07/18/2011 23:35

investing in solar and other renewable energy sources will help make Israel completely energy independent, an important national goal.
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The cabinet’s decision on Sunday to approve a NIS 5 billion plan to encourage individuals and corporations to produce electricity using solar and other forms of renewable energy is a step in the right direction, but is liable to be too little too late.

After much haggling among government ministries and in the face of Treasury opposition, the government finally reached a watered-down compromise deal. However, quotas put in place to curb state expenditures might stifle private business initiative.

According to the government plan, small, medium and large entrepreneurs will be permitted to sell energy produced from the sun, wind and biogas to the Israel Electric Company at a subsidized “feed-in tariff.”

This tariff, paid for each kilowatt of renewables-produced energy fed into the electric grid, is significantly higher than the price paid for electricity produced with coal, oil and natural gas. But the extra cost is eminently justified as a means of encouraging private businesses to invest in cleaner energy sources. The long-term government goal is that by 2020 10 percent of electricity will be produced from renewable energy sources.

Indeed, the state-subsidized feed-in tariff transforms the production of renewal energy into a profitable business.

Investors expect to receive their equity back from the feedin tariff within six years.

Linked to inflation and guaranteed by the State of Israel, the investment is very solid. It should be no surprise that dozens of entrepreneurs, drawn to the opportunity for good returns on their investment, have already begun obtaining land and going through the grueling bureaucratic procedure – designed in part to protect our green spaces – of receiving a permit to erect solar towers, parabolic trough systems or photovoltaic plants capable of turning the sun’s energy into electricity.

Rightly concerned that the state might be forced to pay enormous sums in the form of feed-in tariffs as hundreds of businessmen rush to make solid profits, the Treasury demanded that a quota be placed on the total amount of electricity bought at a subsidized rate.

Unfortunately, the Treasury did not take into consideration the possibility that in the near future – perhaps as soon as two years from now – the cost of producing electricity from solar energy will fall while fossil fuel prices will continue to rise. The time when the cost of producing electricity from the two energy sources will be the same – known as solar grid parity – is not far off.

Entrepreneurs such as Jon Cohen, CEO of Arava Power Company, a company partially owned by Siemens AG that recently completed Israel’s first major solar energy field at Kibbutz Ketura, are concerned that the quotas will prevent the fledgling renewable energy industry from really taking off.

Investors in the Arava Power Company and similar initiatives will refuse to finance projects that will begin producing in two or three years unless they can be assured now that the government will continue to provide some sort of incentive, even if at a lower level than the present feed-in tariff.

Solar energy might be costly but there is a broad consensus that it has many indirect benefits. Even the Treasury admits that replacing fossil fuel with solar energy reduces national health costs by lowering emissions of carcinogens and other disease-causing pollutants.

Another plus is that solar energy’s output peak at midday corresponds to peak demand hours for electricity as people turn on air conditioners. And the claim that recent offshore gas findings are expected to provide as much as 70% of our electricity needs make the need for solar energy less pressing is unconvincing. Sabotage of the Egyptian pipeline is ample proof of how vulnerable any single energy source can be. Developing local solar plants will also provide hundreds of jobs to local industries such as Zenith in Kiryat Gat and MST in Arad that produce solar energy systems.

Finally, investing in solar and other renewable energy sources will help make Israel completely energy independent, an important national goal.

The Treasury should use more creativity to ensure that private business initiatives continue to develop alternative energy sources that are safer, cleaner and economically beneficial.

Assuring entrepreneurs – many of whom are motivated by a combination of legitimate capitalistic interests and a genuine desire to strengthen Israel – that the government will continue to provide the necessary financial support until solar energy becomes truly competitive with more conventional ways of producing electricity is good for business and good for the Jewish state.