Ormat Technologies Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025

Key Takeaways

  • Ormat delivered 6.1% top‐line growth and 14.3% adjusted EBITDA improvement in full-year 2024, driven by the acquisition of Enel assets and enhanced performance across its electricity, storage, and product segments.
  • The company secured three PPAs—including for the Boyan plant in Guadeloupe and Hebe 1 and Mammoth 2 in California—at significantly higher rates than current agreements, demonstrating robust global and U.S. geothermal demand.
  • Operational curtailments in the U.S. (Nevada transmission maintenance) and Kenya, plus the Dixie Valley outage, led to a 4.4% drop in Q4 revenues and are forecast to reduce 2025 revenues by $10M–$15M.
  • In the storage segment, Ormat brought online the 80 MW Bozeman project, signed two tolling agreements in Texas and a resource adequacy deal in California, delivering 56.7% Q4 revenue growth and moving toward more consistent profitability.
  • As of year-end 2024, Ormat had net debt of $2.2 billion (4× net debt/EBITDA) and $667 million in liquidity, with $570 million of CapEx planned for 2025 funded partly by tax credits, keeping leverage stable but elevated.
AI Generated. May Contain Errors.
Earnings Conference Call
Ormat Technologies Q4 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good morning, and welcome to the Ormat Technologies Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. To do so, please press star one on your telephone keypad. Please note that this event is being recorded.

Operator

I would now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.

Joshua Carroll
Assistant Vice President at Alpha IR Group

Thank you, operator. Hosting the call today are Duran Blashar, Chief Executive Officer Ozzie Ginsberg, Chief Financial Officer and Smadar Laveed, Vice President of Investor Relations and ESG Planning and Reporting. Before beginning, we'd like to remind you that the information provided during this call may contain forward looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These forward looking statements generally relate to the company's plans, objectives and expectations for future operations and are based on management's current estimates and projections, future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties.

Joshua Carroll
Assistant Vice President at Alpha IR Group

For a discussion of such risks and uncertainties, please see risk factors as described in Ormat Technologies annual report on Form 10 ks and co reports on Form 10 q that are filed with the SEC. In addition, during the call, the company will present non GAAP financial measures such as adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management reasons for presenting such information is set forth in the press release that was issued last night as well as in the slides posted on the website. Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at format.com under the presentation link that is found on the Investor Relations tab.

Joshua Carroll
Assistant Vice President at Alpha IR Group

With all that said, I would now like to turn the call over to format's CEO, Dipan Blushar. Dipan?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you, Josh, and good morning, everyone. Thank you for joining us today. 2024 was another successful year for OMAR as we delivered solid operational and financial performance and made marked advancements executing against the key pillars of our multi year growth strategy. This success was highlighted by top line improvements of 6.1% and an adjusted EBITDA improvement of 14.3% with solid growth demonstrated across all three of our business segments. As you can see on Slide four, in the electricity segment, we celebrated the successful acquisition of Enel Assets, a strategic move that has substantially boosted our revenues and EBITDA.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

This acquisition coupled with a remarkable recovery and resource stability at Puna and Olkaria enabled us to more than offset the operational events and curtailments to deliver strong financial results and impressive adjusted EBITDA growth. In addition, we secured three new PPAs for our Boyan power plant in Guadeloupe, as well as Hebe 1 and Mammoth 2 in California, which captured significantly higher rates than our current agreements, demonstrating the strong demand we are experiencing in The U. S. And globally for geothermal. Turning to the storage segment, brought three new facilities online, including the 80 megawatts, three twenty megawatts hour Bozeman project, the largest storage facility in our portfolio.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

This milestone along with the signing of two tolling agreements in Texas and one resource adequacy agreement in California has transitioned this segment towards lower overall volatility and more consistent profitability while growing its way within our overall portfolio. In the product segment, we have fully recovered our top line, improved our segment profitability and reached an all time high backlog with the support of the approximately $210,000,000 contract in New Zealand. This achievement combined with our successful efforts in raising over $500,000,000 in corporate and finance debt and the receipt of significant tax benefits highlights our strategic financial management and robust market presence. These accomplishments are a testament to our unwavering dedication to growth. They position us for continued success and reinforce our commitment to delivering value to our stakeholders.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Now before I provide further updates on our operations and plans, I will turn the call over to Assi to review the financial results for the quarter. Assi?

