Showdown over electricity prices

Electricity prices expected to drop significantly next month, so why isn't everyone happy?

By EHUD ZION WALDOKS
January 28, 2010 11:27
4 minute read.
Showdown over electricity prices

solar panels 248.88. (photo credit: Ariel Jerozolimski)

 
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Public Utilities Authority – Electricity (PUA) head Amnon Shapira announced in a newspaper interview over the weekend that electricity prices would drop precipitously in February because of the switchover to much cheaper natural gas rather than the more expensive fuel or diesel oil.

That announcement via the press prompted National Infrastructures Minister Uzi Landau to demand Shapira's immediate resignation on Sunday night, a source close to the minister told The Jerusalem Post Monday.

"Shapira and PUA are sabotaging the minister's agenda. Instead of implementing policy, it is attempting to set the policy and the agenda, and that is where the minister drew the line," the source charged.

But wait, isn't reducing electricity prices by a significant margin a positive development meant to assist the consuming public?

Not necessarily, contends the ministry, environmental groups and other sources in the energy field.

Lower prices means more electricity consumption, since if it is cheap people don't worry so much about using it. That's a big problem for energy strapped , they contend. Demand is growing every year and the Israel Electric Corporation is struggling to keep up with enough power plants. Reserves are at a mere 2%, when they should be between 17-25%.

" already has some of the lowest prices for electricity in the Western world," the ministry source added.

So what should happen instead?

Instead of lowering prices, the prices should either stay the same or even go up. The resulting difference between cost and price should then be put aside in a special fund, overseen by an external observer, for energy efficiency projects, the ministry, the environmental groups, and energy sources all agree.

Strangely enough, PUA also agrees that that would be a good use for the money. However, it contends that as the law stands now, such a fund would be illegal. According to the authority, it is its job as a regulator to set the basis for prices which reflect the cost of production every five years. Which means if the cost of electricity production dropped because of the replacement of expensive fuels with cheaper ones, the authority is legally bound to adjust the price to the consumer accordingly. It is that five year price update which is due out next month.

Energy efficiency is generally funded in the Western world either directly from the state budget or by adding 1% to the electricity tariffs, a PUA spokeswoman told the Post Monday. However, if the entire price differential were to be used for such a fund, it would constitute an illegal subsidy and a fine on the public.

The spokeswoman said that PUA took the idea for an energy efficiency fund to the ministry two years ago and said it required a change in the law before it could be implemented.

"Since then, nothing has been done," she said.

However, the source close to Landau responded that "the Authority was fully aware of our efforts to change the law. We had had discussions with them about it. But instead they launched a preemptive strike.

"For months, they had been denying there would be any substantial change in electricity prices. Then they dropped this bombshell on us and on the public through a press interview. They didn't even have the courtesy to bring their intention openly to the minister," the source replied.

The main agenda of the ministry right now is reducing electricity usage in accordance with the government decision from September 2008 to reduce usage by 20% by 2020. Lowering rates yanks the main plank out of that platform, he declared.

Moreover, reducing rates will pull the plug on the emerging Energy Service Company (ESCO) industry. The ministry has been encouraging the industry which consults to companies and entities how to reduce their energy usage.

"Instead of a seven to eight year return on investment, it would mean a 15 year payback [which makes it a far less attractive investment]," the source said.

Energy efficiency is critical from an environmental perspective as well, since the less consumption, the less need for polluting power plants, he said. Energy efficiency is even more important than renewable energies since it is cheaper and just as effective.

While natural gas is considerably less polluting than diesel or fuel oil, it is still a fossil fuel and not a clean energy source. Moreover, if demand continues to rise, the argument for another coal-fired power plant in gets correspondingly stronger.

That's why the Israel Energy Forum and other environmental groups have been working with the ministry on energy efficiency initiatives.

The source added that Landau's decision to call for Shapira's resignation also derived from months of delays on other projects. The tariff for medium –sized solar fields was delayed by PUA, they were supposed to present a plan to incentivize reducing usage and never did, and only half of the pumped storage quota the ministry decided was necessary was approved, the source listed.

The PUA spokeswoman charged in response that the demand for Shapira's ouster emerged after he contended in the interview that the ministry was not pushing forward the reform of the energy market. A reform to introduce more private producers and an administrative agency to oversee a privatized energy market has been in the works for a long time.

She added that Shapira was confident in his professional opinion and would not resign. The national infrastructures minister does not have the authority to dismiss Shapira directly.

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