Israel’s AI ambitions hit an electricity bottleneck as data center demand explodes
The government wants to turn Israel into an AI infrastructure hub, but 27,000 megawatts of new data center requests have overwhelmed the power system and forced regulators to freeze new connections.
Just a month ago, the government approved a national plan to accelerate artificial intelligence in an effort to attract investment in advanced computing infrastructure and position Israel at the forefront of the AI revolution. Now, that ambition is facing a critical test: whether the country’s electricity system can handle the unprecedented surge in demand.
The challenge emerged after the Electricity Authority announced on Monday that it would freeze the processing of new applications to connect data centers to the power grid for 140 days. The decision came after an unprecedented wave of requests from entrepreneurs created demand for approximately 27,000 megawatts, almost three times Israel’s current average electricity consumption.
From the authority’s perspective, the freeze is an “emergency brake” designed to prevent the system from making connection commitments it may not be able to fulfill in the future. For data center developers, however, the move undermines regulatory certainty at precisely the moment Israel is attempting to establish itself as a hub for AI infrastructure investment.
Behind the Electricity Authority’s decision, headed by Amir Shavit, is a dramatic statistic that highlights the speed at which the industry is changing. Within just two months, Noga, the company responsible for managing Israel’s electricity system, received new requests to connect data centers totaling approximately 19,000 megawatts.
Those requests joined an existing backlog of approximately 8,000 megawatts, bringing the total volume of pending applications to about 27,000 megawatts, equivalent to the output capacity of roughly 30 large power plants.
For the electricity system, these are unprecedented figures. Israel’s average electricity consumption currently stands at approximately 9,000 megawatts, while peak demand reached approximately 17,000 megawatts in August 2025.
The sudden wave of applications far exceeds the country’s planned electricity generation and transmission capacity for the coming years.
“These are insane numbers, and there is no scenario in which we can catch up with such demand. Everyone needs to stop and think about what they are doing,” a senior electricity industry official told Calcalist.
A four-month freeze to rethink priorities
Under the temporary order issued by the Electricity Authority, Noga will stop processing new applications to connect data centers with a capacity of 8 megawatts or more until early December.
During this period, the Electricity Authority, the Ministry of Energy, and Noga will conduct a joint review aimed at developing a new policy for allocating limited electricity resources between data centers and the broader economy.
The Electricity Authority argues that continuing to approve requests would create a far greater problem. Officials said that issuing connection commitments without sufficient capacity could eventually leave the system unable to deliver on promises already made.
According to the authority, if the goal had only been to provide regulatory clarity, it could have simply rejected new requests. Instead, it decided to pause the process and reassess the scale of demand, the feasibility of projects, and the ability of the electricity system to support them.
The authority said that existing commitments for connecting data centers, totaling approximately 1.5 gigawatts, already consume the planned production capacity of the electricity sector through 2035.
Officials warned that approving additional commitments could reduce the reserves needed for natural economic growth, increase natural gas consumption beyond previous forecasts, and ultimately affect electricity prices for consumers.
A document published by the Electricity Authority as part of a public consultation process, which will remain open until August 19, states that many of the connection requests currently submitted to Noga may never reach the construction stage but are nevertheless occupying capacity in the system.
Senior officials at both the Electricity Authority and Noga acknowledged that they currently cannot determine which projects are realistic and which are speculative, one of the main reasons behind the freeze.
During the next four and a half months, government teams will attempt to map the requests, establish new eligibility criteria, and create a mechanism to distinguish between serious developers and projects unlikely to move forward.
Entrepreneurs warn of uncertainty
The decision has triggered sharp criticism from data center developers, who argue that it creates uncertainty at a time when Israel is competing globally for AI infrastructure investment.
“It is a delusional decision that undermines one of the most basic conditions for attracting investments, regulatory certainty,” a senior figure in the data center industry told Calcalist.
“The freeze is worse than receiving a negative answer. When you are told ‘no,’ you can change your plans or look for alternatives. When you are told ‘wait,’ the entire investment remains in limbo.”
There is also criticism within the electricity industry. A senior official claimed that energy authorities were not prepared for the speed of change taking place in the sector.
The Electricity Authority rejected that criticism, describing it as “hindsight wisdom.”
According to the authority, no planning system could have anticipated applications for an additional 19,000 megawatts arriving within only two months.
Noga said that Israel’s electricity development plan was formulated in 2021, when demand from data centers was significantly lower. Despite this, the company said planning flexibility allowed it to approve connections totaling approximately 2,000 megawatts.
The company argued that the current debate is not about whether Israel should encourage data centers, but rather how limited infrastructure resources should be allocated.
“The question is not whether it is right to promote and establish data centers in Israel, but how it is right to allocate a limited public and infrastructure resource among all the needs of the economy,” Noga said.
According to Noga, the next stage must include a national policy determining how electricity resources should be divided between data centers, households, industry, electric transportation, and other sectors.
Only after such decisions are made, the company said, will Israel be able to update its development plans, expand transmission infrastructure, and accelerate the construction of additional power plants.
The Electricity Authority said Israel is not alone in facing this challenge.
As part of its review, the authority examined models from countries including Singapore, Ireland, and several U.S. states, including Virginia, New York, and Maine, where electricity bottlenecks have emerged due to the rapid growth of data centers.
The authority said the question is not whether to encourage investment in the sector, but how to do so without compromising the reliability of the electricity supply.
Officials declined to detail the solutions being considered during the freeze period.
“There will not be a single solution, but several layers, each addressing a different problem,” a senior Noga official told Calcalist. “We are examining countries around the world facing similar challenges and will need to deepen our understanding of the issue.”
Dr. Gideon Friedmann, former chief scientist at the Ministry of Energy and currently vice president of technology at climate investment fund NetZero Tech Ventures, suggested that one possible solution would be requiring entrepreneurs to pay significant fees while waiting for grid connections, creating a filter against speculative projects.
“Establishing infrastructure such as data centers is a weak area in Israel, so we should focus on what we actually need rather than trying to provide infrastructure for consumers outside the country,” Friedmann said. “In innovation, we should accelerate the development of technologies for more energy-efficient data centers. We have enormous potential in this area.”
Natural gas enters the debate
The discussions between Noga and the Electricity Authority will also address Israel’s natural gas reserves, while a committee examining natural gas policy, headed by Energy Ministry Director General Yossi Dayan, has yet to publish its conclusions.
The committee, established in 2024, is examining natural gas export policy and its impact on Israel’s energy security amid expectations of sharply higher electricity demand.
Noga believes that committing to additional data center connections could significantly increase natural gas consumption beyond current forecasts.
The issue is particularly sensitive given Israel’s gas export agreements, including the Leviathan reservoir partnership’s deal to export gas to Egypt, valued at approximately $35 billion over the next decade, and a memorandum of understanding signed by the Tamar partnership for exports of up to 80 billion cubic meters of gas, valued at approximately $20 billion.
The Electricity Authority had already begun developing a new framework under which data center developers would be required to pay millions of shekels annually to maintain their place in the connection queue.
In addition to these payments, developers would be required to provide financing plans and additional approvals demonstrating that they have the ability to complete their projects.
The authority’s announcement also affected the stock market. Shares of Mega Or, controlled by Tzachi Nachmias, fell 6% following the announcement, after rising approximately 370% over the previous year.
Mega Or is one of Israel’s first companies developing data centers amid expectations of rising AI-driven demand. About two months ago, the company entered the TA-35 index, with its market value reaching a record approximately NIS 26 billion.
