Consumers will benefit from lower equipment costs, says utility authority; renewable energy experts demand further assessment.

As the costs of photovoltaic equipment and installation fees decline, significantly reducing solar feed-in tariffs would bring NIS 2 billion in savings for Israeli electricity consumers, the Public Utility Authority has said.

The PUA will soon hold a hearing on the issue of reducing tariffs. According to a draft decision for that hearing – published Tuesday – guaranteed tariffs for large photovoltaic field developers would be set at 65 agorot per kilowatt hour (kWh), a 34 percent reduction from last year.

In light of the sharp decline of about 40% in the cost of electricity production from renewable energy resources, such a change in tariff fees would allow Israeli consumers to benefit from much greater quantities of green electricity, the PUA said.

The goal, the authority stressed, is to encourage as much green energy development as possible with minimal cost to the consumers.

Even with the reduced tariffs, developers would still be making a relatively large profit compared to those in other industries.

According to the draft resolution issued, if the tariff guarantee contract for the developers ends up becoming 25 rather than the customary 20 years, then the tariff set will be reduced by an additional 5 agorot per kWh.

The numbers that officials determined for tariff resolution draft came from comprehensive examinations based on current price quotas obtained from Bloomberg New Energy Finance regarding costs of equipment, construction and operation, the PUA said. From now on, this measure will constitute the base for updating tariff decisions.

For purposes of comparison, the utility authority explained that previous tariffs were based on the idea that the cost of modules was about $1.89 per watt and the cost of installation about $1.4 per watt – a total of about $3.29 per watt.

Today’s equipment and installation costs indicate a reduction in total prices of about $2.3-2.4 per watt.

Failing to implement a tariff reduction would require electricity consumers to pay an estimated NIS 200 million per year just to cover this difference, the authority said.

The PUA hearing comes at a time when similar reductions are happening all over the world. In Italy the updated rate for a facility of similar size is 56 agorot per kWh., and an additional reduction to 53 agorot per kWh. will occur therefore in February 2013.

In Germany, the price stands at 64 agorot per kWh., a 38% decrease from last year; in Bulgaria, 60 agorot per kWh., a 51% decrease from last year; in the UK, 45 agorot per kWh., a 16% decrease from last year; and in the Philippines, 93 agorot per kWh., a 46% decrease from last year.

PUA representatives said they recognize problems with land value assessments for future solar sites, and have teamed up with the Israel Land Administration to rectify the issues. Land prices are around $4,000 per dunam for solar projects, a number that is way beyond the global norm. However, the PUA said “it is not logical to wait for the conclusion of the team’s work” to inform affected individuals about the tariff reduction hearing.

“The cost of introducing renewable energy to the Israeli economy is an estimated NIS 15 b. in electricity tariffs through the year 2020, and a global reduction in costs enables significant savings to electricity consumers,” the PUA statement said.

In response, Eitan Parnass, director of the Renewable Energy Association of Israel, slammed the PUA for “abusing solar projects.”

“There… has yet to be built one large solar project in Israel since the regulation was approved two years ago and already the authority has run ahead to open up the facility tariffs,” Parnass said.

The eventual reduction of rates due to equipment cost declines needs to occur, as a solar market matures, he said.

In this case, however, the PUA and ILA are not providing developers with any sense of certainty regarding their land payments, and it is wrong to hold a hearing on the subject without even determining a time frame for the conclusions on the matter, said Parnass.

“Under these circumstances launching a hearing is premature, is not responsible and will cause the market tremendous damage of uncertainty for an unknown period,” Parnass said.

“A drastic reduction in the tariff shows a disregard from the authority for many costs and risks of a beginning market, in which there is still not one project. It seems that the PUA forgets that Israel is not Germany or another of the sophisticated markets that the PUA seeks to copy,” he said.

Jon Cohen, CEO of Arava Power Company, stressed that “the regulator has no simple mission” in this situation.

APC was responsible for the country’s first medium-sized solar field, launched at Kibbutz Ketura in June 2011, and is slated to be one of the first to build a large solar field – directly across the street from the medium version.

“Should tariffs be set too high, developers will enjoy disproportionate returns, at the expense of consumers,” Cohen said. “Should the regulator set tariffs too low, there will be no large solar fields developed in Israel in the foreseeable future.”

With no internal rate of return to display, developers will not be able to acquire financing for their investments, and government policies on renewable energies will consequently not be able to take force, according to Cohen. “All the potential green energy offers for Israel will slip between our fingers,” he said.

“Eilat will continue to fire turbines with diesel fuel to meet peak demand, at a cost far beyond past, present or future solar tariffs.”

In short, Cohen determined that the PUA has simply “gotten the math wrong” and said that the 65 agorot per kWh price just “does not work.”