Ormat Technologies Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Ormat Technologies First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Josh Carroll with Alpha IR.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Both on the call today are Doron Bouchard, Chief Executive Officer and Ondi Ginsberg, Chief Financial Officer and Smadar Lavie, 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.

Speaker 1

For a discussion of such risks and uncertainties, please see the risk factors as described in Ormat Technologies' annual report on Form 10 k and core 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 ormat.com under the presentation link that's found on the Investor Relations tab.

Speaker 1

With all that said, I would now like to turn the call over to Ormat's CEO, Doron Bouchard. Doron?

Speaker 2

Thank you, Josh. Good morning, everyone, and thank you for joining us today. We began 2025 with a strong first quarter, achieving a 2.5% increase in revenue, the 4.6 rise in net income attributable to the company's stockholders and the record quarterly adjusted EBITDA growth of 6.4% compared to the first quarter of last year. This growth was driven by robust performance and significant expansion in both our storage and product segments year over year. In our storage segment, our strategic approach to maintaining approximately 50% market exposure has yielded favorable outcome.

Speaker 2

We benefited from stable contracted revenues due to the bottleneck tolling agreement, while on the other hand capitalized on higher merchant prices and additional capacity in the PGM market due to the colder winter weather. This improved performance was supported by revenue generation from our expanded portfolio, notably our East Lemington, Montague and Bottleneck Energy Storage facilities, which commenced commercial operation in 2024. Despite near term uncertainty in energy storage project development due to tariff changes and IRA uncertainty, we believe we will continue to see a solid performance in our storage segment throughout 2025 and 2026 due to the progress in securing safe harbor and batteries with low tariffs. Despite a slight year over year decline in our electricity segment due to curtailments in California and Nevada, our geothermal operations have continued to deliver consistent, solid performance and results in line with our expectations. We are optimistic about the growth potential of our geothermal business in 2025 and beyond, supported by potential easing of project permitting timelines, increased focus on geothermal exploration, strong demand for baseload of renewable sources and high PPA pricing.

Speaker 2

I'm pleased to announce that we have signed an agreement to acquire the 20 megawatt Blue Mountain geothermal power plant from Silk Energy for $88,000,000 subject to standard working capital adjustment. This plant located in Humble County, Nevada was originally built by OMAT in 02/2009 and currently sells power to NV Energy under a PPA expiring at the end of twenty twenty nine. We plan to upgrade the plant, adding an additional 3.5 megawatt of capacity expected by 2027. In addition, we plan to install 13 megawatt of solar to support the plant auxiliary system, subject to permitting and PPA approval. We anticipate finalizing this acquisition towards the end of the second quarter.

Speaker 2

Now before I turn the call over to Assi to review the financial results for the quarter, I would like to briefly address the impact of tariffs announced by the U. S. Government, a situation which is very fluid and being monitored closely by us. We expect minimal impact to the electricity segment project development due to its limited exposure to China and the improved permitting process expected to be implemented in The United States. Our energy storage segment may face interim headwinds due to the tariffs on China affecting the import of storage equipment components.

Speaker 2

We are actively engaging with our suppliers and off takers to mitigate this impact and are evaluating other alternatives, including the evaluation of alternative supply chain strategies, increased procurement from The United States and other diversification strategies to ensure our project timeline and budget remain on target. We have also taken proactive measures to safeguard our growth in light of recent executive orders related to IRA tax credits. We have ensured that our geothermal projects qualify for PTC eligibility through 2028 and that our energy storage projects are eligible for ITC benefits through 2026 and beyond, securing our near term growth trajectory. The demand for reliable renewable energy remains strong and we believe that our proactive measures will allow us to effectively execute our strategy and grow in line with this demand. I will now turn the call over to Assi to discuss our financial results.

Speaker 2

Assi?

Speaker 3

Thank you, Doron. Let me start my review of our financial highlights on Slide six. Total revenue for the first quarter was $229,800,000 a 2.5% increase compared to last year's first quarter. This top line expansion was driven by strong performance in our Storage and Products segment, offset by a reduction in the electricity segment. Gross profit for the first quarter was $72,900,000 down 7.5% from $78,800,000,000 in the first quarter of twenty twenty four, resulting in a consolidated gross margin of 31.7% versus 35.2% last year.