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Thank you, Doron. Let me start my review of our financial highlights on Slide six. Total revenues for 2024 were $879,700,000 marking growth of 6.1% year over year. And revenue for the fourth quarter was $230,700,000 down 4.4% year over year. The improved top line performance on a full year basis was driven by growth across all three of our business segments, with the magnitude of year over year revenue growth driven largely by the strategic expansion on our electricity portfolio.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Our March gross profit for 2024 was $272,600,000 a 3.3% increase compared to 2023. Gross profit in the fourth quarter declined 6.2%, primarily due to the unexpected impact we saw in electricity segment due to curtailments. In the fourth quarter of twenty twenty four, net income attributable to the company's stockholders was $40,800,000 or $0.67 per diluted share, marking solid growth in comparison to $35,700,000 or $0.59 per diluted share in the same quarter last year. On an adjusted basis, net income attributable to the company's stockholders was $43,600,000 or $0.72 per diluted share, an increase of 7.77.5% respectively. In the full year 2024, net income attributable to the company's stockholders was $123,700,000 or $2.04 per diluted share in comparison to $124,400,000 or $2.08 per diluted share last year. On an adjusted basis, net income attributable to the company's stockholders for the full year 2024 was $133,700,000 or $2.2 per diluted share, an increase of 9.77.3% versus last year respectively.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Full year adjusted EBITDA was $550,500,000 marking an impressive increase of 14.3% compared to 2023. Our fourth quarter adjusted EBITDA results were $145,500,000 an increase of 4.6% compared to the fourth quarter of last year. This year over year growth in adjusted EBITDA was driven by the contribution of new projects added in both electricity and storage segment, the improved performance of our La Calle complex and better pricing at our Puna power plant as well as by the sale of tax benefits from newly built plants. In addition, we had significantly increase in the product segment EBITDA driven mainly by the improved margin. We note that our adjusted EBITDA growth continued to meaningfully outpace our already strong top line expansion, which further builds upon a track record of profitability maximization as we execute our portfolio growth strategy.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Turning now to Slide seven. We break down the revenue performance at the segment level. Electricity segment revenue for the fourth quarter decreased by 2.1% to $180,100,000 due to a $5,400,000 reduction at Dixie Valley, driven mainly by the previously reported outage and the approximately $4,000,000 reduction driven by curtailments in The U. S. While we touched based on this briefly in the last quarter earnings call, our fourth quarter revenue results reflects a greater than originally anticipated curtailment from local transmission owners as they conducted maintenance on the T line.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

For the full year, electricity revenue increased by 5.3% to $702,300,000 which was driven by the contribution of the NN assets we acquired at the beginning of twenty twenty four. The Heber complex repowering project as it came back towards full capacity and improved generation performance in Olkaria and pricing at Apuna Power Plant. Partially offset by the reduction in Vixie Valley and the curtailments in The U. S. In the Products segment, revenue declined by 21.4% to $39,600,000 during the fourth quarter and for the full year they grew by 4.4 to $139,700,000 Energy Storage segment revenue increased by 56.7% in the fourth quarter and by 30.6% to $37,700,000 in the full year.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

This increase is mainly related to new energy storage facility, which commenced operation during 2023, including Bowling Green, Andover, Uptown and Pomona Two, as well as the East Flemington and Bucklemeck Energy Storage Facility which commenced operation during 2024. Moving to Slide eight. The gross margin for the electricity segment was thirty four point nine percent and thirty four point six percent in the fourth quarter and full year. Largely in the recent quarter and modestly in the full year, the margin comparison experience was due to lower revenue resulting from the curtailments in The USA and Kenya and the Dixie Valley Outage, which returned to full operation towards the second half of the fourth quarter of twenty twenty four. Excluding the impact of curtailment in The U.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

S. And international, gross margin of the electricity segment was higher by 2.21.8% in the fourth quarter and the full year of 2024 respectively. We expect the curtailment we saw in Q4 to continue in 2025 as major Tier line is being replaced in Nevada during the year. In addition, the recent wildfires in California caused a reduction in demand of electricity in the region and resulted in overload on the grid that forced grid operators to curtail part of the supply power. We currently expect total revenue in 2025 to be negatively impacted by $10,000,000 to $15,000,000 in The U.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

S. The impact was taken into consideration in our 2025 revenue guidance. In the product segment, gross margin of 18.4% in the full year increased by 500 basis points versus last year. We have improved our margin in 2024 through better contract pricing. And looking into 2025, we expect to see margin between 18% to 20%.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

The Energy Storage segment reported gross margin of 9.510.9% during the fourth quarter and full year respectively, marking a significant improvement versus prior year. As Doron previously mentioned, this improved performance was driven by our continued progress to transition the revenue and margin profile of this segment, as we have achieved greater degree of balance between our merchant market exposure and turning contracts. Also in the fourth quarter, we saw better merchant prices at CGM and we continue to see improved prices also in the first two months of twenty twenty five at these markets. Breaking down adjusted EBITDA at the segment level on Slide nine, where you can see significant increase in full year 2024 at all three segments. The electricity segment generated 89% of our max total consolidated adjusted EBITDA in 2024.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

