Israel Electric Corp

Israel Electric Corp.

Business update as of 06/30/2017

September 2017

Israel - a Modern Growing Economy

Source: The Central Bureau of Statistics, Bank of Israel. 1. 2016 GDP converted using yearly average USD/ILS exchange rate of 3.84. 2. Credit rating refers to long-term foreign currency debt only. 3. As published in “The Israel Economy: Recent Trends and Outlook” Report by the Ministry of Finance.

Israel Public Debt to GDP(3)

Israel Rating History(2)

Inflation Environment

0

1

2

3

2002 2004 2006 2008 2010 2012 2014 2016

Moody's S&P Fitch

Nov 2016

Fitch upgrade

Israel to A+

Nov 2007

S&P upgrade

Israel to A

Apr 2008

Moody’s upgrade

Israel to A1

Sep 2011

S&P upgrade

Israel to A+

Feb 2008

Fitch upgrade

Israel to A

Baa1 / BBB+

A3 / A-

A2 / A

A1 / A+

Aa3 / AA-

74.7

72.9

75.1

71.3 69.9

68.5 67.6 67.1

64.9

62.1

60

65

70

75

80

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(% of GDP)

Area 22,072 km2

Population 8.6 million

GDP (2016)(1) USD 281 billion

GDP per Capita (2016)(1) USD 32,560

Avg. GDP Growth (2008–2016) 3.5%

Unemployment (January 2017) 4.8 %

Foreign Currency LT Debt Ratings A1 / A+ / A+

3.8% 3.9%

2.7%

2.2%

1.6% 1.8%

(0.2%)

(1%)

(0.2%)

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016

(YoY Inflation %)

1%–3%

Government

Inflation Target

1.8%

Average inflation in

the last decade

Key Figures

2

The Israeli Electricity Sector

Nearly 100% by IEC

99.85% Government

owned

Expected to reach

74% of total

generating capacity

by the end of 2017. By

the end of 2018 -68.4%

Expected to reach

26% of total

generating capacity

by the end of 2017. By

the end of 2018 -31.6%

(23% as of December

31, 2016)

Generation, Transmission and Distribution

Main Regulators Fuel Suppliers

The Electricity Authority

Government Companies Authority (GCA)

Ministry of National Infrastructures, Energy and Water Resources

Ministry of Finance

Ministry of Interior

Ministry of Environmental Protection

Natural Gas – Currently the Tamar Reservoir. More reservoirs have

been already discovered

Liquid Natural Gas - Imported from international suppliers

Coal - Imported from international suppliers

IPPs

Source: IEC’s Financial Statements.

IEC reached 2.7 million customers

(as of June 30, 2017)

Transmission and Distribution Generation Customers

3

Israel Generation Capacity and Peak Demand

Generation Capacity and Peak Demand

Source: IEC’s Annual Financial Statements

11,297 11,649 11,664

12,769 12,759 13,248 13,483 13,617 13,617 13,617

174 228

278 518

516

734

1,956

2,980 3,060

359

596

754 917

11,368

11,823 11,892

13,047 13,277

13,764

14,576

16,169

17,351 17,594

10,070 10,200 10,280

11,530

11,110

11,890 11,640

11,335

12,905 12,623

8,000

10,000

12,000

14,000

16,000

18,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(MW)

Installed Generating Capacity Gas Fired IPPs Renewable Energy IPPs National Peak Demand

4

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

(MW)

Demand for Electricity

Historical National Peak Demand Trends

Source: IEC’s Financial Statements.

Multiplied by 3.3 in 26 years

The demand for

electricity in Israel is

growing at a fast and

steady pace

Demand is driven

by both population

growth and the

increase in

electricity use

per household

The demand

forecast, which

serves for long-term

planning of the

generation system,

assumes an

average annual

increase of 2.8% in

peak demand in the

years 2015 to 2030

5

Tariff Comparison to OECD Countries

The electricity rate in Israel is lower than most of OECD peers

Source: Eurostat, Electricity prices for domestic consumers – bi-annual data, as of 06/08/2017. Israel rate is based on the last Tariff update (12/19/16) and converted EUR/NIS exchange rate of 3.98 as of 06/08/2017.

Average national price in Euro per kWh without taxes for medium size household consumers (consumption band DC with annual consumption between 2,500 and 5,000 kWh).

Average Price per KWh(1)

18.8 18.2 18.0

14.8 14.2

13.8

12.9 12.8 12.5 12.2 12.1 11.9 11.9 11.9 11.6

11.3 11.2 11.1 10.7 10.5

10.2 10.2 9.9 9.7 9.6 8.9 8.9

8.2 7.8

0

2

4

6

8

10

12

14

16

18

20

Irela

nd

Be

lgiu

m

Sp

ain

Unite

d K

ingdom

Italy

Germ

any

Cyp

rus

Sw

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Slo

vakia

Au

stria

Po

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l

Isra

el (J

une

2017)

Neth

erla

nds

Gre

ece

Cze

ch R

epublic

Norw

ay

Slo

venia

Fra

nce

Latv

ia

Po

lan

d

Fin

lan

d

Cro

atia

Denm

ark

Tu

rkey

Esto

nia

Rom

ania

Hungary

Lith

uania

Bu

lga

ria

(€ cents equivalent)

6

Internal SAIDI (system average interruption duration index)