Speaker 3

The decline was largely due to the electricity segment gross margin decrease, partially offset by improved performance in storage and product segments. Net income attributable to the company's stockholders was $40,400,000 or $0.66 per diluted share compared to $38,600,000 or $0.64 per diluted share in the first quarter of the prior year. Adjusted net income attributable to the company's stockholders was $41,500,000 or $0.68 per diluted share, an increase of 4.84.6%, respectively. Adjusted EBITDA for the first quarter was $150,300,000 a 6.4% increase compared to last year. The strong year over year increase was driven by a better performance in our Energy Storage segment and improved profitability in our product segment, leading to a quarterly record adjusted EBITDA in our math history.

Speaker 3

Slide six breaks down the revenue performance at the segment level. Electricity segment revenues for the first quarter decreased by 5.8% to $180,200,000 This decline was due to the anticipated curtailment in Nevada from third party transmission maintenance and curtailment in California due to wildfire. The decline was partially offset by the performance of the Biowi power plant, which completed its upgrade in 2024 and is operating under improved PPA prices starting Q1 twenty twenty five. Product segment revenues increased by 27.9% to $31,800,000 during the first quarter driven by a strong backlog. Energy storage segment revenue increased by nearly 120% in the first quarter, mainly due to our new energy storage facility, which commenced commercial operation during 2024 and strong merchant prices in the PJM market.

Speaker 3

Moving to Slide seven. Gross margin for the electricity segment was 33.5% in the first quarter, down from 39% from last year. This margin comparison was due to lower revenue resulting from curtailments in Nevada and California. In the product segment, gross margin was 22.3%, up from 14.8% last year, driven by improved profitability on our contracts. We now expect gross margin for the year to be in the range of 19 to 21% in this segment.

Speaker 3

The Energy Storage segment reported gross margin of 30.6%, a significant improvement from 7.5% in Q1 twenty twenty four. This was driven by strong performance in the PJM merchant market, where cold weather along the East Coast contributed to elevated merchant pricing. We have made progress in transitioning the revenue and margin profile of the segment, achieving a greater degree of contracted revenues while benefiting from periodically pricing strength. With improved Q1 performance, we now anticipate full year gross profit as high as 20%. Breaking down adjusted EBITDA on Slide seven.

Speaker 3

The electricity segment generated 83% of our total consolidated adjusted EBITDA in the first quarter of twenty twenty five. The product segment generated 7% and the energy storage segment contributed 10% compared to 3% last year. Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide. Moving to Slide eight. We recorded $17,600,000 in income related to tax benefits in the first quarter compared to $17,500,000 last year.

Speaker 3

In the first quarter, we recorded $13,900,000 of ITC benefits in the income tax line related to two storage facility expected to come online in 2025. We anticipate receiving approximately $160,000,000 in cash proceeds related to PTC and ITC benefits in 2025, mainly from tax equity transaction for the Heber complex, ITC benefits for storage assets that will COD in 2025 and PTC transfers. We expect Ormat tax rates will be positively impacted by the ITC benefits in 2025 with an annual tax benefit rate between 510% excluding changes in law or one time event. Looking at Slide nine, our net debt as of 03/31/2025 was approximately $2,300,000,000 equivalent to 4.2 times net debt to EBITDA. Cash and cash equivalents and restricted cash and cash equivalents as of 03/31/2025 were approximately $225,000,000 compared to $2.00 $6,000,000 at the end of twenty twenty four.

Speaker 3

Slide nine breaks our use of cash flow over the last twelve months, illustrating OMAT's ability to generate strong cash flow to reinvest in a strategically grow the businesses while servicing our debt obligation and returning capital to shareholders. Our total debt as of 03/31/2025 was approximately $2,600,000,000 net of deferred financing costs with a cost of debt of 4.79%. The majority of our net liabilities are at fixed interest rates, providing stability and protection for market fluctuations. During the first quarter, the company raised $200,000,000 with variable interest rates. Moving to Slide 10.

