The energy market in Israel has progressed dramatically in the recent years and undergone many changes, developments and updates.

In addition, Israel is a leading source of innovation, entrepreneurship and developments in various energy sectors, and many leading Israeli energy and infrastructure companies and groups are involved in global major projects.

The Natural Gas Market

Israel enjoys three large natural gas reservoirs that are fully operational.

In addition, natural gas can also be imported to Israel through a buoy connected to the Israeli transmission system. Currently,  a regasification vesssel continue to anchor in Israel, capable of storing and flowing a relatively large amount of natural gas into Israel, in cases of natural gas shortage.

As of the end of 2021, approximately 70% of the electricity in Israel was generated by natural gas consumption, at approximately 51.3 TWh.

The transmission network of natural gas reached 830 kilometers at the end of 2021; and the distribution network of natural gas reached 575 kilometers at the end of 2021, with 123 factories and industry consumers.

The growth trend in consumption of natural gas in the domestic economy is expected to continue in the next decade, inter alia, due to the expected growth in demand for electricity; due to the Israeli government decision to cease generating electricity from coal; and due to the continuation of growth in the Israeli industry.

In the past years there has also been a significant increase in the export of natural gas exported from Israel mainly to Egypt and to Jordan. The increasing demands for export of additional quantities by neighboring countries, also leads to additional development of the transmission system due to the need for additional capacity and lines. In 2021, 7.14BCM of natural gas was exported from Israel to neighboring countries, i.e. 36% of total natural gas supply, compared to 4.25 BCM for exports, which accounted for 26% of total natural gas supply in 2020.

Alongside the growth of export, Israel continues to face challenges in respect with the delays in the development of natural gas distribution networks and examines various solutions both in terms of financial grants and in term of tariff updates.

Israel is also examining storage of natural gas due to its contribution and advantages in global markets, as well as the unique challenges the Israeli market faces in respect with emergency scenarios. Currently there is no back up to natural supply nor other sources of natural gas from neighboring countries.

In addition, Israel is examining the developments in the hydrogen market and its implications on the energy market in Israeli and specifically the natural gas market.

Today, Israel faces the challenge of transitioning to greener energy, along with reducing emissions, and the Israeli Ministry of Energy has set ambitious goals when it comes to the transition to clean energy. However, the natural gas industry remains relevant and crucial to the electricity market, and many industrial consumers are transmitting to consumption of natural gas (instead of other polluting fuels).

The Electricity Market

Electricity consumption in Israel is divided into several sectors, including: domestic (approximately 21.3 tera watts in 2021), commercial (approximately 17.1 tera watts in 2021) and industrial (approximately 14.6 tera watts in 2021).

In the years 2000–2020, electricity consumption increased from about 41.4 terawatts to approximately 72.8 terawatts - an increase of ~75.8%, i.e. an average annual increase of ~2.9% between 2000 and 2020, and of ~2.2% from 2010 to 2020.

In June 2018, the Israeli government passed a decision regarding the promotion of a reform in the electricity sector and structural change in the Israel Electric Company (IEC) which is a governmental company. Under the reform, IEC was required to privatize, by June 2023, five natural gas power generation sites with a capacity of ~4,500 megawatts (approximately a third of IEC's production capacity and a quarter of the market’s production capacity). IEC's market share in the production segment is expected to be reduced to ~38% in 2025. For reference, in 2021, the private producers of electricity held a market share of 48% of the generated electricity.

Electricity production in Israel currently relies on three main components: natural gas, coal and renewable energy. The forecast for 2025 is that 76% of electricity production will be based on natural gas, and approximately 20% will be derived from renewable energy.

Renewable Energy

Israel today is one of the leading countries in the field of solar energy and in an annual report of the International Energy Agency (IEA) in 2019, Israel came in first place among the OECD countries in the rate of solar energy production out of total electricity consumption.

The Israeli Government is promoting a goal plan for the energy markets, aiming to:

The goals above reflect a significant step towards reducing Israel's dependence on coal and oil distillates and are expected to lead to broad changes in the Israeli energy economy. These goals are expected to be implemented in the electricity generation, transportation and industrial sectors, as well as in the natural gas markets.

At the same time, steps will be taken to maintain the reliability and availability of energy supply in routine and emergency situations. In addition, policies to reduce the use of polluting fuels will be accompanied by additional steps to achieve energy efficiency targets.

The Israel Electricity Authority is also promoting diverse supporting programs, such as:

The Electricity Grid

In February 2023, the Israel Electricity Authority published a hearing regarding the development plan of the electricity transmission network in the years 2023−2030, before it is submitted for approval by Minister of Energy. The proposed plan includes 325 projects for the development of the transmission network in a total investment of ~NIS 16.8 billion.

Legal Aspects

The constantly growing importance and capacity of the energy markets in Israel, as well as the involvement of Israeli entities and entrepreneurs in the global market, require unique knowledge and expertise in both Israeli and international energy market fields.

The projects and their complexities require comprehensive legal knowledge, in both the domestic and international fields, making it possible to carry out significant international projects, in the age of ever-evolving regulations, while optimizing the commercial interests underlying the projects and providing broad legal protection in a variety of possible commercial exposures. Many of the challenges we face today, require the ability to generate unique tailor-made solutions for projects, and unique legal engagements (including non-conventional PPA’s, GSPA’s, various EPC and O&M agreements and more).