Israel’s clean energy future

Israel’s renewable energy (RE) growth has been primarily driven by two government actions: The decision taken in January 2009 to generate 10% of its electricity from RE sources by 2020; and the ratification of that goal in July 2011 in setting specific quotas for installations for each technology separately. The Public Utilities Authority (PUA), Israel’s electricity market regulator, is responsible for implementing the government’s decisions and, until recently, did so using mainly the feed-in tariff (FIT) mechanism. Since 2008, the PUA has published quotas and FITs relating to four main installation sizes: residential (up to 15 kW), commercial (up to 50 kW), medium-utility scale (up to 12 MW) and large-utility scale (above 12 MW). In the last five years the PUA has published FITs and quotas for 870 MW of solar PV covering all four different sizes of installations (excluding net metering systems). Furthermore, it has published quotas and FITs for 200 MW of concentrated solar power (CSP) plants.
In addition to the FIT per quotas mechanism, the PUA has also published caps and tariffs to land tenders run by the Israeli Land Authority. Unlike standard FIT/quota mechanisms where projects are commissioned on a first come, first served basis, the land tender winner is decided by the highest bid to the Israeli Land Authority per Dunam (measure) of land. The winning bid is granted permission to install solar PV and sell the generated electricity at a fixed tariff set by the PUA. To date, the PUA has announced land tenders for 150 MW of PV and 240 MW of CSP, of which a fraction has been commissioned.

FIT linked to BNEF indices

Israel’s solar landscape changed significantly in 2012 when the PUA altered the basis of tariff calculation for all future PV plants. Thus, instead of a fixed tariff, a variable tariff pegged to a formula based on interest rates, inflation, exchange rates, and the Bloomberg New Energy Finance (BNEF) module and inverter indices (the SSPI) was introduced. This move helped avoid the creation of ‘solar bubbles,’ in which FITs become disconnected from actual costs and unreasonable margins are maintained by entrepreneurs, argued the energy regulator. On the contrary, the PUA argued, the new method encourages the Israeli PV industry to improve and settle with global cost standards, and plays an important role in achieving grid parity. Since most of the 870 MW PV quotas had already been commissioned for a steady tariff, the regulator’s decision was applied to just 350 MW to 400 MW of PV (mainly large-utility scale projects). In the case of land tenders, the tariff for each separate project will be determined by the formula shortly before the closure of financial terms.
Israel’s solar policies, mainly the FIT per quotas mechanism, have begun delivering results, said Eitan Parnass, Founder and Chairman of the Green Energy Association, Israel’s main green energy lobbying group. Parnass revealed that Israel has installed around 500 MW of grid-connected PV energy, of which half comprises 10,000 residential and commercial systems, and the other half medium-utility scale. Specifically, Parnass said, the medium-scale category has been dynamic this year, adding 100 MW in the past six months, with 200 MW of large-utility scale under construction.

Competitive tenders model

According to Parnass, the government wants to move towards a model where future PV systems will be installed using either net metering or based on competitive tenders, where the lowest FIT receives a license to build the plant.
“I believe it is good policy to reflect on solar technology’s dramatic cost reduction and avoid repeating costly European policies,” said Parnass. “However, it is rather early to have a tender-only model in this country. It would be better if the government allowed more FIT/quota installations to materialize so that the domestic solar PV market increases adequately, and then move on to a tender-only system.” Parnass added that renewables currently provide just 1% of Israel’s electricity. The Israeli government wants PV project investment returns to not exceed 11% for the large-utility scale segment, and 14% for medium scale. Market sources told pv magazine that the linkage of the FIT determination process to the BNEF indices has already achieved that, yet future project tenders might reduce the levels of investment returns further.

Net metering

Net metering regulations in Israel were introduced in March 2013, making it possible for households and businesses to install solar PV systems of up to 5 MW. The PUA set up net metering installation caps of 200 MW for both 2013 and 2014.
To date, net metering installations stand at around 10 MW, while a further 20 MW is currently under development. One of these installations is a 300 kW solar rooftop on Israel’s parliament building, the Knesset, tendered in April. The bid winner, local company Solargreen, must complete construction by April 2015.
In August, Israel’s Ministry of Public Security announced that it would soon tender the construction of 13 net metering PV installations totaling 750 kW on the rooftops of police stations, fire stations, and prisons. Gal Shofrony, Senior Budget Coordinator at the Ministry of Public Security, said that this is merely the pilot phase of a bigger program targeting the installation of hundreds of PV systems across ministry buildings.
“The ministry hesitated to install rooftop PV systems under the old FIT model because the generated income would be derived from taxpayers’ money,” said Shofrony. “On the contrary, the net metering regulation allows us to pay our electricity bills and generate income based on our own means.” He also revealed that the ministry is considering the option to develop rooftop PV projects in collaboration with private firms as a more immediate way to implement its solar energy potential, which otherwise might need time to gather adequate funds via solely ministry-backed means. “We are standing today before a potential of hundreds of opportunities to install PV systems on buildings,” said Shofrony.
Parnass agrees with Shofrony on the future of net metering, remarking that the regulation “has kick-started a nice market in Israel and we see healthy competition between the local developers beginning to boil.” This is very much happening due to the PUA’s innovative policy, Parnass added. “The net metering model is risky because it is dependent upon the electricity tariff’s fluctuations and the consumer who might go bankrupt, leaving the bank/financial institution with no guarantee,” he said.
“So what the PUA did, which is unique, is to allow a consumer to sell the electricity to the grid at a fixed sum set at the point of connection and which reflects the ‘actual electricity production price’ of NIS 0.33. This eliminates the risk of a total loss in case of bankruptcy,” said Parnass.
How this happens exactly, explained Honi Kabalo, head of renewable energy at the PUA, is to allow the transfer of credit between consumers. However, in the case of credit transfer, Kabalo added, “The value of credit will be reduced back down to the level of retail tariff generation cost only. This option, which is rather exceptional for a consumer-based regulation, is intended to reduce the risks and increase the bankability of RE systems by ensuring that it remains possible to use and refund electricity produced in the system even in case of permanent decline in consumption (e.g. factory closed, household consumption declined over the years, etc).” Consumers installing solar PV via net metering currently receive a tariff of around NIS 0.55, which varies according to the installation’s size, but nevertheless “shows that Israeli solar irradiance is high and can make solar energy economically feasible,” Parnass said.
Net metering regulation recently received a further boost by cancelling all building permit requirements for PV systems up to 50 KW. “This is a revolution that will aid small-scale net metering,” said Parnass.

