The Green Energy Company will pay NIS 1 billion for land leases for projects that may be a leap forward. Challenges await her that may change the picture
One of the reasons for the increase in the value of the stock yesterday – after it fell by 66% in the past year – is the winning of two huge tenders by the Israel Land Authority (RMI), which may be a significant leap forward for it. Not a small danger for Solgreen either.
As part of the tender, Solgreen will build two solar installations with a lease of NIS 1.053 billion for 25 years. Each of them will be spread over 1,400 dunams, and the company anticipates that it will be possible to establish photovoltaic facilities with a capacity of 520 megawatts in the areas, in addition to 940 megawatts of storage facilities. According to Solgreen, the projects will reach a stage of readiness for construction in 2026. The cost of establishing the two projects is expected to be NIS 1.64 million, and yield an annual EBITDA of NIS 400 million. Sources in the energy market told “Calcalist” that the estimated cost of the establishment, which the company was quoted, is lower than what is accepted in the market.
Solgreen’s bids for the tender were the highest, but the significant gap between them and the bids of the companies that competed against it raises questions about the level of risk that the green energy company is taking on in these projects.
Solgreen will pay NIS 336 million for one of the areas – both of which are located close to Naot Hovav. This is an amount 16% higher than the second highest bid in the tender, which was NIS 288 million, while the third bid is NIS 150 million. For the second area, the company will already pay NIS 717 million – 68% more than the second offer in the tender, which was NIS 423.4 million.
Solgreen, it seems from the amount of the offers she submitted, sees great economic potential in the territories, but does her current situation allow her to make a total bet of approximately NIS 2.6 billion?
According to the terms of the tender, Solgreen will have to pay NIS 210 million in cash within 90 days, while at the end of the third quarter there was only NIS 68 million in its coffers. That is, the company will have to raise capital for projects in a period of rising interest rates. In addition, these are lands that will need to be rezoned, a process that may take a year or two. The actual construction of the photovoltaic facilities will also take time, so it will be several years before Solgreen can start marketing the electricity from these fields.
Solgreen apparently based its decision on the price it submitted on regulatory changes expected in the coming years regarding revenues from the sale of electricity. Today, the solar facilities sell the electricity they produce directly to the Nega system management company at prices ranging from 17 to 20 agorat per kWh. According to the Electricity Authority’s regulations, they will be able to sell the electricity from 2024 to private electricity suppliers, who will sell it to consumers at a rate to be determined in negotiations between the parties.
Facilities connected to higher voltage, such as those planned by Solgreen, are not currently included in the regulation, but the Electricity Authority emphasized that they intend to change the existing policy, so that solar production facilities with higher voltage can also enter the market model in the future. If this indeed happens, the solar installations that Solgreen will build will not be bound to the rate set by the state, and it is possible that it will be able to sell the electricity at a much higher rate, possibly even at the rate that the electric company currently receives – about 31 cents per kWh.
However, it should be noted that the prices of electricity produced from green energy, which used to be above the threshold of 20 shekels per kWh, are on a downward trend. Solgreen may also estimate that the sale through private suppliers will make it possible to sell the electricity to international companies operating in Israel and committed to meeting emission targets, so that they may Agree to pay a premium for the electricity from the solar installations.
Another problematic issue is the transmission network. One of the main barriers today is the ability to transmit large amounts of electricity from the sunny area in the south of the country to the demand areas in the center. According to the development plan of the system management company Nega, additional power lines are expected to be passed in the territories won by Solgreen – a plan that has not yet been approved by the government. Therefore, it is not certain that it will be possible to connect the future projects to the grid and sell electricity.