Speaker 3

We have approximately $690,600,000 of total available liquidity. Our total expected capital expenditure for 2025 increased to $597,000,000 mainly due to incremental CapEx for the geothermal and storage resulting from increased import tariffs as well as CapEx required to secure safe harbor for storage assets expected to come online beyond 2026. Diesel CapEx is presented in Slide 29 in the appendix. We plan to invest approximately $275,000,000 in the electricity segment for construction, exploration, drilling and maintenance in the last three quarters of twenty twenty five. Additionally, we plan to invest $130,000,000 for the construction of our storage assets.

Speaker 3

On 05/07/2025, our Board of Directors declared, approved and authorized payment of quarterly dividend of $0.12 per share payable on 06/04/2025 to shareholders of record as of 05/21/2025. The company expects to pay quarterly dividend of $0.12 per share in each of the next two quarters. That concludes my financial overview. I would like now to turn the call to Doron to discuss some of our recent developments.

Speaker 2

Thank you, Assi. Turning to Slide 12 for a look at our electricity segment operating portfolio. Portfolio growth during the quarter was positively supported by the recent COD of the Eigen geothermal power plant, which we jointly own with PT Metco Power Indonesia. As we noted during our fourth quarter call, the Aegion facility began operations of its first phase, delivering 35 megawatts to the Java grid with our share of the facility being 17 megawatts. We also recently signed a ten year PPA with Alpine Energy Solutions for up to 15 megawatts of carbon free geothermal capacity at favorable terms.

Speaker 2

This PPA will replace the current lower priced PPA with Southern California Edison for MAMOF II in the first quarter of twenty twenty seven. Let's move to Slide 13 for an update on the operations of the electricity segment. At our Kona power plant in Hawaii, we are conducting maintenance work on one of the wells, which will result in a temporary decrease in electricity generation in the second quarter of twenty twenty five. This decrease is expected to negatively impact second quarter revenues and EBITDA by approximately $4,000,000 and net profit by approximately $3,000,000 Additionally, we anticipate continued curtailment in The U. S.

Speaker 2

Due to the maintenance work on the NV Energy transmission line as previously announced. Despite these impacts, we do not anticipate any changes to our annual guidance for revenues and EBITDA due to the expected completion of the Blue Mountain project acquisition by the end of the second quarter and improve profitability and EBITDA in our product and storage segments. Before moving on to the product segment, I would like to inform you of a recent management decision. Given the expansion in the number of power plants we own, our expected organic and M and A growth and the significant interest in drilling and exploration activities, I have decided to restructure the role of the electricity segment EVT into two distinct management positions. One will oversee the power plant operations, while the other will be responsible for drilling and exploration activity.

Speaker 2

I'm confident that these changes will support OMA's ongoing operation and growth. Turning now to Slide 14. Our product segment backlog stands at $314,000,000 up 142% compared to the first quarter of twenty twenty four. This increase was largely driven by the signing of a large EPC contract in New Zealand for the Timahi 2A 1 Hundred megawatt power plant and the Dominica BOT project. As we have previously highlighted, the revenues from this backlog will continue to be recognized over two years.

Speaker 2

Moving to Slide 15, our Energy Storage segment experienced strong growth on a year over year basis with total revenues increasing 120%. Additionally, revenues in the PGM market were up by approximately 150% due to higher merchant prices and recent facilities that came online during the previous year. We anticipate that this strong performance will continue throughout 2025 as we continue to see the benefit of our recently achieved COD energy storage facility. We made great progress during the quarter in advancing our energy storage portfolio expansion outside The U. S.

Speaker 2

We announced two separate 15 new tolling agreements in Israel in partnership with Allied Infrastructure Ltd, a leading Israeli infrastructure company. Our share of the project is 150 megawatts or 600 megawatt hours. These tolling agreements will provide stability and growth for our storage segment, which are an essential element of our growth strategy. Moving to Slide 17. Despite the uncertain regulatory environment, we continue to remain on track to reach our portfolio capacity target of between 2.6 gigawatts to 2.8 gigawatts by year end 2028.

