Ormat Technologies Stock

Ormat Technologies, Inc. (Ormat), a vertically integrated company, primarily engages in the geothermal energy power business.

The company leverages its core capabilities and global presence to expand its activity in recovered energy generation and into different energy storage services and solar PV (including hybrid geothermal and solar PV as well as Solar plus Energy Storage).

Segments

The company operates through three segments, Electricity, Product, and Energy Storage.

Electricity

In the Electricity segment, the company develops, builds, owns and operates geothermal, solar PV and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world and sells the electricity they generate. In 2023, the company commenced or expanded commercial operation of 44 MW of geothermal power plants including the new 25MW North Valley power plant in the San Emidio complex, the 6MW expansion to the Dixie Valley power plant and the10MW addition to the Heber Complex, all in the U.S. In addition, the company commenced or expanded commercial operation of 13MW of Solar PV projects, including the new 6MW Brady solar power plant as well as the addition of 7MW added to the Steamboat Complex.

Product

In the Product segment, the company designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation and provides services relating to the engineering, procurement and construction of geothermal and recovered energy-based power plants.

Energy Storage

In the Energy Storage segment, the company owns and operates grid connected In Front of the Meter (IFM) BESS facilities, which provide capacity, energy and ancillary services directly to the electric grid. In 2023, the company commissioned five energy storage facilities with a total capacity of 82MW/102 MWh in California, New Jersey, Texas and Ohio.

Power Generation Business (Electricity Segment)

Company-owned power plants include both power plants that the company has built and power plants that it has acquired. The substantial majority of the power plants that the company owns or operates produce electricity from geothermal energy sources. Geothermal energy is a clean, renewable and generally sustainable form of energy derived from the natural heat of the earth. Unlike electricity produced by burning fossil fuels, electricity produced from geothermal energy sources is produced without emissions of certain pollutants such as nitrogen oxide, and with far lower emissions of other pollutants such as carbon dioxide. As a result, electricity produced from geothermal energy sources contributes significantly less to climate change and local and regional incidences of acid rain than energy produced by burning fossil fuels. In addition, compared to power plants that utilize other renewable energy sources, such as wind or solar, geothermal power plants are generally available all year-long and all day-long and can therefore provide base-load electricity services. Geothermal power plants can also be custom built to provide a range of electricity services, such as baseload, voltage regulation, reserve and flexible capacity.

The company owns and operates geothermal and solar PV hybrid projects and has similar projects under construction, in which the electricity generated from a solar PV power plant is used to offset the equipment's energy use at the geothermal facility, thus increasing the geothermal energy delivered by the project to the grid.

The company also constructs, owns, and operates 53MW of recovered energy-based power plants. The company has built all of the recovered energy-based plants that it operates. Recovered energy comes from residual heat that is generated as a by-product of gas turbine-driven compressor stations, solar thermal units and a variety of industrial processes, such as cement manufacturing. Such residual heat, which would otherwise be wasted, may be captured in the recovery process and used by recovered energy power plants to generate electricity without burning additional fuel and without additional emissions.

Each of the company's current geothermal power plants sells substantially all of its output pursuant to long-term, and in most of the cases, fixed price PPAs to various counterparties denominated in or linked to the U.S. dollar or Euro. These contracts had a total weighted average remaining term, based on contributions to segment revenue, of approximately 15 years as of December 31, 2023.

Power Plants in Operation

The company owns and operates 32 power plant complexes globally with an aggregate generating capacity of 1,215 MW. They include geothermal, REG and solar sites. Geothermal comprised 92% of the company's generating capacity. In 2023, the company's geothermal and REG power plants generated at a capacity factor of 84% and 38%, respectively, which is higher than the 20%-30% capacity factor typically generated in wind and solar projects.

New Power Plants

The company is in various stages of construction of new power plants and expansion of existing power plants. The company has released for construction projects with generating capacity of 162 MW from geothermal and solar PV worldwide. In addition, the company has several geothermal and solar PV projects in various stages of development. These projects are primarily located in the United States.

The company holds substantial land positions across 33 prospects in the United States and 9 prospects in Ethiopia, Guatemala, Honduras and Indonesia. These land positions are comprised of various leases, exploration concessions for geothermal resources, and options to enter into leases. The company expects to add between 335 MW to 355 MW between 2024 and 2026 and to reach by the end of 2026 a total generating capacity of approximately 1.5 GW in the Electricity Segment by that time.

Product segment

The company designs, manufactures and sells products for electricity generation and provide the related services described below. In addition, the company provides cementing services for well drilling to third parties. The company primarily manufactures products to fill customer orders, but in some situations, it manufactures products as inventory for future projects that it will own or for future third party projects.

