Electricity prices will rise by 8.2% starting in January 2023 to a 7 year high

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by Ifi Reporter Category:Financial Nov 23, 2022

The electricity tariff is expected to increase by 8.2% starting in January 2023. The price per kWh will rise from 49.1 EG to 53.12 EG (before VAT). Last August, the price of electricity jumped by 8.6% to a seven-year high.
The main reason for the price increase is the increase in coal prices worldwide, which have increased by 140% since the beginning of the year. Another reason for the price increase is the prohibition by the Ministry of Environmental Protection to operate old power generation units at the Eshkol station powered by natural gas, which forced the increase in power generation using coal.

The increase is now lower than the initial estimates of 10%. The reasons for this are a different calculation of the electricity company's production costs (reducing the rate of return on capital), and the distribution of the debt that will accumulate from the purchase of the coal over three years, when the coal plants are expected to cease their operations.
The decision of the Electricity Authority Plenum estimates that the discount on the excise tax on fuels, which was decided by Finance Minister Avigdor Lieberman a few months ago, will stop. The interest rate increases and the changes in the dollar exchange rate also influenced the Authority's decision.
Despite the increase, electricity prices in Israel are low compared to the rest of the world. Compared to Europe, for example, the rate in Israel is the seventh lowest.

The increase in production costs is mainly due to a jump of about 74% since July in the recognized cost of coal (the purchase cost is recognized by the Electricity Authority for the purpose of calculating the electricity tariff). Coal is still used for 21-23% of electricity production in Israel. In addition, there was an increase of about 6% in the cost of natural gas, mainly due to the strengthening of the dollar, since the electricity producers in Israel purchase gas with dollar agreements. With the increase in the price of electricity, a jump in the water tariff is also expected, since a significant component of the cost of water production is electricity.
In the meantime, the electric company announced a comprehensive collection operation, following a jump of hundreds of millions of shekels in the total debts of households to the company. The promotion will include an exemption from interest on debts accrued from the beginning of 2020, and payment of debts in installments (up to three installments). Customers who pay their debt in four or five installments will be charged 30% of the amount of interest added to their debts.
The electric company does not attribute the jump to the increase in the electricity tariff in August 2022, and says that the total debt has increased since the beginning of the corona epidemic, and that in recent months the increase in it is actually due to refusal to pay.
 At the beginning of 2022, the High Court ruled that the electricity company is not allowed to disconnect sick, elderly or poor customers - which makes it difficult for the company to carry out enforcement actions to receive payment.
"Since the spread of the Corona epidemic, and out of understanding and empathy with the financial plight of some of its customers, the company has made many concessions to customers, such as convenient arrangements for spreading payments, discounts on interest rates and commissions, and more. Nevertheless, there has been a dramatic increase in the scope of customers' debts for electricity consumption. To "To avoid as much as possible the disconnection of electricity supply to debtor customers, the company is launching an additional operation to enforce collection. A customer who pays his debt will avoid disconnection," the company wrote in a statement on its behalf.
Oren Hellman, VP of Service at the Electric Company, said in a statement: "In the coming days, the company will start sending text messages to all debt holders, asking them to pay their debt. For the convenience of customers, a payment link will be attached to the message. The enforcement operation will mainly include business customers, and in any case customers who do not belong to a disadvantaged population, for whom the company offers a basket of solutions."
The Electric Company warned the public against fraudulent attempts to collect electricity bills - through text messages or e-mails that refer to websites that are not belonging to the Electric Company. The company says that the messages regarding the collection operation will only be sent to debtor customers, and that the messages include the contract number and address of the contract owner as well as a direct link to the company's website.
In January, the High Court ruled that the Electricity Authority must establish new rules regarding the disconnection of debtor customers, so that the sick, the poor, and the elderly are not disconnected. The exact rules for disconnection are required. The ruling states that although a person does not have the right to receive electricity for free, "electricity is a basic commodity whose denial violates the right to a minimal existence with dignity, a right derived from the constitutional right to dignity."
Despite the High Court's ruling, it is still possible to disconnect debtors for other reasons, such as in the cases of customers who have not proven that they are in actual financial distress. However, since no exact conditions for disconnection have been published, and there is difficulty in proving which of the debtors is currently entitled to continued electricity supply, the electric company claims that this led to an increase in the number of debtors. According to the company, the rate of increase in the last year exceeds 20%. The Electric Company cannot publish accurate data on the increase in debts, because it has not yet published financial reports for the third quarter of 2022.
The electricity tariff increase expected at the beginning of 2023 involves discussions and an approval process that will be held at the Electricity Authority, and they have not yet started. Even if coal prices drop significantly in the coming months, the Authority will have to raise the electricity tariff to cover the increase in coal prices so far.
In July, the Authority announced the increase in the tariff for the domestic consumer by 9.6%, to 49.54 shekels per kWh (not including VAT), after in February the rates had already increased by 5.7%, and in April they decreased by 2.2% following the reduction of the tax (excise ) on the coal. Following recessionary pressures from the August rate increase, the final rate of the August hike was 8.6%, to 49.06 cents per kWh.
After the expected update at the beginning of the year, electricity prices are expected to be higher than they were in 2013 - 54.03 shekels per kWh (without VAT) - when the explosion of the gas pipeline from Egypt led to the cessation of gas supplies to Israel before the Tamar gas reservoir began operating. Thus, electricity prices in Israel will reach a (nominal) peak of more than two decades.
The expected increase in the electricity tariff may moderate due to the expected announcement of an agreement for the sale of the Eshkol power plant in Ashdod. The station is supposed to be sold by the Electric Company to one of the four groups participating in the tender. However, due to the Ministry of Environmental Protection's restrictions on the plant's activity and the Electricity Authority's non-commitment regarding the establishment of a new power plant, entrepreneurs in the field say that the amount expected to be received from the sale of the plant is approximately 3 billion shekels, compared to previous estimates of approximately 6 billion NIS.
The increase recorded in August in electricity rates also has a considerable effect on water rates. In 2021, Mekorot paid 458 million shekels to the electric company for electricity - and the jump may increase its expenses. Mekorot is trying to reduce its electricity expenses, and in recent years has signed electricity supply agreements with several private electricity producers.
Chen Herzog, BDO's chief economist, said: "The expected price increase is ultimately due to the fact that in the end 23% of electricity production in Israel is from coal, the price of which in the world has soared. When you add to this the fact that there is a delay in the construction of two new power plants in Hadera fired with natural gas , and a delay in converting the coal-fired power plant in Ashkelon to gas, get the expected jump in prices."

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