Speaker 2

Our confidence is supported by the promising growth we are seeing in geothermal development and our efforts to ramp up exploration activity. It is further supported by progress we made in the storage segment to secure both batteries and safe harbor of additional projects and by the new expected development in Israel. Turning to Slide eighteen and nineteen, which displays our geothermal and hybrid solar PV projects underway. We anticipate adding an additional 168 megawatts, including Blue Mountain, to our generating capacity from geothermal and solar PV projects by the end of twenty twenty six. Moving to Slide twenty and twenty one.

Speaker 2

We currently have six projects under development in our Energy Storage segment, which are expected to have three eighty five megawatts, a 1.3 gigawatt hour to our portfolio. Our focus continues to remain on balancing contracted revenues and merchant market pricing exposure for profitability upside in our storage portfolio. Please turn to Slide 22 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 Electricity segment revenues are projected to be between $710,000,000 to $725,000,000 Product segment revenues between $172,000,000 and $187,000,000 and energy storage revenue 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 $21,000,000 I will end our prepared remarks on Slide 23. Despite potential tariff impact and potential changes in the IRA program that increased uncertainty, we believe the short term impact on our operating segment is minimal.

Speaker 2

We remain committed to achieving our growth trajectory of two point six two point eight gigawatts of generating capacity by the end of twenty twenty eight. Here are the reasons behind our confidence. First, we have proactively ensured that our geothermal projects are safe harbor for PTC eligibility through 2028 and ITC benefits for energy storage through 2026 and in some cases beyond, with efforts ongoing to secure additional projects. These measures will help us navigate any changes to the IRA tax credit. Second, we continue to see exciting growth opportunities for geothermal driven by the expected easing of project permitting timelines and increased focus on geothermal exploration, which will further support growth in our electricity segment.

Speaker 2

Third, we are staying agile by collaborating closely with our suppliers and customers to mitigate tariff impact through supply chain adjustments and procurement enhancements with the goal that all our energy storage projects remain on schedule. Next, the demand for electricity, especially from renewable energy sources, remains enormous to support AI data center and the transition to a cleaner energy future. ROMAS is well positioned to meet this demand. And finally, we are committed to continuous innovation and are exploring how to best develop and integrate EGS technology into operation and future growth. We are evaluating several technologies that enhance underutilized power plants using EGS drilling techniques.

Speaker 2

Additionally, OMAD is pursuing strategic partnership to develop new EGS projects and offer advanced solutions to potential EGS customers in our product segment. We believe the new management structure will enable us a greater focus on EGS. This is an exciting time for OMAT. As we look ahead, we will continue to focus on delivering reliable and sustainable energy solutions and leveraging our capabilities to deliver attractive and expanded shareholder value. This concludes our prepared remarks.

Speaker 2

Now I would like to open the call for questions. Operator, please.

Operator

Your first question comes from the line of Justin Clare with ROTH Capital. Please go ahead.

Speaker 4

Yes. Hi. Thanks for taking our questions. I wanted to start out here just on the storage project development pipeline. And just wondering, you know, it sounds like you had all of the batteries for 2025 and 2026 projects already imported before the significant increase in tariffs.

Speaker 4

But when we look a little further out, how could your development of storage projects be affected? Are you slowing anything down and kind of waiting to see how the supply chain develops? If you

Speaker 1

could just share a little

Speaker 4

bit about what you're seeing now.

Speaker 2

Thank you. Thank you, Justin. Doron. So first of all, we need to see how the tariff will settle down at what price, what percentage and what how it will impact the different countries. But regardless of this, we see multiple alternatives to acquire batteries from different location, not just from China.

Speaker 2

We are in contact with few battery manufacturers that are building manufacturing facilities in The U. S. And are willing already to commit to sell batteries from The U. S. That would also have potentially a benefit on the IRA of the made in The U.

Speaker 2

S. Benefit. So we see that the market is getting ready to work on the dealing with these tariffs. Internally, we are continuing all of our business development effort buying land as needed interconnection, developing the project, getting them ready to task project release. Once we have a better and clear understanding of the tariffs and the IRA issues.

