Electricity costs may rise by 20% in 2012

Public Utility Authority: Lift ban on heavy jet fuel; Environment Ministry: Normalize taxes on diesel oil.

By NADAV SHEMER,
June 30, 2011 17:47
3 minute read.
AN ELECTRICITY pole towers over the Ramon Crater

power lines 311. (photo credit: Ben Dury/NPA)

 
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The price of electricity will rise about 20 percent by next year if disruptions to the flow of Egyptian gas continue and a ban on heavy jet fuel oil is not lifted, the Public Utility Authority has warned the government.

The regulatory body said the price of electricity should rise overall by as much as 13% by the end of this year and will continue to rise in 2012, but added that the figure will be less severe if the full flow of gas from Egypt resumes. Gas supply has already been halted twice this year due to sabotage by terrorists on the Sinai pipeline, and the pipeline is currently providing around one-quarter of what it did prior to the attacks.

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Calculations by the authority found that if Environmental Protection Minister Gilad Erdan does not cancel an order prohibiting the Israel Electric Corporation from using heavy jet fuel oil – which is considered worse for the environment – to produce electricity, the IEC will be forced to use diesel oil, which will see costs rise by 7%.

The Environmental Protection Ministry said in response that a price hike could be avoided by normalizing the taxes currently imposed on the cleaner, but more expensive, diesel oil with those imposed on contaminating heavy jet fuel oil.

A survey conducted by the ministry revealed that the gap between the price of producing electricity from diesel and heavy oil is actually caused by the fact that the taxes on diesel are 200 times higher than those on jet fuel oil, even though the gross price differences are actually quite small.

Diesel currently receives a 46% taxation rate while heavy jet fuel oil receives an insignificant figure, according to the ministry.

“Compared to other Western countries, Israel has extremely distorted taxes, judging by the fact that the more polluting fuel – heavy jet fuel oil – which particularly serves industry, is taxed in a lower manner than a less polluting fuel – diesel – which furnishes public heating and transportation but is taxed 200 times more,” Erdan said in the statement, stressing that the two fuels must be taxed more equally.

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“Instead of requesting that I ensure there is air pollution and increased morbidity in children, the elderly and the sick,” he said with irony, “the authority must turn to the Finance Ministry and ask that it reduce the tax on diesel energy production in order to avoid rising rates and to normalize it with the taxes on heavy fuel oil.”

Prof. Reuben Grunau of the Hebrew University’s Department of Economics supported the assessment that the lack of gas supply and move to diesel fuel meant a price rise was inevitable. He added that as electricity is a completely regulated commodity, Israeli consumers cannot avoid paying the price for the global rise in fuel costs.

“Fuels make up one-third of the cost of producing electricity, and here there have been some dramatic changes; among these was the move from expensive fuels to gas, and, as a result, electricity has become much cheaper in the past few years, by 10-15%.

“Now the gas supply has ceased on the one hand; and on the other hand they had to bring in diesel fuel, when in the past they also used heavy jet fuel oil, which is basically the remains from the purification process, and is the cheaper fuel.

In addition, he said, “because of the increasing price of all fuels, coal – which is a very important component in producing electricity – also became more expensive.

“If the fuels become cheaper again, and if the supply of gas resumes in full, and if they manage to regain control of gas prices – because there is this big argument at the moment over how much to pay for local gas – then the prices will fall again.”

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