Power Units for Geothermal Power Plants

The company designs, manufactures and sells power units for geothermal electricity generation, which it refers to as OECs. In geothermal power plants using OECs, geothermal fluid (either hot water/brine, steam, or both) is extracted from the underground reservoir and flows from the wellhead to a vaporizer that heats a secondary working fluid, which is vaporized and used to drive the turbine. The secondary fluid is then condensed in a condenser, which may be cooled directly by air through an air cooling system or by water from a cooling tower and sent back to the vaporizer. The cooled geothermal fluid is then reinjected back into the reservoir. The company's customers include contractors, geothermal power plant developers, owners and operators.

Power Units for Recovered Energy-Based Power Generation

The company designs, manufactures and sells power units used to generate electricity from recovered energy, or so-called waste heat. This heat is generated as a residual by-product of gas turbine-driven compressor stations, solar thermal units, biomass facilities and a variety of industrial processes, such as cement manufacturing, and is not otherwise used for any purpose. The company's existing and target customers include interstate natural gas pipeline owners and operators, gas processing plant owners and operators, cement plant owners and operators, and other companies engaged in other energy-intensive industrial processes.

EPC of Power Plants

The company serves as an EPC contractor for geothermal and recovered energy power plants on a turnkey basis, using power units it designs and manufactures. The company's customers are geothermal power plant owners, as well as its target customers for the sale of its recovered energy-based power units.

Energy Storage segment

The company has targeted the Energy Storage segment as one of its major segments for investment and growth.

In 2023, the company successfully brought on line five new Ormat-owned BESS projects; the 20 MW/20 MWh Andover project and the 7 MW/7 MWh Howell project, both located in New Jersey; the 12 MW/12 MWh Bowling Green project in Ohio; the 23 MW/23 MWh Upton project in Texas; and the 20 MW/40 MWh Pomona 2 project in California. These new additions to the portfolio have increased the company's operating portfolio to 170 MW / 298 MWh at the end of 2023. The company's portfolio of projects are regionally diversified, with footprints across 4 different RTOs or ISOs; CAISO, PJM Interconnect, ERCOT and ISONE.

The company is in the process of constructing 7 additional energy storage projects with a total capacity of 355 MW / 1,060 MWh in California, Texas and New Jersey.

In addition, the company has an approximate 3.6GW/13.1GWh pipeline of potential projects, in different stages of development across the United States that will support its target to reach an energy storage portfolio of between 700 to 800 MW/ 1,900-2,300 MWh by the end of 2026. The development of such projects is dependent, inter alia, on site permitting, interconnection agreement, supply of Lithium- Ion batteries and economic viability, which are not certain.

Business Strategy

The company's business strategy reiterates and supports its position that climate change is among the most important issues of its time. A large part of its business involves bringing low-carbon baseload energy to parts of the world that lack access to affordable baseload renewable energy. The company recognizes the importance of the fight against climate change and the imperative of lowering global greenhouse gas emissions, and its core business actively works to counteract these existential threats. The company focuses on helping to create a sustainable energy infrastructure, and further an alternative energy future, where greenhouse gas emissions are reduced and the ability to access and store renewable sourced power will enable electricity grids to become more responsive, more stable, and more environmentally friendly.

The company's strategy focuses on three main elements: developing its low carbon renewable geothermal business in the United States and globally; growing its market position in the IFM energy storage market; and exploring opportunities in new areas by looking for synergistic growth opportunities utilizing its core competencies, strong market reputation, and new market opportunities focused upon environmentally responsible solutions in the energy sector.

The company intends to implement this strategy through development and construction of new geothermal power plants; expanding its geographical reach; accelerating the development and construction of new energy storage assets; acquisition of new geothermal assets; acquisition of energy storage projects and assets; diversifying its customer base; improving its technological capabilities; manufacturing and providing products and epc services related to renewable energy; and expanding into new technologies.

Patents

As of December 31, 2023, the company had 192 patents and patent applications worldwide, including 58 patents issued in the U.S. and 39 pending U.S. patent applications. These patents and patent applications cover the company's products (mainly power units based on the ORC) and systems (mainly geothermal power plants and industrial waste heat recovery plants for electricity production).

The system-related patents also cover subjects such as waste heat recovery related to gas pipeline compressors and industrial waste heat, solar power systems, disposal of non-condensable gases present in geothermal fluids, reinjection of other geothermal fluids ensuring geothermal resource sustainability, power plants for very high-pressure geothermal resources, two-phase fluids, low temperature geothermal brine, as well as processes related to EGS. Fifty-five of the company's patents cover combined cycle geothermal power plants, in which the steam first produces power in a backpressure steam turbine and is subsequently condensed in a vaporizer of a binary plant, which produces additional power. The remaining terms of the company's issued patents range from one year to 16 years.