Speaker 2

And the last element that we're doing is we are developing projects also in Israel. We have two very large tenders that we won in Israel. Both the tenders are 300 megawatts, 1,200 megawatt hour and our share is 50% of that. In addition to that, we have additional projects that we are developing in Israel. So I think if you look at it all around, we are continuing.

Speaker 2

We do believe that the energy storage market will continue to grow. It might be a different balancing point between cost and and the pricing. But we see that other developers as well as all the battery manufacturers are getting prepared to significant tariff, but still maintain low pricing.

Speaker 4

Got it. Okay. Very helpful. And then just wanted to check-in on how the tariffs may affect your cost for geothermal. I believe that your equipment is manufactured in Israel and then would be subject to the 10% universal tariff.

Speaker 4

So just wanted to confirm that. And then just how much of the impact could that have on the total CapEx for geothermal plants?

Speaker 2

All in all, the impact is not material because when you look into the cost of the CapEx of the power plant, starts with the exploration, which is pure U. S, then the development and drilling, all of that is pure U. S. Power. So the power that comes from Israel might be 25%, maybe 30% of the total cost.

Speaker 2

So if you add to that, you know, 10% the general worldwide tariff, it's not very material. Israel had a 3% tariff before that. And all in all, it's not that material. And on top of that, we see the increase in PPA pricing that more than compensate for this increase.

Speaker 4

Right. Okay. That makes sense. And then just one final one. On the EGS technology, just wondering if you could talk about, potential timing in which that technology might be implemented.

Speaker 4

And then do you see that, as more expanding the opportunity set in terms of where you could develop geothermal plants? Or did I hear you say that you could actually enhance the performance of existing plants? Is that a possible opportunity?

Speaker 2

Well, I would say both. Know, if we we have power plants that have the capability to generate more electricity, so building an EGS drilling some EGS wells using EGS technology, what might increase the output of these facilities that we already have. On the EGS technology, I would say that we're working with partners and others to develop some technology. We will have some more information to update as we progress with this. However, we need to take into account that there's still technological challenges.

Speaker 2

It's not just a question of the cost of the drilling. It's a question of how much water you use, how much water you lose during the working on the operating the EGS facility, how the the the rocks cool due to the water that is running on them. So there are still some technological issues. But if and when the EGS technology will be available, I see that as a very nice upside to Oman. We'll be able to develop much more power plants in more locations and not just be tied to specific locations.

Speaker 4

Okay. I appreciate it. Thank you.

Operator

Your next question comes from the line of Mark Strouse with JPMorgan. Please go ahead.

Speaker 5

Hey. This is Michael Fairbanks on for Mark. Maybe just ignoring potential changes to the IRA for a second. Are you hearing anything from a policy or a regulatory perspective that you think could help speed up the development of greenfield geothermal in The U. S?

Speaker 2

Yes. Great question. A couple of weeks ago, the interior issued an executive order dealing with permitting on BLM land, basically issuing a new I don't think it's exactly a new NEPA, but basically replacing the current process, a process that used to take us between one to three years under the order. It should take between fourteen to twenty eight days. So since the order was issued, we have been working to prepare all the relevant and new documentation to file it and and see how the process works.

Speaker 2

It's a new process, so not everybody knows exactly output the outcome will be, but we are definitely pushing forward all of our greenfield that are eligible for this because it's only on federal land. To look forward, getting the relevant permits, drilling permits to expedite the development of greenfield in The U. S.

Speaker 5

Great. And then maybe just as a follow-up. Given the strong quarter on storage and some of the headwinds in electricity, do you have an updated view on where gross margin should shake out for those segments for the year? And maybe just how that progresses throughout the year?

Speaker 3

So as we said in our prepared remarks, storage margin this year is gonna be on the towards the higher end of 20%. You know, initially, we thought at the beginning of the year that it would be slightly less than that. We also said that the prepared remarks that the product segment is moving up from 18 to 20 initially to 21%. I think on the electricity segment, we still need to finalize the numbers as they move because of curtailment, but we are seeing few points lower versus last year.

Speaker 5

Great. Thank you.

