ORMAT TECHNOLOGIES, INC. Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this quarterly report on Form 10-Q, the words "may", "will", "could", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "projects", "potential", or "contemplate" or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors", and "Notes to Condensed Consolidated Financial Statements", but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report on Form 10-Q completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control.
These forward-looking statements are made only as of the date hereof, and, except as legally required, we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
A summary of the risks that may cause actual results to differ from our expectations include, but are not limited to the following:
Risks Related to the Company's Business and Operation
• Our financial performance depends on the successful operation of our
geothermal, REG and Solar PV power plants under the Electricity segment as
well as our energy storage facilities, which are subject to various
operational risks.
• Our exploration, development, and operation of geothermal energy resources are
subject to geological risks and uncertainties, which may result in decreased
performance or increased costs for our power plants.
• We may decide not to implement, or may not be successful in implementing, one
or more elements of our multi-year strategic plan, and the plan may not
achieve its goal of enhancing shareholder value.
• Concentration of customers, specific projects and regions may expose us to
heightened financial exposure.
• Our international operations expose us to risks related to the application of
foreign laws and regulations.
• Political, economic and other conditions in the emerging economies where we
operate may subject us to greater risk than in the developed
• Conditions in and around
and our main production and manufacturing facilities are located, may
adversely affect our operations and may limit our ability to produce and sell
our products or manage our power plants.
• Continued reduction in our Products backlog may affect our ability to fully
utilize our main production and manufacturing facilities.
• Some of our leases will terminate if we do not extract geothermal resources in
"commercial quantities" or if we fail to comply with the terms or stipulations
of such leases or any of the provisions of the Geothermal Steam Act or if the
lessor under any such lease defaults on any debt secured by the relevant
property, thus requiring us to enter into new leases or secure rights to
alternate geothermal resources, none of which may be available on terms as
favorable to us as any such terminated lease, if at all.
• Reduced levels of recovered energy required for the operation of our REG power
plants may result in decreased performance of such power plants.
• Our business development activities may not be successful and our projects
under construction or facilities undergoing enhancement and repowering may
encounter delays.
• Our future growth depends, in part, on the successful enhancement of a number
of our existing facilities.
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• We rely on power transmission facilities that we do not own or control.
• Our use of joint ventures may limit our flexibility with jointly owned
investments.
• Our operations could be adversely impacted by climate change.
• Geothermal projects that we plan to develop in the future may operate as
"merchant" facilities without long-term PPAs and therefore such projects will
be exposed to market fluctuations.
• We may not be able to successfully complete acquisitions, and we may not be
able to successfully integrate, or realize anticipated synergies from,
companies that we have acquired and may acquire in the future.
• We may not be able to successfully conclude transactions and integrate
companies that we acquired previously and may acquire in the future.
• We encounter intense competition from electric utilities, other power
producers, power marketers, developers and third-party investors.
• Changes in costs and technology may significantly impact our business by
making our power plants and products less competitive, resulting in our
inability to sign new PPAs for our Electricity segment and new supply and EPC
contracts for our Products segment.
• Our intellectual property rights may not be adequate to protect our business.
• We may experience difficulties implementing and maintaining our new enterprise
resource planning system.
• We may experience a cyber-incident, cyber security breach, severe natural
event or physical attack on our operational networks and information
technology systems.
Risks Related to Governmental Regulations, Laws and Taxation
• Our financial performance could be adversely affected by changes in the legal
and regulatory environment affecting our operations.
• Pursuant to the terms of some of our PPAs with investor-owned electric
utilities and publicly-owned electric utilities in states that have renewable
portfolio standards, the failure to supply the contracted capacity and energy
thereunder may result in the imposition of penalties.
• If any of our domestic power plants loses its current Qualifying Facility
status under PURPA, or if amendments to PURPA are enacted that substantially
reduce the benefits currently afforded to Qualifying Facilities, our domestic
operations could be adversely affected.
• We may experience a reduction or elimination of government incentives.
• We are a holding company and our cash depends substantially on the performance
of our subsidiaries and the power plants they operate, most of which are
subject to restrictions and taxation on dividends and distributions.
