Publication on New Quotas for Development of Solar Power Plants

October 31st 2016

Dear clients and friends,

On October 10, 2016, The Israeli Public Utilities Authority-Electricity (the “PUA”) published a hearing  concerning the development of new solar photovoltaic power (PV) facilities with a total capacity ranging between 800-1700 megawatts (final MW capacity to be determined by the PUA) (the “Publication”). The Publication 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 Publication, the rights to develop new PV projects under the new quotas shall be granted on the basis of a competitive bidding process, in which the bidders shall propose the applicable tariffs they expect to be paid for each KW/h supplied to the electric grid, and the grants shall be generally allocated amongst the lowest bidders (subject to the terms and conditions outlined below).

Public Responses to the Hearing are due by November 10, 2016 at 12 p.m.

Below follows a brief review of the pertinent terms and conditions of the Publication:

1. Quotas

The Publication contemplates the following quotas for the years 2017-2018 (all references are to megawatts):

January 2017 – 150-300

July 2017 – 150-300

January 2018 – 150-300

July 2018 – 150-300

Power Systems Connected to Transmission Grid (Ultra High Voltage):

April 2017 – 100-250

January 2018 – 100-250

The maximum quota for the year 2018 will be determined by the PUA’s assembly in accordance with, inter alia, the quotas allocated in 2017. The quota to be allocated in the competitive bidding process for the Transmission Grid (Ultra High Voltage) depends also on the feasibility studies and reports, as well as the actual bids submitted in connection therewith.

Judea and Samaria

In addition to the quotas detailed above, an additional quota equal to 10% of the total power supplied to the Distribution Grid from PV power plants pursuant to the table above will be allocated to the construction of PV facilities in Judea and Samaria. The tariff for this quota will be determined in accordance with the results of the competitive bidding process conducted under the Publication. The PUA also clarified that the winning bids in the competitive bidding process conducted under the Publication cannot be carried out by developing facilities in Judea and Samaria.

 2. Principles for Determining Successful Bids and Tariffs

Bidders shall submit in their respective bids a proposed tariff for one KW/h of electricity to be supplied to the grid. The PUA will rank such Bids on the basis of the proposed tariff (from the lowest to the highest proposal). 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 at a price equal to the lowest proposed tariff which did not make it into the quota (meaning the lowest tariff proposal amongst the unsuccessful bids). Consequently, all successful bidders shall eventually sell electricity at the same tariff.

The final tariff will be valid for a period of 23 years for facilities connected to the Distribution Grid, and 22 years for facilities connected to the Transmission Grid, starting from the date of commercial operation or upon receiving a permanent license to produce electricity and the commencement of commercial operation, as shall be determined in accordance with the then applicable licensing regulation.

The tariff will be linked to the Israeli CPI. The PUA has requested to receive comments from the public with respect to the possibility of linkage of the tariff for the Ultra High Voltage facilities to the Bloomberg Index, the Construction Input Index or other indexes.

3. Submitting Bids

Bids per participant shall not exceed 100 megawatts with respect to the Distribution Grid, and 70 megawatts with respect to the Transmission Grid. Bidders may submit bids for both the Distribution Grid and the Transmission Grid.

A bidder is defined as the holder, directly or indirectly, of at least 10% of the means of control in a bidder.

Further limitations may be placed by the PUA upon the allocation of the 2017 quotas.

4. Guarantees

Bidders will be required, as part of the competitive bidding process, to deposit guarantees in the sum of $20 U.S. dollars per installed kilowatt in their bids, which will be returned to unsuccessful bidders. Following conclusion of the bidding process and publication of the results thereof, the successful bidders shall increase their guarantees to $70 U.S. dollars per installed kilowatt, guaranteeing the due construction of the facilities.

5. Term of Construction Period

Successful bidders will be required to connect the facilities to the grid and complete their acceptance tests within 18 months, with respect to the Distribution Grid, and 36 months, with respect to the Transmission Grid, from the date of being awarded the tender. Successful bidders will not be required to meet additional time limitations.

