Finance

Israel Electric Corporation: Pursuing Cleaner Energy

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The Israel Electric Corporation (IEC) has faced some expensive electricity generation situations in the past, often caused by regional political issues. The electrical grid in Israel is well-established, though many portions of it are aging and now too small for some of the regions they serve. When local demand exceeds the transmission line's supply capacity, electricity must be generated locally. Most local generators run off diesel fuel and, because of the fuel's rising cost and the excise tax imposed on it, the IEC thought it best to investigate alternative solutions that would be both cheaper and more environmentally friendly. Furthermore, the unstable geopolitical situation in the Middle East has provided Israel with motivation to become less tied to the region for its energy needs. The case is written from the IEC perspective, with some information included about its methanol supplier and technical partner, Dor Chemicals.
Bibliographic citation: Beaudry, Marcus; Rahnema Alavi, Ahmad, "Israel Electric Corporation: Pursuing Cleaner Energy", IESE, F-928-E, 11/2017
Date: 15/11/2017
Author(s): Beaudry, Marcus; Rahnema Alavi, Ahmad
Document type: Case
Editor(s): Cátedra Fuel Freedom de Energía y Desarrollo Social
Department: Financial Management
Sector: Environment
Languages: English
Year of the events: 2011-2015
Geographic area: Israel

Learning objective This case provides the opportunity to evaluate different options relating to renovating old infrastructure or investing in new-generation and/or transmission infrastructure. Elements of economics, international and local politics, legislative trends, and evolving electricity generation technologies are covered and should be discussed as the case is developed. Students should be guided to pick the best option for electricity generation in the city of Eilat using an NPV (net present value) analysis and by looking at the overall developmental direction of the IEC, natural resources, politics, and legislation in the region. Significant attention should be given to the long-term implications of investing in infrastructure and the effect that large investments have in dictating company direction. With the future being so uncertain, a discussion of future-proofing electricity generation infrastructure in a politically volatile region of the world should also be explored.