• The costs of compliance with federal, state, local and foreign environmental
laws and our ability to obtain and maintain environmental permits and
governmental approvals required for development, construction and/or operation
may result in liabilities, costs and delays in construction (as well as any
fines or penalties that may be imposed upon us in the event of any
non-compliance or delays with such laws or regulations).
• We could be exposed to significant liability for violations of hazardous
substances laws because of the use or presence of such substances at our power
plants.
•
affect us.
Risks Related to Economic and Financial Conditions
• We may be unable to obtain the financing we need on favorable terms to pursue
our growth strategy and any future financing we receive may be less favorable
to us than our current financing arrangements.
• We have incurred substantial indebtedness that may decrease our business
flexibility, access to capital, and/or increase our borrowing costs, and we
may still incur substantially more debt, which may adversely affect our
operations and financial results.
• Our debt obligations may adversely affect our ability to raise additional
capital and will be a burden on our future cash resources, particularly if we
elect to settle these obligations in cash upon conversion or upon maturity or
required repurchase.
• The Capped Call Transactions may affect the value of the Notes and our common
stock and we are subject to counterparty risk with respect to the Capped Call
Transactions.
• Our foreign power plants and foreign manufacturing operations expose us to
risks related to fluctuations in currency rates, which may reduce our profits
from such power plants and operations.
• Our power plants have generally been financed through a combination of our
corporate funds and limited or non-recourse project finance debt and lease
financing. If our project subsidiaries default on their obligations under such
limited or non-recourse debt or lease financing, we may be required to make
certain payments to the relevant debt holders, and if the collateral
supporting such leveraged financing structures is foreclosed upon, we may lose
certain of our power plants.
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• We may experience fluctuations in the cost of construction, raw materials,
commodities and drilling.
• Our commodity derivative activity may limit potential gains, increasepotential losses, result in earnings volatility and involve other risks.
• We are exposed to swap counterparty credit risk.
• We may not be able to obtain sufficient insurance coverage to cover damages
resulting from any damages to our assets and profitability including, but not
limited to, natural disasters such as volcanic eruptions, lava flows, wind and
earthquakes.
Risks Related to Force Majeure
• The global spread of a public health crisis, including the COVID-19 pandemic
may have an adverse impact on our business.
• The existence of a prolonged force majeure event or a forced outage affecting
a power plant, or the transmission systems could reduce our net income.
• Threats of terrorism may impact our operations in unpredictable ways and could
adversely affect our business, financial condition, future results and cash
flow.
Risks Related to Our Stock
• A substantial percentage of our common stock is held by stockholders whose
interests may conflict with the interests of our other stockholders.
• The price of our common stock may fluctuate substantially, and your investment
may decline in value.
• We may issue additional shares of our common stock in connection withconversions of the Notes, and thereby dilute our existing stockholders and
potentially adversely affect the market price of our common stock.
• The fundamental change provisions of the Notes may delay or prevent an
otherwise beneficial takeover attempt of us.
Investors are cautioned that these forward-looking statements are inherently
uncertain. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein. Other than as required by law, we
undertake no obligation to update forward-looking statements even though our
situation may change in the future. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking statements.
The following discussion and analysis of our financial condition and results of
operations should be read together with our condensed consolidated financial
statements and related notes included elsewhere in this quarterly report and the
"Risk Factors" section of our Annual Report on Form 10-K for the year ended
December 31, 2021 (the "2021 Annual Report") and any updates contained herein as
well as those set forth in our reports and other filings made with the
Securities and Exchange Commission (the "SEC").
Company Contact and Sources of Information
Our website is www.ormat.com. Information contained on our website is not part of this quarterly report. Information that we furnish to or file with theU.S. Securities and Exchange Commission (the "SEC"), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through our website as soon as reasonably practicable. OurSEC filings, including exhibits filed therewith, are also available directly on theSEC's website at www.sec.gov. We may use our website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through our website at www.ormat.com. Accordingly, investors should monitor this channel, in addition to following our press releases,SEC filings and public conference calls and webcasts. 34
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Table of Contents General Overview We are a leading vertically integrated company that is primarily engaged in the geothermal energy power business. We are leveraging our core capabilities and global presence to expand our activity in recovered energy generation and into different energy storage services and solar PV (including hybrid geothermal and solar PV as well as energy storage plus solar PV). Our objective is to become a leading global provider of renewable energy and we have adopted a strategic plan to focus on several key initiatives to expand our business.