Operator

Next question the next question comes from the line of Noah Kaye with Oppenheimer. Please go ahead.

Speaker 6

Hi there. This is Andre Adams on for Noah. Congrats on the Blue Mountain acquisition agreement. It sounds like you have a couple of value creation levers there. Could you give us some parameters on expected EBITDA contribution from the asset as it stands today and what timing and investment costs might be on the capacity expansion and solar project and what the contribution revenue and EBITDA would be once completed?

Speaker 3

So, first, good morning. This is Asti. I'll start by saying that, this is a very important introduction to Omar because it shows how we can continue to grow in The US and enhance asset. Second, we will provide more detailed information once we would own the asset. But as always, this asset, EBITDA multiple is at lower double digit.

Speaker 3

And we once we complete the lower double digit multiple, and once we complete all the upgrade, we're expecting it to go down significantly anywhere from 30 to 40 like we did in the prior transaction. I would also point out that, it has a relatively short PPA, which is, by the end of twenty twenty nine. In this case, it's a big upside as the the current prices are materially above or PPA prices. All these total prices that we've seen in in GSL for many, many years. And therefore, that will be another upside that once do we complete the the transaction and have a new PPA in 2029 and forward 2030 and forward, it will be another update to the number.

Speaker 3

I will say, though, that, on timing, the first step will be to enhance the facility and to add three and a half megawatt. And that's when we can start doing once we have the facility on hand, and we don't need any special approval for it. On the other hand, in order to add the solar, which is the key component for additional performance of this asset, we will need approval from the off taker. And we believe that that over time, we can get it because this off taker in the past agree for new PPAs that will allow us to run. Hopefully, that answered the question.

Speaker 6

Yeah. Thank you so much. And on the topic of PPA pricing and conversations, if you just give us an update on PPA talks with hyperscalers in particular and how much of the post 2029 recontracting opportunity you would now have line of sight to for the existing portfolio?

Speaker 2

On the re contracting and the PPA pricing, they remain high. I'd say that the current changes in the market hasn't impacted demand for geothermal. We see PPA pricing above 100 from microscalers as well as from utilities companies as well as from CCAs. It gets across the the industry. PPA is above 100.

Speaker 2

We are negotiating multiple PPAs. Once we will sign, the PPA will obviously issue a press release and announce it to the to the market. But I can say that all of our negotiations have advanced since the last time we spoke, and, hopefully, we'll be able to announce one once we sign it soon.

Speaker 6

Great. Thank you so much. I'll pass it on.

Operator

Your next question comes from the line of David Anderson with Barclays. Please go ahead.

Speaker 7

Great. Thank you, and good morning. So sort of more of a conceptual question. So we're hearing about the hyperscalers and data center demand is increasing and obviously higher PPA prices put you in a good position. But overall, you don't have a lot of contracting option really over the

Speaker 8

next five years with all

Speaker 7

your assets. Just curious how you're what are some of the leverage you have to capture some of that higher PPA? You mentioned the M and A and that takes a little longer. Are there M and A opportunities out there? How are you thinking about greenfield?

Speaker 7

And then you've mentioned a few times EGS. I'm just kind of curious where you are on that. So how can we capture this sort of this market dynamic today in your numbers?

Speaker 2

Look, we have we have increased significantly our exploration activities over the last two years and we see quite a few greenfield that are in advanced exploration stages and should get to the market in 2028 and 2029 and onwards. All of these greenfields will be under this new PPA regime of the higher PPAs. Some of them will probably go to hyperscalers, some will go to utilities, others might be a three way contract between Ormat, a hyperscaler and the utility. But the most utilizing better the PPA will be through these new greenfields coming online as well as re contracting. Blue Mountain is one at the end of twenty nineteen, but we have still water and salt water that are also coming online and we see this demand increase.

Speaker 2

Regarding EGS, as we said, we are focusing on few new technologies and new investments that we are looking into the EGS as well as developing some specific with partners of EGS processes and technologies. And once we will have something more concrete, we will announce to the market.

