The Consumer will Profit from the Opening up of the Electricity Market to Competition
Eitan Meir – CEO of Dalia Power Energies
In the coming weeks, the Yogev Commission will publish its recommendations regarding Israel’s electricity market. A great deal has already been said about the future reform; however, similar to what has been done in the cellular market, the issue to focus on is the positive consumer impact for the public
In recent weeks, the issue of competition in Israel’s electricity market has been the subject of frequent discussion; and the main question is whether or not this competition will benefit the Israeli public.
First of all, let us define competition. Competition is a contest between people or institutions in a specific field. Every financial business wants to make a profit; consequently, its product must be of the best quality and sold at the lowest price so the public will be interested in buying it. So before we address the electricity market, let’s try to imagine what would happen if the former Communications Minister, Moshe Kahalon had not opened up the cellular market to competition.
In Israel, there are approximately 9 million subscribers to the various cellular companies. A few years ago, the communications minister realized that the companies that controlled the market had aggressively taken over, taking tremendous advantage of the consumers. The decision to open the cellular market to competition was not a simple one and was the subject of great political and business pressure; however the Government made a brave decision, which was good news for the Israeli consumer.
The cellular companies changed their consumer perception and created better packages that offered better service at a lower price, while reorganizing the system to help them survive in a competitive market. Consequently, the cellular phone bills of Israeli citizens were slashed by more than 50% in a relatively short time.
I am confident that if the Israeli public were offered to return to the previous situation, not many would jump at the offer. Competition in the cellular market improved the quality of life in Israel, by reducing cellular rates and creating real consumer competition.
Let us now return to our subject at hand, and talk about the electricity market. Let’s try to imagine what would happen if there were no private electricity manufacturers and the State of Israel had only one electricity monopoly. How would our lives look then? It is reasonable to assume that in terms of electricity supply, everything would continue as it is today. The Israel Electric Corporation would continue to generate electricity and supply it to Israeli citizens. In the summer, they would warn the public of an ‘electricity drought’ and planned power outages; and during the winter, they would pray that there would be no storms or blizzards that cause power outages in houses and on the streets.
Aside from the supply of electricity, each year, the Israel Electric Corporation would need to build new power stations and expand existing stations in order to meet the consumer demand. These stations would not only generate megawatts, they would also add to the Israel Electric Corporation’s existing debts, which would eventually be covered by the consumers, the Israeli public, through their electricity bills. In short, this would not be good news for the consumer.
Now let us imagine what would happen if, similar to the cellular market or the international call market, the Government made a brave decision to open Israel’s electricity market to real competition, which enabled private electricity manufacturers to establish power stations and open a competitive electricity market in Israel – what would happen then?
Stop Managing the Electricity Market at the Expense of the Public
The Israel Electric Corporation’s new power stations and the expansion of existing stations would be executed by private manufacturers, so that the company would not need to use any of its own money; and its debt, which is essentially our debt, would not increase. On the contrary, it would be possible to reorganize the company, once and for all, and ease the country of its financial burdens.
But what would primarily happen, thanks to real competition in the electricity market, is that it would be possible to reduce electricity prices, which are a significant fixed expense for any plant, business or domestic household. In the case of real competition, the citizens would benefit, the Israel Electric Corporation would benefit, the country would benefit and there would be inexpensive quality electricity available for everyone. Isn’t this preferable?
But why must we merely imagine, if all this can become a reality and in a very short time? In Israel, there are already 13 private electricity manufacturers in operation, some are large and other less so, but all have one clear goal: to generate electricity and to develop competition in the electricity market. All these manufacturers were established pursuant to the various government decisions based on the recommendations of many government and public committees which called for the opening of Israel’s electricity market to competition, with the belief that competition is the right thing for the Israeli public.
All the committees have been established in recent years, as a result of the desire to move away from the monopolistic generation of electricity to a competitive model, similar to the transportation or communication sectors. To date, the committees’ recommendations have been submitted in order to stop the electricity market’s management at the public’s expense and to set the electricity market’s goals to match those of the world’s advanced electricity markets, both in terms of the price and quality of the electricity. This involves the opening up of the electricity market to competition and a demand for the reorganization of the Israel Electric Corporation based on the changing needs and market.
In the coming weeks, the Yogev Committee will publish its recommendations regarding the future of Israel’s electricity market and the Israel Electric Corporation’s reform. A lot has already been said about the future reform, the committee’s constellation and the upcoming decision. The subject that should be highlighted and written about is the good news for Israeli consumers, who will enjoy reduced electricity prices, thanks to the reform.
This good news for the consumer can be achieved with relatively simple steps: splitting up the electricity market and dividing it into independent segments, based on the division of generation, conduction and supply, and establishing pre-requisites to ensure competition, while creating a critical mass of production by the private electricity manufacturers.
Note that competition will not lead to the closure of the Electricity Company. Due to the conduction segment and a considerable portion of the distribution segment, it will always remain a natural monopoly. The Israel Electric Corporation will need to focus on and work in these segments, which require heavy capital investments, and in which it is harder to open up competition. Only this method, namely, real competition in Israel’s electricity market, can result in good consumer news for the public which will lead to a reduction in the price of electricity in Israel without hurting the Israel Electric Corporation. It will also lead to its reorganization and the improvement of the quality of life and reduction of the cost of living in Israel.
About Us
Dalia Power Energies Ltd. established its power station as a vital national infrastructure project, in order to solve the shortage in the electricity market and to foster competition in the industry for the benefit of Israel’s citizens. Our power station is being built at a cost of NIS 4 billion and is funded by institutional investors without one shekel taken from public funds.
The cost of building the station is cheaper than similar power stations of this scale, its energy efficiency is one of the highest in Israel and it requires less manpower for its operation. Consequently, this is not magic, we simply produce cheaper electricity; and therefore, we can sell electricity at reduced rates relative to those of the Israel Electric Corporation’s TAOZ – (Load and Time) program. The same is true of our competitors.
Dalia Energies Ltd. was established by a determined group of entrepreneurs who dreamt of opening up the electricity market. For years, they took steps toward making this dream a reality, while investing NIS 200 million of their own money.
It was a long and arduous road, but the dream will shortly be realized and Dalia will open up the electric market to competition for the benefit of the Israeli economy and for the benefit of Ms. Rickie Cohen from Hadera, who will pay less for her electricity, thereby reducing her family’s cost of living. Industry, shopping malls and businesses will also enjoy a significant reduction in the price of electricity, which will in turn lead to a reduction in the price of products and services. In the future, the sale of private electricity directly to domestic households will be possible and this will be a significant contribution to the reduction of expenses for the entire family.
This article was written before the 4th National Committee for Energy to be held by the Israel Institute for Energy and the Environment, on March 3rd, 2014 at the Tel Aviv Hilton Hotel.