Future Projects

Projects Released for Construction

The company has several projects in various stages of construction, including 11 projects that it has fully released for construction with a total capacity of 162 MW and one project with capacity of 10 MW to 15 MW that is in the early stages of construction. These projects are expected to have a total geothermal generating capacity of between 104 MW (representing its interest) and solar PV projects with a total capacity of 58 MW.

Projects under Various Stages of Development that were not Released for Construction

The company also has projects under various stages of development in the United States that it estimates will increase the generating capacity of its geothermal projects by approximately 39 MW (representing its interest) and a Solar PV project with a total of 14 MW.

Future Prospects

The company has a substantial land position that is expected to support future development and on which it has started or plan to start exploration activity. The company's current land position consists of various leases, concessions and private land for geothermal resources in 42 prospects across the western United States, Latin America and Africa. In the United States it holds 33 prospects, including 22 prospects in Nevada, 4 prospects in California, 2 in Oregon, 4 in Utah, and 1 in New Mexico.

Outside the U.S., the company holds 9 prospects, including 2 prospects in Indonesia, 4 prospects Ethiopia, 2 prospects in Guatemala, and 1 prospect in Honduras.

Competition

Electricity

The company's main competitors in the United States includes CalEnergy, Calpine Corporation, Cyrq Energy Inc., and other smaller pure-play developers. Internationally, the company's competitors are gaining experience from developing geothermal projects in their home countries, such as Mercury and Contact Energy in New Zealand, Energy Development Corporation in the Philippines, Storenergy and Meridian in France, and Enel Green Power in Italy. In Indonesia, Ormat experiences competition from Kaishan, PT Pertamina Geothermal Energy, PT Star Energy, and in a recent tender from Chevron (who teamed with Pertimina) to compete for land. Impex remains active in the Japanese geothermal sector, though Ormat has not experienced any direct competition yet. Turkish developers are also focusing on international market expansion.

Product

The company's main steam turbine competitors are industrial steam turbine manufacturers such as Mitsubishi Heavy Industries, Fuji Electric Co., Ltd. and Toshiba Corporation of Japan, GE/Nuovo Pignone and Ansaldo Energia of Italy.

The company's binary technology competitors are manufacturers using the ORC technology such as Mitsubishi Heavy Industries through Turboden, TICA, a Chinese air conditioning company that acquired Italian Exergy, Egesim, a Turkish electrical contractor who is collaborating with Atlas Copco mainly in the Turkish market and internationally, Kaishan, a compressor manufacturer from China who also develops its own projects and Fuji Electric Co., Ltd of Japan.

In the REG business, the company's competitors are other ORC manufacturers, mainly Mitsubishi/Turboden and TICA/Exergy, which dominate binary waste heat recovery market installations.

Customers

All of the company's revenues from the sale of Electricity in the year ended December 31, 2023 were derived from fully-contracted energy and/or capacity payments under long-term PPAs with governmental, public or private utility entities.

The company's revenues from the Product segment are derived from contractors, owners, or operators of power plants, process companies, and pipelines.

The company's revenues from the Energy Storage segment are derived from selling energy, capacity services under long term capacity contracts and/or ancillary services in merchant markets like PJM, ISO New England, ERCOT and CAISO. The company recently signed a long-term tolling agreement that will secure fixed revenues for its Bottleneck 80MW/320MWh project in California. In addition, the company is pursuing projects that will serve entities, such as investor owned utilities, publicly owned utilities and community choice aggregators.

Research and Development

The company's research and development expenses for the year ended December 31, 2023, were $7.2 million.

Regulation of the Electric Utility Industry in the United States

The company examines its projects' compliance with NERC standards on an ongoing basis and begin work on the process of NERC registration as new projects approach the threshold at which NERC standards become applicable.

Regulation Related to the Energy Storage segment

The company's participation in the energy storage space and in energy management requires it to obtain and maintain certain additional authorizations and approvals. These include authorization from the U.S. Federal Energy Regulatory Commission (FERC) to make wholesale sales of energy, capacity, and ancillary services at market-based rates, and membership status with eligibility to serve designated contractual functions in the ISO/RTOs of PJM, NYISO (New York Independent System Operator, Inc.), CAISO, ISO-NE, and ERCOT.

History

Ormat Technologies, Inc. was founded as a Delaware corporation in 1965. The company was incorporated in 1994.