The product segment contributed 6% and the Energy Storage segment accounted for 5% of the total adjusted EBITDA. Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide in the back of the presentation. Moving to Slide 10. In the fourth quarter, we recorded a $20,000,000 in income related to tax benefit compared to $18,700,000 last year. Also in the fourth quarter, we recorded a $20,400,000 ITC benefit in the income tax line related to the three storage facilities, East Flamington, Bottleneck and Montague.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

In the fourth quarter, we collected $46,700,000 in cash for the bottleneck ITC. We anticipate that we will receive in 2025 up to $160,000,000 in cash proceeds related to PTC and ITC benefits, mainly from tax equity transactions for the heap of complex, ITC benefits for storage assets that will COD in 2025 and PTC transfers. We expect our MAX tax rate will be positively impacted by ITC benefits in 2025. And for modeling purposes, we expect the annual tax benefit rate to be positive of 5% to 10%. This rate exclude any changes in law and on one time event.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Looking at Slide 11, our net debt as of 12/31/2024 was $2,200,000,000 equivalent to four times net debt to EBITDA. The leverage decrease compared to earlier this year was supported by improved EBITDA and 32.8% increase in cash flow from operation compared to equivalents and restricted cash and cash equivalents as of 12/31/2024 was approximately $2.00 $6,000,000 compared to $288,000,000 at the end of twenty twenty three. Slide 11 breaks down our use of cash flow for the last twelve months illustrating our math ability to generate strong cash flow to reinvest in this strategically grow the business while simultaneously service our debt obligation and returning capital to our shareholders. Our cash flow from operation increased by 32.8% to $411,000,000 supported by the improved performance of our assets, increased collection in Kenya and Honduras and the monetization of bottleneck ITC at $0.93 on the dollar. Our total debt as of 12/31/2024 was approximately $2,400,000,000 net of deferred financing costs and is presented on Slide 30 in the appendix, which are from the pending schedules.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

The average cost of our debts for the company stands at 4.66%. The majority of our debt liabilities are at fixed interest rates, providing for good stability and creating protection from fluctuation in the market. Moving to Slide 12, we have approximately $667,100,000 of total available liquidity. Our total expected capital expenditure for 2025 are approximately $570,000,000 as detailed in Slide 31 in the appendix. We plan to invest approximately $355,000,000 in the three sixty segment for construction, exploration, drilling and maintenance.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

We also plan to invest $200,000,000 for the construction of our storage assets during 2025. As we continue to progress with executing our growth plan, we have shown the ability to consistently increase our cash generation profile, while combined with the expected cash from utilizing the tax benefits will fund our CapEx. We continue to maintain excellent liquidity and have ample access to additional capital as needed. On 02/26/2025, our Board of Directors declared approved and authorized payments of quarterly dividends of $0.12 per share payable on 03/26/2025 to shareholders of record as of 03/12/2025. In addition, the company expect to pay quarterly dividend of $0.12 per share in each of the next three quarters.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

That concludes my financial overview. I would like now to turn the call over to Duran to discuss some of our recent developments.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you, Asi. Turning to Slide 14 for a look at our electricity segment operating portfolio. Since the beginning of 2024, we successfully added 133 megawatts of new net capacity organically as well as through strategic accretive M and A. Generation increased 3.5% and excluding curtailment, our generation grew by 10%. This growth was driven by our acquired assets, improved performance at Puna, a full year of operations at HibberOne at higher capacity, the repower of Biowi and the increase in on carrier capacity to nearly 150 megawatts in the latter half of twenty twenty four.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Earlier this month, we announced the successful COD for the Aegean Geothermal power plant, which we jointly own with PT Mesko Power Indonesia. The Aegis facility began operation with its first phase delivering 35 megawatts to the Java grid with our share of the facility being 17 megawatts. In 2024, we secured multiple land parcels in Nevada and Utah to support our short and long term growth plans for geothermal energy in The U. S. This reinforces our commitment to advancing renewable energy solutions and meeting the increasing demand for sustainable energy in these key markets.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Moving to Slide 50, subsequent to year end, we are now signing a favorable ten year PPA with Kalpine Energy Solution to provide up to 15 megawatts of clean renewable energy from our Mamos II geothermal power plant. We are currently negotiating PTAs for more than two fifty megawatts with hyperscalers with rates exceeding $100 per megawatt hour. These agreements will secure our growth in revenues post 2028. Turning to Slide 16, our product segment backlog reached a record of $340,000,000 up 124% compared to Q4 of twenty twenty three. This increase was largely driven by the signing of a large EPC contract in New Zealand for the Timihi 2A 101 megawatt power plant and the Dominica BOT project.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Revenues from this backlog will be recognized over the next two years. Moving to Slide 17, our Energy Storage segment saw higher revenues on both a quarterly and full year basis, benefiting from facilities that came online in 2023 and 2024, including the East Flamington facility. We expect this performance to continue in 2025 as we benefit from the COD of our Bottleneck and Montague storage facilities. Additionally, we made significant progress in transitioning our storage segment to a more predictable portfolio with stronger profitability. This is highlighted by the REI agreement with the city of Riverside for our shared 80 megawatt, three twenty megawatt hour facility and our first two tolling agreements in Texas for the Lower Rio and build up facilities, each with the generating capacity of 60 megawatts or 120 megawatt hour.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Moving to Slide 19. We continue to remain on track to have our portfolio capacity target reach between 2.6 gigawatts to 2.8 gigawatts by year end 2028. This year we added two fifty three megawatts of new capacity with 133 megawatts in our electricity segment and 120 megawatts in the energy storage. This aligns with our long term capacity targets for 2028 and we expect it will straighten our earnings generation in 2025 and beyond. We expect a capacity CAGR of 14% to 16% primarily driven by the strong U.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