7

14.2 12 14 13 20 53 52 52 67

95 93 84 107 94 118 117 86

122 121

205

144

420

210

412 468

571

908

1.2 5 8 9 6

11 16 16 13

3 6 18 32 60

43 66 132

136 162

119 217

42

256

250

230

207

119

0

100

200

300

400

500

600

700

800

900

1000

Lu

xe

mb

ou

rg 2

01

4

Denem

ark

2014

Germ

any 2

014

Sw

itzerlan

d 2

014

Neth

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nds 2

014

Sp

ain

20

14

Fra

nce

20

14

Au

str

ia 2

01

4

Fin

lan

d 2

014

Po

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l 2014

Brita

in 2

014

Sw

eden 2

014

Isra

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Italy

2014

Norw

ay 2

014

Esto

nia

2014

Hungary

2014

Gre

ece 2

014

Cze

ch 2

014

Po

lan

d 2

014

Lith

uania

2014

Irela

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014

Latv

ia 2

014

Cro

atia

2014

Rum

ania

20

14

Ma

lta 2

014

Slo

venia

201

4

Interruptions Planned Outage

Smart Grid and Smart Metering

14

2020World Smart Metering Deployment Map

USA Smart Metering Deployment Map

2020% by 80 –European Smart Metering Deployment Map

Go/no-go map

Funding method Responsibil

ity over

data

manageme

nt

Responsibili

ty over

installation

Meters

market/

supervise

d

State/countr

y

Tariff + funding the DSO DSO DSO Supervised Italy

Tariff + funding the DSO DSO DSO Supervised Sweden

Tariff DSO DSO Supervised Finland

Tariff +renting the meters DSO DSO Supervised Spain

Tariff DSO DSO Supervised Austria

Tariff DSO DSO Supervised Netherland

Distribution utilities Central hub The

distribution

utilities

Liberalized

competitive

United

Kingdom

Tariff Central hub DSO Supervised Denmark

Tariff + funding the DSO DSO DSO Supervised Portugal

Observation of the sector responsible to meters

procurement activity in selected countries (*)

(*) ref: European Regulators Group for Electricity and Gas, European Commission. DSO – Distribution System operator

פרויקט פיילוט תעריפי-מנייה חכמה 20

IECo Smart Metering Architecture

Smart Metering Management

Meters Data Collection

Load Profile

Billing

Events Log

Data Storage

Meters Configuration Update

Clock - DST

TOU

Holidays

Firmware

Load Limit Control

Disconnect / Reconnect

Power / Current Limitation

Data Concentrator

Load Profile Data Storage

Selected Solution – Integrator Ericsson

ZIV PLC meters Circutor PLC data concentrator Kaifa cellular meters

Kaifa single phase PLC

meter

Selected Solution – Integrator Ericsson

6

25

The Smart Metering Roadmap 2016-2020

2016 2017 2018 2019 2020

Existing smart

metering

Pilots and novel

projects

Computer systems

Upgrade of 45,000 metering systems (primary + secondary meters + modem)

Entering into normal operation of novel computer systems:

ITF ,MDM , MOC, NOC, D.NET, SAP ISU.CRM

20,000 meters:

(13,000 Customers of existing remote metering points)

Customers:

Binyamina city

Metering systems >100 A

Private manufacturers

(special agreements)

Tariff Pilot

(Meniv)

32, 000

Metering at novel cities &

Neighborhoods

40,000

Metering at novel cities &

Neighborhoods

40,000

Metering at novel cities &

Neighborhoods

25, 000

Metering at novel cities & Neighborhoods

10,000

Legend:

Direct TOU meters

13, 000

Electric

grid

Field communication testing

DC Installation and

maintenance

Israel present and future of smart metering

BILLING

operation

consumer

Consumers/

prosumers SMU

Electric System Management Unit

VEE

Laboratory tests

Spec writing, bidder

evaluation, purchase and

acceptance tests

PV to grid+

E STORAGE

EV to grid

LOAD

PROFI

LE

NEAR

REAL

TIME

DEMAND

RESPON

SE

METERS

DC

The Smart Grid Roadmap

27

CBA submitted to regulator Deployment: 5 years, 2.64M meters

Life-cycle: 15 years

168,000 meters

2016-2020 Expanding to new

Neighborhoods

and to the

business market:

200K

2019-2023 Installing full meter

deployment

ADMS

2020-2023

2023 …

IEC'S Smart Grid Roadmap

15

Automatic Metering Infrastructure may be attractive objective for different

type cyber adversaries:

Ransom attacker

Hostile country

Competitor

IECo AMI cyber security strategy is to prevent the follows cyber-attack

results:

The total electricity outage

Financing losses as result of meter tariff manipulation

Privacy information leakage

Damage to company reputation

Main cyber security measures used in AMI project: Sensitive information cryptography

Data traffic content checking

Data traffic encryption

Fire Wall based network segmentation

Software and hardware hardening

Security Operation Center based cyber security monitoring processes

28

Cyber Security for Smart Metering Project

18

IECo Next Main Challenges

Electrical transportation integration - EV, Light Train, Heavy Train

Electrification

Renewable Energy Integration – PV, Wind

Distributed Generation Integration – Micro-Genaration (mainly

NG powered), Microgrids

Energy Storage Integration – Pump Storage, Large Scale

Electrical Batteries, V2G

Cyber Resilience

Thank you

Questions?

Israel Electric Corporation

Deputy CEO & Senior Vice President,

Customer Group

Yitzhak Balmas