures for PV facilities are exempted from the requirement of a conditional generation licence. Facilities of installed power of less than 16 MW are also exempt from the requirement of a conditional generation licence (or a licence, as was explained before).

In order to obtain a conditional licence, applicants are required to:

  • indicate their rights of use regarding the land on which the facility is planned to be constructed;
  • demonstrate equity capital of no less than 20% of the normative cost of the planned facility; and
  • demonstrate a business plan and other information regarding the facility, the technology, the manpower, the experience, etc.

According to the updated EA regulation, the licence applicant is not required to present a binding connection survey by the IEC at this stage. The applicant may present a feasibility survey, which examines the future facility's connection to the grid. The results of the feasibility survey do not affect the actual place allotted for the facility in the grid.

Following the approval for publication of the statutory zoning plan in the government official gazette (Rashumut), the licence applicant may apply for the binding connection survey, performed by the planning and development department, in order to determine the possibility of an actual connection and the form of connection to the grid. During such survey, the planning and development department examines the ability to connect the facility to the grid, and the effect of such connection on the grid and its reliability.

A survey request will include the following:

  • an affidavit regarding financial closing within one year (12 months);
  • approval of the quota for the facility by the EA; and
  • details about the facility, such as installed power, maximum power output, connection size, and consumption of yard consumer, if existing.

The connection survey is valid for one year until the financial closing.

Approval takes place before the closing date; if the result is positive, a place in the grid is allotted for as long as the licence is valid. The process of applying for a connection survey is only relevant for facilities which are connecting to the transmission grid.

Upon the financial closing date, the conditional licence owner receives a tariff approval, which guarantees the tariff to which the licence holder is entitled for 20 years, starting from the day of commercial operation of the facility. Upon completion of the facility establishment and the passing of all acceptance tests performed by the system manager, a permanent production licence for 20 years will be awarded to the applicant.

Upon obtaining the conditional licence or the permanent licence, the licence owner is required to deposit a bank guarantee, in order to ensure the fulfillment of the licence conditions.

The reliability and availability requirements for the applicant are specified in the production licence and in the criteria set and published by the EA.

During the zoning statutory procedure, the entrepreneur is required to perform an environmental implication survey. In wind turbine projects, a bird survey to count the number and species of birds at the area is required as well. After the plan is published, a public hearing takes place in order to provide the public with the opportunity to submit reservations to the plan and/or the change of designation. A zoning process may take between 18 months and three-and-a-half years, depending on the relevant planning institute and the public reservations.

Please see 4.1 Principal Laws Governing the Construction and Operation of Generation Facilities.

Generation licences are granted with respect to areas in which the licence owner possesses land rights. In case the licence applicant does not posses the land rights, they may lease the land from the state.

The last amendment to the Law, following the Reform, determines that the old stations currently owned by IEC will operate until the end of the technical life span, however, exact instructions with regards to the decommissioning are yet to be published.

In accordance with the Reform and the amendment to the Law, the IEC is a national monopoly with respect to the construction and operation of power transmission lines, and is expected to keep such role in the future. Therefore, other entities are unable to construct or operate power transmission lines.

The IEC is committed to the development of the electricity transmission network by 2022, as approved by the Minister of Energy in February 2019.

The development plan for the transmission network includes a significant increase in investments in the transmission network, and the budget that will be available for development of the network will double compared to previous years. The average annual investment in the programme is close to ILS1.4 billion per year and includes the development and intensification of five clusters in the 400 kW network and many system projects in the 61 kW network. The significant increase in investments in the transmission network will provide a solution for the connection of renewable energy facilities to the grid, as well as the connection of conventional energy, according to the needs of the economy in the coming decade.

The plan includes control mechanisms, incentives and updates that will ensure the IEC's compliance with the plan, as well as effective control to meet the timetables set forth therein.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

The Law defines the IEC as an essential service provider, in its role as a transmission licence owner. According to the Law, an essential service provider delivers infrastructure services and backup services. It is obligated to provide services to all of the public without discrimination, in accordance with the standards set by the EA, with reliability and efficiency, in exchange for the tariff determined by the EA.