S. Market where we see increasing demand for baseload electricity. Our focus remains on capturing this demand through our electricity and storage segment. Turning to Slide twenty and twenty one, which displays our geothermal and hybrid solar PV projects underway. We anticipate adding an additional 158 megawatts to our generating capacity from geothermal and solar PV projects by the end of twenty twenty six.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Moving to Slide 22 and '23. We currently have six projects under development in our Energy Storage segment, which are expected to add three eighty five megawatts or 1.3 gigawatts hour to our portfolio. Our focus remains on balancing contracted revenues and merchant market pricing in our storage portfolio. We removed the Luiza project due to interconnection delays, which have pushed the project COD to 2029. We are discussing alternatives with the grid operator and will update as needed.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Additionally, we added two new projects in Israel awarded through towing agreements in partnership with Allied Infrastructure LTT, a leading infrastructure company in Israel. Our share of the project is 150 megawatts or 600 megawatt hour. Please turn to Slide 24 for a discussion of our 2025 guidance. We expect total revenues to increase by 9% year over year at the midpoint ranging between $935,000,000 and $975,000,000 and Attractive segment revenues are projected to be between $710,000,000 and $725,000,000 Product segment revenues between $172,000,000 and $187,000,000 and Energy Storage revenues between $53,000,000 and $63,000,000 Adjusted EBITDA is expected to increase by approximately 5% at the midpoint ranging between $563,000,000 and $593,000,000 with annual adjusted EBITDA attributable to minority interest at approximately $23,000,000 I will end our prepared remarks on Slide 25. In light of the fluid policy situation in The United States, we have taken proactive measures to ensure our geothermal projects are safe harbor for PTC eligibility through 2028 and ITC benefits for energy storage through 2026 and in some cases even beyond.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

These steps are crucial as we navigate the evolving landscape of executive orders related to the IRA tax credits and geothermal energy production and create confidence in our growth trajectory and our goals of achieving 2.6 to 2.8 gigawatts of generating capacity by 2028. We do see exciting growth opportunities for geothermal energy as part of the National Energy Emergency Executive Orders with potential easing of project permitting timelines and increased focus on geothermal research and development. These factors along with the growing global demand for renewable energy reinforces our confidence in geothermal energy's role in the transition to a cleaner energy future. To summarize, we are proud of our accomplishments in 2024 and remain focused on our long term growth target, while delivering strong financial results. As we look ahead, we anticipate growing demand for renewable energy to support AI data center and the transition to a cleaner energy future.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

We believe we can secure improved project return through higher PPA pricing and tolling agreements, driving improved profitability for OMA. We look forward to continuing our multi year growth path and consistently delivering enhanced shareholders and stakeholder value as we execute our strategy. This concludes our prepared remarks. Now I would like to open the call for questions. Operator, please.