We currently conduct our business activities in three business segments:
• Electricity Segment. In the Electricity segment, which contributed 89.4% of
our total revenues in the three months ended
own and operate geothermal, solar PV and recovered energy-based power plants
in
world and sell the electricity they generate. In the three months ended June
30, 2022, we derived 69.6% of our Electricity segment revenues from our
operations in the United States and 30.4% from the rest of the world.
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• Product Segment. In the Product segment, which contributed 6.1% of our total
revenues in the three months ended
sell equipment for geothermal and recovered energy-based electricity
generation and remote power units and provide services relating to the
engineering, procurement and construction of geothermal and recovered
energy-based power plants. In the three months ended
10.9% of our Product segment revenues from our operations in
and 89.1% from the rest of the world.
• Energy Storage Segment. In the Energy Storage segment, which contributed 4.4%
of our total revenues in the three months ended
operate grid connected
("BESS"), which provide capacity, energy and ancillary services directly to
the electric grid. In the three months ended
our Energy Storage segment revenues from our operations in
Our current generating portfolio of approximately 1.1 GW includes geothermal power plants inthe United States ,Kenya ,Guatemala ,Honduras ,Guadeloupe andIndonesia , as well as energy storage facilities, recovered energy generation and Solar PV power plants inthe United States . COVID 19 Update InMarch 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Since that time and through the date of this quarterly report, the Company has implemented significant measures and continues to make efforts in order to meet government requirements and preserve the health and safety of its employees. The Company's preventative measures against COVID-19 and the recent spread of variant strains include working remotely when needed and adopting separate shifts in its power plants, manufacturing facilities and other locations while working to continue operations at close to full capacity in all locations. Since the end of the second quarter of 2021, the Company experienced an easing of government restrictions in areas it operates in, but uncertainty around the impact of COVID-19 continues in addition to supply chain challenges and rising interest rates. The Company has not laid-off or furloughed any employees due to COVID-19 and has continued to pay full salaries. We will continue to monitor developments affecting both our workforce and our customers, and we have taken, and will continue to take, health and safety measures that we determine are necessary in order to mitigate the impacts. To date, as a result of these business continuity measures, we have not experienced material disruptions in our operations due to COVID-19, but have nevertheless experienced the following impacts on our segment operations:
• In our Electricity segment, almost all of our revenues in the nine months
ended
majority of contracts have a fixed energy rate. As a result, despite
logistical and other challenges, COVID-19 caused limited impact on our
Electricity segment. Nevertheless, growth in the Electricity segment was and
may continue to be adversely impacted by delays in receiving the required
development and construction permits, as well as the implications of global
and local restrictions on our ability to procure and transport raw materials
and increases in the cost of raw materials and transportation.
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• Our Product segment revenues are generated from sales of products and services
pursuant to contracts, under which we have a right to payment for any product
that was produced for the customer. Recognition of revenue under these
contracts is impacted by delays in the progress of the third-party projects
into which our products and services are incorporated. In the six months ended
businesses in certain regions, delays in the supply and increases in the cost
of raw materials and components that we purchased for our equipment
manufacturing, and increases in the cost of marine transportation. The cost
increases limited our ability to secure new purchase orders from potential
customers and led to a reduction in our operating margins, which in turn
negatively impacted our profitability. We had a product backlog of
million as of
period between
of August 4, 2021 .
• Our Energy Storage segment generates revenues mainly from participating in the
energy and ancillary services markets, run by regional transmission operators
and independent system operators in the various markets where our assets
operate. Therefore, the revenues these assets generate are directly impacted
by the prevailing market prices for energy and/or ancillary services.
Nevertheless, we have experienced and are experiencing supply chain
difficulties, as well as an increase in the cost of raw materials and
batteries, which may impact our ability to complete the projects on time and
increase overall project costs.
• In addition, we experience delays in the permitting for new projects in all
segments that may result in contractual penalties and cause a delay in those
projects.