Additionally, according to the Electricity Sector Regulations (Private Conventional Producer) and the Electricity Sector Regulations (Co-Generation), power transmission from the generation facility shall be performed by the grid of the transmission or distribution licence owner, as applicable. Moreover, such licence owners shall charge private producers – who transmit power in order to sell to another party by using such grid – with infrastructure tariffs, as set by the EA.

According to these Regulations, a contract for a power sale between a private producer who owns a supply licence to another entity shall not derogate from the obligations of the transmission or distribution licence owner, or the system manager (as applicable), as set by any law, including their obligation to provide power to the consumer and the consumer's right to obtain power continuously, in the appropriate quality and reliability.

In addition to the Law and Regulations, the EA sets standards that specify the form and conditions of a facility's connection to the network, and with respect to infrastructure services.

The tariffs are determined according to the Law and its regulations. According to the Law, the transmission tariff is determined by the EA, which is obligated to set the tariff based on the cost principle, considering, inter alia, the provided services and their quality. Each tariff shall reflect the cost of the specific service, and there shall not be any decrease of one service's price at the expense of an increase in the price of another service. In order to set the tariffs, the EA performs cost control actions of the transmission licence owner. With respect to the tariffs, the EA may disregard expenses that it believes are not required for the fulfillment of the licensed essential service provider's obligations. When applying the cost principle in the tariff affixation process, the EA acknowledges costs originated from the principles of the policy as determined by the Minister. With respect to the cost, the EA considers the appropriate capital return rate, considering the rights and obligations of the transmission licence owner.

The EA determines the tariffs from time to time, and updates them according to a formula determined by the EA.

The tariff is uniform and equal for all consumers. The connection fee for connecting to the grid is charged by the IEC, and is set according to the tariff determined by the size of the specific connection.

The transmission tariff consists of a fixed tariff paid in accordance with the size of the connection in ILS to kVA per year, and a variable tariff for each kW transmitted to the line.

According to the EA's decision regarding the tariff base for 2018, the IEC invests in new assets according to the conduction network development programme, which is approved by the Ministers of Energy, and according to the EA assembly's decision on an annual basis.

The cost of the assets is determined by a price list, which constitutes part of the tariff base. A life span of 35 years will be recognised during the years 2018-2020 as part of the adjustment to a longer life span outline, whereas, starting from 2021, a life span of 45 years shall be recognised for new assets that are established within the framework of the current tariff base.

The recognised return rate on the recognised assets is calculated as a weighted average between the return on debt capital rate and the return on equity rate in accordance with the IEC's normative financial leverage. The return on the assets shall apply both to recognised active assets at the starting point of the tariff base and to assets to be established after the tariff base has entered into force. The IEC's normative financial leverage totals 1:3 (75% debt capital, 25% equity capital), in accordance with its average leverage during the years 2014-2016.

Prior to each tariff publication, the EA advertises a public hearing, in which the public may refer to the suggested tariff. Following the public hearing, the EA determines the tariff. There is no formal appeal proceeding with respect to the EA's decision regarding the tariff. One can appeal to the courts in this regard, and raise administrative claims.

According to the Law, the regulation based on the Law, the standards published by the EA and the IEC's transmission licence, the IEC – as a transmission licence owner – is obligated to provide transmission services to all consumers and/or licence owners who wish to obtain such services, on an open access and non-discriminatory basis.

The EA supervises the IEC's activity and oversees its compliance with its obligations.

The Electricity Sector Law deals with distribution licences, while the Electricity Law and its regulations deal with all safety and technical aspects of the construction and operation of electric distribution facilities and networks.   

The ability to obtain new distribution licences in Israel is limited. Currently, distribution licences may be obtained only with respect to defined areas in which the licence applicant owns full land rights, such as universities, hospitals, office towers, shopping malls, etc.

An applicant for a distribution licence is required to indicate land rights in the land where the network is planned to be placed, and to provide all the details regarding the network.

Following the Reform and in accordance with the Law, the IEC is an essential service provider in the distribution segment. In addition to the IEC, there are approximately 50 other distribution companies that operate in defined areas, mainly in collective settlements (kibbutz) and in some Druze towns and several industrial areas, and the Jerusalem District Electricity Company Ltd. supplies power to East Jerusalem and the Palestinian Authority.