6. Licensing

The PUA will issue a permanent license to produce electricity to a successful bidder who will (a) construct a PV facility having a capacity of at least 5 megawatts and (b) 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, for to the entire commercial operation period. The Publication further provides that the participation in the competitive bidding process as well as the development of the facilities are not conditioned upon receiving a provisional license or compliance with other schedules and milestones (the successful bidder, however, shall still be required to meet the deadline for commencement of commercial operation, as provided in Clause 5 (Term of Construction Period) above).

7. Existing Facilities

According to the Publication, a successful bidder may develop a PV facility pursuant its applicable quota by way of expanding existing facilities.

8. Conditions to Submitting Bids and Additional Requirements

With respect to the Distribution Grid: no conditions precedent other than the issuance and deposit of guarantees.

With respect to the Transmission Grid: in addition to the issuance and deposit of guarantees, a positive feasibility study is required, in accordance with the following instructions:

a. Bidders wishing to participate in the competitive bidding process must submit to the Israel Electric Corporation (“IEC”) a request to conduct a feasibility study by November 30, 2016. Bidders can submit such request before the conclusion of the hearing.
b. IEC will conduct feasibility studies according to the order of submission of such requests (to ease bureaucratic concerns, IEC need not obtain authorization from the Head of the Division of Engineering to conduct such feasibility studies). IEC shall complete all feasibility studies, submitted on or before the above deadline, by no later than February 2, 2017.
c. Upon the completion of the last feasibility study, IEC will publish a matrix depicting all of the bidders and their direct and indirect competitors, in customary form.
d. A positive, uncontested feasibility study, is a necessary precondition to submitting a bid under the Publication.
e. The quotas allocated in the competitive bidding process to facilities connected via the transmission grid will be determined, inter alia, by the contents of such feasibility studies, subject to the PUA’s discretion.
f. In the process of determining the successful bidders in the competitive bidding process, and guaranteeing their spot in the grid, the following shall apply:

1. A bidder who submitted the lowest proposal will be guaranteed a spot in the grid, as of the date of its designation as a successful bidder.
2. All proposals which include a grid connection survey that is dependent  on the actual successful proposal, will be disqualified and their guarantees returned.
3. The next successful bidder will be the bidder who submitted the lowest proposal following the disqualification of the aforementioned proposals.
4. The remaining successful bidders will be determined in accordance with the aforementioned procedure from the remaining bids, until the total quota for the competitive bidding process is fully allocated.
5. The final tariff applicable to all bids will be equal to the lowest tariff amongst the unsuccessful bids who did not make it into the quota (essentially equal to the tariff set forth in the bid subsequent to the last bid which made it into the quota in accordance with the above procedure).

g. The successful bidder will be required to complete the feasibility study vis-à-vis IEC, namely with respect to plans inspections and system stability inspections. Nevertheless, guaranteeing a place in the grid is not conditioned on completing the feasibility study.
h. The responsibility for meeting the date of commercial operation, including acquiring the permits for the facility, in accordance with the abovementioned schedule, lies solely with the bidder, and any deviation therefrom may lead to the forfeiture of the guarantees.

9. Status of Conditional Licenses which did not Receive Tariff Approval under Previous Regulations

The Publication provides that licenses issued in the course of previous regulation and which did not receive tariff approval, are hereby terminated, and that licensees that performed a grid connection survey can use the survey to satisfy the precondition for participation in the competitive bidding process for determining a tariff with respect to the Ultra High Voltage.

This draft resolution creates new opportunities in the Israeli solar / PV field, which has been stagnant in recent years, and determines the principles of participation in the Israeli PV market in the near future. Nevertheless, the draft resolution raises several questions that require clarification. Therefore, it is important that you take a closer look at the draft resolution and its ramifications and submit your remarks to the PUA by the final date (November 10, 2016), and before the draft resolution is accepted. For further information and questions, please feel free to contact us.

We emphasize that this memorandum is intended for your attention only and does not include a comprehensive analysis of all the facts and details mentioned therein. Data, information and analysis set forth in this memorandum is subject to change, without further notice. This memorandum does not replace, in any way, an independent review of any document in connection with the information referred to in this memorandum, including the PUA’s Publication.

This publication provides general information and should not be used or taken as legal advice for specific situations, which depend on the evaluation of precise factual circumstances.

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