Operator

Thank you. Your first question comes from Noah Kaye with Oppenheimer. Your line is open.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Good morning. Thanks for taking the questions. The first one, just how we should think about the electricity generation expectations for the electricity segment in the portfolio embedded in 2025 guide. It looks like most of the new projects you expect to come online are really kind of tail end of the year. You mentioned some of the curtailment impact.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

So, it kind of looks like we should assume a fairly modest, maybe low single digits increase in generation year over year or possibly flattish. But it also looks like that could set up perhaps something close to double digit growth in generation in 2026. Is that a fair way to think about it? How should we assume?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

I don't know. Thank you. I think you've got it exactly right. We didn't have any too many projects coming online at the April and May. We do see all the enhancement that we're doing for the NNEL project coming on for the end of the year.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

And we said we do see some more curtailments in The U. S. Than what we've seen in the past. So all in all, this year as presented in the guidance, we see similar generation mainly uptick. And '26, the impact will be basically following the power plants coming online until the end of the year that will have the positive impact for 2026 and all the projects that we've listed that will come out during 2026 as well.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Okay.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Maybe, Drora will let a few more maybe, Nohag, if you don't mind, I'll add a few more things.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Please.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

While the curtailment in The U. S, we've been told by NV Energy that it will be towards the second half of the year, This thing can move also to the next year. It can happen from time to time and then this year will be higher than that allow us to be higher end of the range.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Also both in January and February, we saw lower curtailment than the ones we anticipated in Kenya. So from a generation perspective, there are a few things that can move us towards the higher end of the range. But as you said rightfully so, right now, we're seeing maybe slight up versus last year, mostly as a result of the Dixie assets coming back online.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Okay, perfect.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Embedded in the CapEx guide is a doubling year over year of exploration and preliminary drilling activities. Can you just comment on that program a little bit? What would drive the increase in activities and to what extent you would consider this kind of truly early stage versus something that could help accelerate the portfolio growth over say the next three to four years?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Great. So we have been working to increase our exploration activity over the last year. We've changed the way we approach the exploration starting in 2021. Basically, we're starting to focus on four wells before really full size wells. We've been drilling between eight to twelve four wells in the last two years and that will happen in the next coming years.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Each core campaign is about three to four wells per site. So this site and once the core wells campaign is successful and the work was successful then we go to the full size at release. So it is our that was our plan to increase exploration. We see the PPA pricing above 100 today. So it's very comfortable to increase significantly the exploration.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

And also on the permitting side, we have been able to get permitting faster for the forward campaign, which reduces the risk of the full size drilling. And we expect that with the Trump administration, we'll be able to get additional permits for full size and for constructing power plant faster. So the exploration that we are doing this year previously and obviously in the coming years will have the growth coming in the following years. And we are focusing on many, many greenfields that was sort of a bit lower development in the past. But nowadays, we're focusing to increase and expand the development.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

We also increased our staffing in The U. S. To support this growth. And we do see these partners. And as we move forward, we will update the market policy once we confirm the results.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Yes. Just to get one more in, you talked about the two fifty megawatts of potential PPA contracting with data center hyperscalers and the pricing expectations there. And I think you mentioned around that you would expect those to be for off takes post 2028. Can you just comment on, A, reasons for that timing, and B, any kind of sense of expected tenure length of the agreements, and possible location of the agreements, is it would these necessarily be for centers located near production or would these perhaps be more for let's call them sort of virtual offtakes for plants located elsewhere in the country?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

So the reason we're talking about falling '28 is if you remember three years ago we signed a falling PPA with NV Energy and with the CP Power that covers the period until '28. So we are actually looking for the duration after that. On top of that, we just talked about the exploration and we believe this greenfield will come towards the end of twenty eighteen or probably the beginning of twenty nineteen some of them. So that's the place that we are looking that's why we're talking following 2028. The one that we are talking some of them are looking for us to sign contracts with them with the local utility.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

We prefer to do direct negotiation with us using the system, the network to get the electricity. We're not negotiating somebody decision that will be in the data center adjacent to our facility, but it is definitely something that we're looking across our fleet and there are places that we can actually combine the two together. But at this stage, those of the discussions we have are combining the utilities in soft form.

Noah Kaye
Senior Research Analyst at Oppenheimer & Co. Inc.

Very helpful color. I'll turn it over. Thank you.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you, Laurent.

Operator

The next question comes from Justin Clare with Roth Capital Partners. Your line is open.

Joshua Carroll
Assistant Vice President at Alpha IR Group

Hi. Thanks for the time. So, I

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

wanted to start out here on your, the safe harbor. You had mentioned that you have safe harbored all the geothermal projects with CODs through 2028. I was wondering if you could share how many megawatts that includes. Is that just the projects that you have named in your deck or is that a larger group of projects that would enable you to get to the 2028 targets that you have? And then just wondering, as we move through 2025, do you think you can extend the safe harbor timeframe beyond 2028 into 2029 for geothermal?

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Or can you extend the storage safe harbor projects beyond 2026?