The Israeli Electricity Law, 5714-1954 and its regulations set the norms and guidance with respect to the required standards and features for distribution networks, as well as the required authorisation and licensing for power distribution.

A distribution licence cannot be granted for public domain. Distribution licences are only given with respect to areas in which the licence owner possesses land rights.

A distribution licence provides its owner with monopoly rights for distributing within the area for which the licence was given. The distribution licence owner is defined as an essential service provider, so is obligated to provide distribution services to all consumers and/or licence owners who wish to obtain such services, on an open access and non-discriminatory basis and in accordance with the Law, the regulation based on it, the standards published by the EA and the distribution licence.

Please see 5.2.2 Establishment of Transmission Charges and Terms of Service.

The tariffs are determined according to the Law and its regulations. The distribution tariff is determined by the EA, which is obligated to set the tariff based on the cost principle, considering, inter alia, the provided services and their quality. Each tariff shall reflect the cost of the specific service, and there shall not be any decrease of one service's price at the expense of an increase in the price of another service. In order to set the tariffs, the EA performs cost control actions of the distribution licence owner. With respect to the tariffs, the EA may disregard expenses that it believes are not required for the fulfillment of the licence owner's obligations. When applying the cost principle in the tariff affixation process, the EA acknowledges costs originated from the principles of the policy as determined by the Minister of Energy. With respect to the cost, the EA considers the appropriate capital return rate, considering the rights and obligation of the distribution licence owner.

The national tariff is uniform and equal for all consumers. The fee for connecting to the power network is charged by the IEC, and is set according to the tariff determined by the size of the specific connection. In the distribution segment, the IEC is an essential service provider and is responsible for the development, operation and maintenance of the high and low voltage network. In addition, the segment includes consumer services associated with distribution – metering services and contractual costs.

The EA determines the tariffs from time to time, and updates them according to a formula determined by the EA.

According to the EA's decision regarding the tariff base for 2018, the IEC invests in new assets according to the conduction network development programme, which is approved by the Minister of Energy and the Minister of Finance, and according to the EA assembly's decision on an annual basis. The cost of the assets is determined by a price list, which constitutes part of the tariff base. A life span of 35 years will be recognised during the years 2018-2020 as part of the adjustment to a longer life span outline, whereas, starting from 2021, a life span of 45 years shall be recognised for new assets that are established within the framework of the current tariff base.

The return rate on the recognised assets is calculated as a weighted average between the return on the debt capital rate and the return on the equity rate in accordance with the IEC's normative financial leverage. The return on the assets shall apply both to recognised active assets at the starting point of the tariff base and to assets to be established after the tariff base has entered into force. The IEC's normative financial leverage totals 1:3 (75% debt capital, 25% equity capital), in accordance with its average leverage during the years 2014-2016.

Prior to each tariff publication, the EA advertises a public hearing, in which the public may refer to the suggested tariff. Following the public hearing, the EA determines the tariff. There is no formal appeal proceeding with respect to the EA's decision regarding the tariff. One can appeal to the courts in this regard, and raise administrative claims.

Krispin, Rubinstein, Blecher & Partners

B.S.R 4 Tower
7 Masada Street Bnei Brak
Israel

+972 073 320 2021

+972 073 320 2031

Limora@krblawfirm.com www.krblawfirm.com
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Law and Practice

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Krispin, Rubinstein, Blecher & Partners is one of the leading law firms in Israel, employing 25 advocates. Energy and infrastructure (including project finance) is one of the firm’s main areas of practice, where the team has developed broad knowledge and experience alongside unique expertise in both commercial and regulation aspects. The firm advises leading companies and institutes with respect to their ordinary activity, and represents international bodies that operate in the energy and infrastructure sector in Israel and globally. The firm's lawyers advise on a wide range of renewable and conventional energy projects, including private power plants, the establishment and operation of natural gas distribution infrastructure, natural gas purchase and transport agreements, tender proceedings, contractor and infrastructure companies, etc. The firm represents most of the companies that hold a conditional licence for electricity generation, including conventional electricity generation, co-generation, wind energy and solar energy.

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