Dear Clients and Friends,
On December 19, 2016, the Israeli Electricity Authority ("EA") published a decision concerning the general principles that will apply to upcoming tenders for solar photovoltaic power (PV) facilities, with a total capacity of 1000 megawatts (the "Decision"). The Decision follows an earlier decision by the Israeli Government to produce at least 10% of the total energy consumption in Israel from renewable energy sources by 2020.
According to the Decision, rights to develop new PV projects under the new quotas will be granted on the basis of a competitive bidding process, in which the bidders will propose the applicable tariffs they expect to be paid for each KW/h supplied to the electric grid.
We note that following the first bidding round, the EA may make changes to the principles outlined in the Decision. In addition, before the commencement of the first bidding round, the EA is intending to publish a detailed manual regarding the bidding process. In case of contradiction between the manual and the Decision, the manual will prevail.
The main terms of the Decision are as follows:
Quotas
The Decision contemplates four bidding rounds with the following quotas for the years 2017-2018
January 2017 – 150-300 MV
July 2017 – 150-300 MV
January 2018 – 150-300 MV
July 2018 – 150-300 MV
Principles for Determining Successful Bids and Tariffs
Bidders will submit a proposed tariff for each KW/h of electricity to be supplied to the grid. The EA will rank such Bids from the lowest to the highest proposal and Bidders who submit the lowest proposals that collectively fall within the quota limits (as outlined above), will be entitled to develop a PV facility and sell electricity to the grid. The tariff will be based on a 'clearing price' mechanism such that each successful bidder will sell electricity at a price equal to the lowest tariff proposed by an unsuccessful bidder.
Consequently, all successful bidders in that bidding round will eventually sell electricity at the same tariff. The final tariff will be valid for a period of 23 years starting from the date of commercial operation. The Decision also sets out the indexation mechanisms that will be available.
Guarantees
As part of the competitive bidding process, bidders will be required to provide a bid bond in the amount of NIS 100 per kilowatt. Within 7 days from determination and publication of the final tariff, the successful bidders shall increase their bid bond to NIS 300 per kilowatt in respect of which the bidder was successful which will secure the construction of the facilities (Performance Bond).
Concentration
The Decision sets out restrictions on the maximum capacity that a bidder (and holders of interests therein) can receive at certain times – 70MW. A bidder is defined as the holder, directly or indirectly, of at least 10% of the means of control in a bidder.
Licensing
The EA will issue a permanent license to produce electricity to a successful bidder who will construct a PV facility having a capacity of at least 5 megawatts, comply with the terms and conditions set forth in the Electricity Market Regulations (Terms and Procedures for Granting a License and Duties of the License Holder), 5758-1997 and comply with the license application procedure.
The participation in the bidding process (as well as the construction of the facilities) are not conditioned upon receiving a conditional license or compliance with other milestones other than the requirement to meet the deadline for commercial operation, which is 18 months commencing from determination and publication of the final tariff.
Existing Facilities
According to the Decision, a successful bidder may develop a facility awarded to it under the bidding process by way of expanding existing facilities.
Please feel free to contact us if you have any questions or need any assistance regarding the above.
Best regards,
Energy and Natural Resources Department
Herzog Fox & Neeman