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Good morning, Justin. That's a great question. As you can see from our deck, between now and 2028, we need to add close to 400 megawatts of solar and geothermal. And when you look at the named project, there is much less than that, which means that all the drilling that Doron just spoke about a few minutes ago that should enable us to add somewhere around two fifty megawatts between 2027 and 2028, all of that was already safe harbor. So when you talk about geothermal, we safe harbor many projects that are not on the list.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Everything that we're doing co holds already or full size wells, we also did that and we're also doing it through a sale of equipment. On the storage side, we are also as we speak today looking to get four more projects in addition to what you see on the list in Texas and California. And we already safe harbor two more projects that are not on the list. So there will be at least six more projects that are not on the list that will be safe harbor in the next already harbored in the next few months. And we will do it also through a start of construction.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

We will look through 2025 what else can we do in order to secure additional 2029 project. That's our goal.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Okay, great. Very helpful. And then wanted to touch on the product segment here. Wondering in 2025, are you expecting a meaningful contribution from the $210,000,000 contract in for the New Zealand project. I think the revenue contribution for that project was initially going to be more in 2026 and 2027, but it seems like that might be moving a little bit faster than previously expected.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

And then just wanted to touch on the margins as well. Product segment margin in Q4, very strong at 24%. Can you talk about your gross margin expectation for the product segment in 2025 and what you're seeing in the backlog?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thanks. One question. So when we have a very large product like that, it stands over two point five years, which started basically in December when we actually got the TPDs and office to proceed. And the revenue is spread roughly evenly towards the entire period. So we see revenues from the PBE project in '25, '6 and July '1.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

So it is spread across. Usually we will start with engineering, then manufacturing, then the construction part. And so '26 would probably be the higher with the most revenue out of the contract, but '25 had a significant amount of revenue from TBE as well. And regarding the margin that you said, I think you should look on the annual basis. Quarter margins sometimes are impacted by specific projects that can do better or worse, depends on the situation.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Q4 was a better one to have 20 more than 24% margin. We are targeting an 18% to 20% margin within the range that we had in the 24%, but that's the target that we're looking at.

Justin Clare
MD & Research Analyst at Roth Capital Partners, LLC

Got it. Okay. Very helpful. Thank you.

Operator

The next question comes from Julien Dumoulin Smith with Jefferies. Your line is open.

Hannah Velásquez
Hannah Velásquez
Equity Research Associate at Jefferies

Hey, good morning. This is Hannah Velasquez on for Julien. Thanks for the update and great quarter. I had a similar question to Noah at the beginning just in terms of your assets in 2025 coming online towards the second half or later end of twenty twenty five. How does that impact USR?

Hannah Velásquez
Hannah Velásquez
Equity Research Associate at Jefferies

How would that get you potentially to the higher end of the range toward $593,000,000 Is any contribution expected from those 2025 assets? Or should we think about it largely driven by a full year contribution of the 2024 assets added being operational?

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

I think what will put us towards the higher end of the range in the electricity segment specifically, it's not the additional of new assets. It's mainly the amount of curtailment we will experience in The U. S. And in Kenya. We've been told by NV Energy that they will replace a large T line in the second half of the year actually in Q4 and also they will do some maintenance work in April.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

With that being said, this thing can shift between the years and we're actually talking to them to see if they can smooth a little bit between the few years the maintenance. So that's on one hand. On the other hand in Kenya, the plant as you already know is very close to get to 150 megawatt, which is full capacity, but we've seen a lot of curtailment during 2024. January and February curtailment was significantly lower. So again, if we continue to see lower curtailment in Kenya throughout the year, that will be also very beneficiary and put us towards the higher end of the range.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

And weather results always can impact us. I can tell you that Q1, the weather was a little bit warmer than anticipated on the electricity segment. And we saw February, we just we are now in Reno and Nevada or close to it that it was quite warm. On the other hand, when you talk about the high end of the rate as a whole, as a company, on the storage segment, the freeze that some of you guys experienced in January and February, We are very sorry for you guys, but I can tell you that for our storage segment it was very beneficial. So weather can also impact us.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

So there is few things that can happen that can move us to the upper end of the range. It's not about CODs this year. Most of the CODs are towards the end of the year and they will impact 2026. Hopefully that answered the question.

Hannah Velásquez
Hannah Velásquez
Equity Research Associate at Jefferies

Yes, super helpful and I'm glad to hear you all benefited from the freeze. I am in Texas, I did not. So just a follow-up question on some of the repowerings you all are going through. I know some of the other companies we look at have talked about being able to renegotiate higher off of some of these repowerings. Are you seeing a similar opportunity?