Energy quota transfers

The crucial question now is whether Israel’s impressive policy innovations can drive domestic PV further. Will the country meet its goal of 10% power from RE sources by 2020? The recent decision by Israel’s ministerial committee for RE to transfer 290 MW of quotas to solar will help, Parnass argued. Specifically, quotas for 70 MW of large wind power farms, 20 MW of small wind power installations (up to 50 kW each) and 200 MW of CSP plants were transferred to the solar PV industry. The final sum of energy quotas switched to solar PV might increase to 500 MW, including a 60 MW biogas quota transfer, Parnass explained, arguing that there is often a perception that solar PV is becoming cheaper and thus can lead to millions of dollars' worth of savings.
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However, despite Parnass’ assertion that the quota transfer will commence soon, others disagree. Israel’s Wind Energy Association (IsraWEA) CEO Gadi Hareli told pv magazine: “This is the third time the Ministry of Energy is trying to convert part of the 2020 quota from wind to solar, and since diverting quotas must be approved by government, we believe this attempt, like all previous ones, will be rejected by one of the ministers.” Hareli rejects the argument that wind power is more costly than solar power, adding that the tariff allocated to large wind power plants is generally lower than that for PV plants. But the difference in remuneration schemes, he argues, is not so clear cut.
Israel has set a target of 800 MW of large wind turbines for 2020 at a FIT of NIS 0.49/kWh ($0.14). Small wind installations (up to 50 kW) receive a higher FIT. In comparison, according to data from the PUA and the Green Energy Association, solar PV caps from 2010 for medium-sized systems differentiate in FITs, ranging from $0.15 to $0.42 depending on the closing date and the BNEF indexing, while solar PV caps from 2011 for large-scale installations provided FITs ranging from $0.17 to $0.19. These figures are dependent upon the closing date of the BNEF Index.
Nevertheless, Parnass added, should the quota shifts gain approval, new caps are expected to receive a tariff as a result of the new tendering process, so that the lowest FIT bid will win the license to install solar PV.
The government has even set up a bid selecting the software company to manage the tenders. The only exception to this will be 180 MW from two concentrated solar power (CSP) projects (the 120 MW Tzealim and 60 MW Mashabey Sade projects) that, if shifted to solar PV, will give developers the old tariff of $0.17/kWh.

Tech progress driving solar market

It is apparent that Israel’s PV market is driven by technological progress. Political support was significant in the beginning to set up tariffs and quotas for RE systems, but now government policies are mainly driven by financial concerns. Given the decreasing cost of PV, the shift to a competitive tender and net metering-only model is not a great obstacle for expansion. What is becoming absolutely necessary, though, is a commitment by the government to allow new caps for PV plants. . Should the new caps arise as a result of renewable energy quota transfer or entirely new targets is of secondary concern to the PV business, although renewable sectors should not replace but supplement one another in as cooperative a manner as possible.
Parnass remains positive about Israel’s RE future, stating that government is now amending policies in order to reach its 2020 electricity goal and that we will soon see more caps for solar PV. “Israel has dealt cautiously with RE costs, and for a few years was slow to progress due to the pricing of PV, which was fluctuating wildly.” Being an ‘energy island’ is both a barrier and motivator for Israel’s RE future, Parnass concluded. Traditionally, coal has been the base load, but today the country possesses 14 GW of natural gas capacity – roughly 65% of its power needs.
“To generate 10% of electricity from renewables by 2020, Israel needs to approve the 500 MW energy quotas to solar PV, plus a further 1 GW of renewable energy,” said Parnass. “If wind installations pick up, we can make it.” Hareli, on the other hand, is more skeptical. “This government, which is highly puzzled between renewables and other energy choices, needs a higher commitment, understanding and determination of planning ahead and then sticking with its plans.
“With the large amounts of natural gas recently discovered in Israel, there has been a dispute about the amounts to be allocated for export, the amount to be held back for domestic use, and the methods used in processing the gas,” continued Hareli.
“All of this has distracted attention away from RE activities, as well as long-term vision. We encourage aiming beyond 100% RE, where natural gas would be used as the required ‘buffer' for such a transition to take place. This process is in its early stages."