Speaker 7

So on that exploration you're talking about, presumably, that's going to be developed with your your binary cycle current techniques. I'm I'm just curious on the exploration side. I know you have an agreement with Schlumberger and or a partnership, or I'm not exactly sure what it is. Perhaps you can talk about how you see them helping you get there. I'm assuming there's potential for efficiencies and completions and all that.

Speaker 7

I'm just could you talk through a little bit on that exploration and how you get to commerciality?

Speaker 2

Yes. So exploration, as you said, all of our power plants that we build are built based on the binary or normal technologies. So we build them ourselves to up to us. We do not use third party technology. We believe our technology superior to others.

Speaker 2

Regarding Schlumberger, we have a cooperation agreement with them on developing new projects that either us or them could bring to the table. Obviously, once the project will come from this collaboration, they will do the drilling. We will do the above ground construction and that will increase our product sales on one hand and if it will be an Ormat project, then Ormat growth number, the electricity segment.

Speaker 7

Interesting. Thank you.

Speaker 1

Thank you.

Operator

Your next question comes from the line of Ben Cavallo with Baird. Please go ahead.

Speaker 8

Hey, good morning. Thanks for taking my question. Just first, as we look at your 28 targets, there's several moving pieces with higher PPA prices maybe than you anticipated and then maybe some uncertainty in energy storage. I'm just wondering, I mean, we're still at 25%, the low 25, but how you guys are thinking about your ability to meet those targets at this point? And then I have a follow-up.

Speaker 2

Hi, and welcome to join us. Thank you. When we looked at 2028 targets based on the geothermal and the energy storage, We have decent plan internally that lists all the potential projects that should come online. We know what we're drilling today on the geothermal part, what exploration and what sites we're doing exploration. Obviously, we know that there's not 100% success.

Speaker 2

So we are using some statistics over there to see which one will come online. And on the energy storage part, we've announced all the 25, 20 six projects. We've now also mentioned the two Israeli large, very large project that we are building. We have additional projects that we are building in Israel and we are continuously continuing to develop projects in The U. S.

Speaker 2

To be ready once the uncertainty of the tariffs and the IRA will go away. To tell you that the fact that there is uncertainty is not a mystery and we are negotiating with some of our potential customers taking into account this uncertainty and sharing the risk with our customers in order to continue and develop the project. But I don't think that the energy storage in The U. S. Is going to disappear regardless of the outcome of the tariff or the IRA.

Speaker 2

I believe it's going to get to a new structure, maybe a new steady state. If CapEx will be a bit higher, then pricing will be higher. We do see a continuous reduction in battery prices that offset some of the increase in the tariff. So I believe it will continue. But we do have a detailed plan how to get to the 2028 end of the year target that we put for both geothermal and the energy storage.

Speaker 8

Thank you. I appreciate that. Just maybe if you could expand on the electricity restructure. You mentioned like what the change is operationally or financially or anything like details you can give there?

Speaker 2

Yes. Thank you. It's over the last couple of years, we have increased our fleet through acquisition of the Nel assets and now the Blue Mountain assets and organic growth that we have and the growth that we see coming in the next few years. And in parallel to that, we increased significantly the exploration and drilling. This year, we're planning around $150,000,000 of CapEx only on exploration and drilling.

Speaker 2

We believe we will keep the same level in the coming years. And as such and in order to respond to the great demand in The U. S, I thought it was right to have two separate management members focused and dedicated on these two. On one hand, maintaining and increasing the performance of the electricity segment and on the other hand making sure that the drilling is efficient, resource is working across multiple sites at the same time and also the ability to focus on EGS in addition. So it's a way for Ormat to get more aligned with the market demand and to be able to respond to the market demand for renewable electricity.

Speaker 8

Great. Thank you guys very much.

Speaker 2

Thank you.

Operator

I will now turn the call back over to Doron Blachar for closing remarks. Please go ahead.

Speaker 2

Thank you all for joining us on the call today and your continued support. We see the increased demand for renewable energy. We see the increased support from the administration for geothermal for developing geothermal across The U. S. And we are doing everything that we can in order to capture this potential and translate it into profitable growth.

Speaker 2

So thank you all.

Operator

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Ormat Technologies Q1 2025
00:00 / 00:00