Hannah Velásquez
Hannah Velásquez
Equity Research Associate at Jefferies

And if so, how meaningful is the upside there? Thank you.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you. The recontacting that we see is very many, tell you that the last restructuring that will be that we announced will be with Calpine for the Mammoth G2 facility. The Mammoth G2 facility ends its PPA at the end of 'twenty six, starting '27, the PPA was a little bit lower than $70 per megawatt hour. The PPA that we signed was over $100 And so we see a big change and we signed a couple of years ago portfolio PPA with the energy. We're in similar ranges like we had in the around $70 today we see prices above $100 hundred dollars So today we see that the recontracting all of them will be at higher prices than what we have today.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

We also see which we haven't seen in a while and mainly with the hyperscaler willingness to look or include some indexation to pricing because that we didn't have in the past. We still don't have any content that we signed, but we are seeing a willingness to discuss it into the PPAs. So it's a big will have a big impact going forward.

Operator

Thank you. The next question comes from Derek Pothizer with Piper Sandler. Your line is open.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Hey, good morning. Maybe shifting over to Energy Storage, maybe the margins obviously fell a little bit here quarter over quarter. Just can you talk about the different moving pieces as far as how margins step down to the low 10% range? And how should we think about it looking into 2025, puts and takes between bringing on new projects and obviously a lot of the tariff talk out of coming out of China. I know a lot of your supply chain comes out of China for these energy storage units.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Maybe just some help around the margin outlook and then how tariffs could be impacting this business?

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

Good morning. As you can see in general, 2024, we had around 10% to 11% margin between the quarters. I would say that in general 2024, there was no significant weather events across the fleet. And we only benefited from a bottleneck, which there is a higher margin during the month of December. That's when it fully operated.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

When we look at 2025, we are experiencing more weather events already in January and February. And with the increased exposure in PJM with Montagu coming online earlier, we are seeing now for the year roughly a margin of 15% to 20% for the full year. And I will say that we will see a higher margin than expected in Q1 because of the weather events that we experienced. Also in Q3, a bottleneck project has a better margin. In general, during Q3, the contract gives us a higher rate versus the remaining of the year.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

This is a new tolling agreement that we have in place already in December 2024. So we think about the year, we expect Q1 and Q3 to lead the margin and for the full year 15% to 20% margin.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

That's helpful.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Right. That makes sense. And then maybe just some comments around the tariffs out of China, just your supply chain with the batteries and the cells and everything else that goes into it?

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

If you think about our CapEx this year, for example, on storage, total CapEx on storage is expected to be $200,000,000 I will say at least half of it is things that we bring from China. So it will add some cost to our basically all investment and taking into consideration. But please remember that the battery prices are down from a high of $250 per battery three years ago to $130 1 hundred and 20 dollars you can even buy batteries now at 110, 1 hundred. So overall, from what the time we decided to buy the projects until now, the value of the batteries went down significantly. So 10% should not impact almost anything our decision making and it will not stop us from continuing the growth.

Assi Ginzburg
Assi Ginzburg
Chief Financial Officer at Ormat

The key for us is to get interconnection on time and the key for us is to continue sign good tolling agreements to allow us to develop more projects.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Got it. That's helpful. And then you recently signed an MOU with SLB in the oil and gas world, to develop traditional and the next generation geothermal assets EGS. Could you give us an update on how that's progressing? Anything noteworthy you want to share, how you're viewing this MOU and how it's evolving?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you. So, it's a very important MOU from our perspective and I think also from SLB. Basically has two arms. On one hand SLB, one of the largest drillers, has many customers that are drilling around the world and have access through to potential geothermal sites. They're also owning geothermets, which is one of the consulting firms that deal with geothermal.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

And then we do hope that through their customer base and knowledge from geothermics we will be able to get it to develop geothermal projects for hyperscalers or any SMB customer. On the other part is the EGS. As you know, EGS is significantly focused and looking on drilling, drilling costs, drilling technologies and SLB in the forefront of this technology. And we are working with them to design exactly the framework where we will together develop an EGS solution, deal with the technology challenges that EGS has today between our experience in the resource management and SLB experience in the drilling, we believe that we have a good chance to deal better than others on these technology challenges. And then once we do find the right economical DGS solution, we start developing DGS project.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

It's a process that we are starting with SLB today, these days and on finalizing the framework and going forward. So it's not a show it won't have a show term impact obviously, but it hopefully will have a mid term impact and longer term a significant impact.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Great. Appreciate all the color. I'll turn it back.

Operator

The next question comes from Jeff Osborne with TD Cowen. Your line is open.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Yes. Thank you. Good morning. Just two quick ones. On the contract renewals that you mentioned with Calpine for 15 megawatts, I think you had 88 total megawatts that were being renewed from '26 to '28.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Is there any update on the cadence of that expectation? I assume those would also be north of 100 megawatts an hour?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

The other re contracting that we have until '28 actually will go through the NV Energy portfolio. These are contracts that have outside with NV Energy and we signed them three years ago. The portfolio is a smaller, lower number around $70 However, still these are higher prices than what we have today in this contract.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Got it. So no new renewals between now and '28 and then it would require new exploration to reach the $100 price point for anything above and beyond that. Is that correct? Just want to make sure I got the timing right.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

These were relating to the Vanda. We have a Heber contract in California that we signed with Scapa. That contract ends in February 26. And we are waiting to the final signature from Skaford which should happen in the coming weeks. And that contract on average is about $100 again significantly higher than what we have in the account.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Perfect. And my last question, was the I forget what year it was, maybe '22 or '23 you made an acquisition that had a power line associated with it. And I believe you're trying to sell that power line or have for a while. Is there any update on that and what the potential proceeds could be?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

We have the power the optimal power line connected to BSHOT, the control substation, station, which is waiting for an upgrade. We are not a transmission company. And as you said, we are looking to sell it. We are in the process. And obviously, since we're in the middle of the process, I cannot share some commercial details, but this is definitely a process that we're doing and we plan to finalize it this soon.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Perfect. And just a clarification, I think you mentioned in the prepared remarks that I failed to hear correctly. Did you name the particular NV Energy project that was being curtailed that's leading to the electricity shortfall in 2025?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

I don't think we named it, but it's mainly in Venezuela. It's the McGuinness area, McGuinness Hills.

Jeffrey Osborne
Jeffrey Osborne
Analyst at Cowen

Got it. Thank you. Thank you.

Operator

The next question comes from Ryan Levine with Citigroup. Your line is open.

Ryan Levine
Ryan Levine
Analyst at Citigroup

Thanks for taking my questions. What's I guess two questions. What's changed from the company's prior stands to go through a regulated utility to this direct PPA with the hyperscaler and then related, another IPP or another power company indicated $70 to $90 per megawatt hour range for hyperscaler deals that include capacity or ancillary service. Can you provide some color or is there anything that you're able to share as to what's included with the north of $100 per megawatt hour number?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

First of all, we are negotiating with Hyperscale, as I said, directly and also through the utility company. So we're looking at both alternatives. We're trying to maximize the growth and profitability of the company between these two aspects. When we signed the PPA, we basically said with the PPA all the attributes of the renewable energy, including direct and everything. So we have one customer, one price that deals with everything.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Maybe that's the difference. I don't know who mentioned $70 to $90 but maybe that's part of the difference. But that's how we see the other technologies, our technology is emission free, other technologies have emission that also might have an impact on the price people are willing to pay. New power plants get we see tend to get higher pricing than recontracting many times. So there are various issues that can impact the pricing of the PPA, but we said that we see pricing that we are negotiating above 100

Ryan Levine
Ryan Levine
Analyst at Citigroup

Okay. Appreciate that. And just in terms of duration, I think it was previously mentioned or clarified, but do those duration conversations include all attributes of the power that you're selling? I mean, does this include capacity, some of the racks or any type of environmental attributes? And are they all likely to be similar in duration or any color you could share on that part?

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Yes. All the PPAs we have said all the attributes to the same time period of time of the PPA. So the PPA is ten years, it would be for ten years, fifteen or twenty. And the duration of the PPA is based on the negotiations we have with the specific customer is already between ten to twenty

Ryan Levine
Ryan Levine
Analyst at Citigroup

years. Great. Thanks for taking my questions.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you.

Operator

This concludes the question and answer session. I'll turn it to CEO, Doran Blashar for closing remarks.

Doron Blachar
Doron Blachar
Chief Executive Officer at Ormat

Thank you all for joining us today. 2024 was another very good year for O'Malley. We see the significant increased demand in The U. S. And globally, and we are fully committed to continue to focus on these growth and make sure that this is a profitable growth going forward. Thank you, Aurel.

Operator

This concludes today's conference call. Thank you for joining. You may now disconnect.

Executives
Analysts
    • Joshua Carroll
      Assistant Vice President at Alpha IR Group
    • Noah Kaye
      Senior Research Analyst at Oppenheimer & Co. Inc.
    • Justin Clare
      MD & Research Analyst at Roth Capital Partners, LLC
    • Hannah Velásquez
      Equity Research Associate at Jefferies
    • Derek Podhaizer
      Senior Research Analyst at Piper Sandler Companies
    • Jeffrey Osborne
      Analyst at Cowen
    • Ryan Levine
      Analyst at Citigroup
Powered by Quartr