Other Recent Developments
The most significant developments in our Company and business since
• In
geothermal power plant. The CD4 facility provides 7 MW of geothermal power to
two Community Choice Aggregators, Silicon Valley Clean Energy and Central
Coast Community Energy, each under a 10-year power purchase agreement ("PPA"),
with a total of 14MW. In addition, the facility provides 16 MW of geothermal
power to the Southern California Public Power Authority under a 25-year
agreement.
• In
Hills Solar plant in
be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA
and, (2) the 20MW Wister power plant in
term contract with San Diego Gas and Electric .
• In
its 2.5% convertible senior notes due 2027 (the "Notes"). The Notes were
offered and sold in a private offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended, pursuant
to an indenture between the Company and
trustee. Additionally, the Company granted the initial purchasers an option to
purchase up to an additional
Notes. The initial purchasers executed their option on
that, increased the total aggregated principal amount of the Notes issued to
converted, redeemed or repurchased. Interest will accrue on the Notes at a
rate of 2.50% per year and will be payable semiannually in arrears on January
15 and July 15 of each year, beginning on January 15, 2023 .
The Notes are convertible at the option of the holders, prior to the close of
business on the business day immediately preceding
under certain circumstances and during certain periods, and thereafter, at any
time until the close of business on the second scheduled trading day
immediately preceding the maturity date. The initial conversion rate for the
Notes will be 11.0776 shares of the Company's common stock for each
principal amount of Notes (equivalent to an initial conversion price of
approximately
conversion price of the Notes represents a premium of approximately 30% over
the last reported sales price of the Company's common stock on the
to the aggregate principal amount of the Notes to be converted and pay or
deliver, as the case may be, cash, shares of the Company's common stock or a
combination of cash and shares of the Company's common stock, at the Company's
election, in respect of the remainder, if any, of the Company's conversion
obligation in excess of the aggregate principal amount of the Notes being
converted. The Notes will not be redeemable at the Company's option prior to
trading day immediately preceding the maturity date, the Notes will be
redeemable at the Company's option if the last reported sale price of the
Company's common stock has been at least 130% of the conversion price then in
effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period)
ending on and including the trading day immediately preceding the date on
which the Company provides notice of redemption at a redemption price equal to
100% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date.
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The net proceeds from the sale of the Notes were approximately
The Company used (1) approximately
offering to repurchase concurrently with the closing of the offering shares of
its common stock in privately negotiated transactions at a price per share
equal to
offering to pay the cost of the capped call transactions (as described below),
(3) approximately
and accrued and unpaid interest thereon, and make-whole payments, and (4) the
remainder for general corporate purposes. The Company intends to allocate an
amount equivalent to the net proceeds from this offering to finance and/or
refinance, in whole or in part, one or more eligible green projects in
accordance with the Company's Green Finance Framework. In addition to proceeds
from the offering, the Company may use cash from operations or borrowings
under its credit facilities in order to effect such allocation.
In connection with the issuance of the convertible notes described above, the
Company entered into capped call transactions (the "Capped Calls") with
certain counterparties. The capped call transactions will cover, subject to
customary adjustments, the number of shares of our common stock initially
underlying the Notes. The Capped Calls are generally intended to reduce the
potential dilution to the Company's Common Stock upon any conversion of the
Notes and/or offset any cash payments the Company is required to make in
excess of the principal amount of converted Notes, in the event that at the
time of conversion, the Common Stock price exceeds the conversion price.
• In
Buena Battery Energy Storage System (Tierra Buena BESS). The Tierra Buena BESS
will provide local resource adequacy to two Community Choice Aggregators
(CCAs),
each, under 10-year agreements. In addition, the facility will provide
ancillary services and energy optimization through participation in merchant
markets run by the
facility will connect to the adjacent Pacific Gas & Electric distribution
circuit and is expected to generate revenues beginning in July 2022 • In
Bonds. The payment included the outstanding amount that was due in September
2022 and the interest related to the prepayment make-whole.
• In
the Company's Board of Directors, effective immediately.
serve as the Chair of the Audit Committee and a member of the Compensation
Committee.
Falk and
of Ormat's Board of Directors will be represented by women.
• In
Power (
deliveries under the portfolio PPA are expected to start in the second quarter
of 2024, with the expectation that the entire portfolio covered under the new
PPA will be online by the end of 2026. The portfolio PPA covers up to 125MW
for a term of 20 years and is comprised entirely of new projects currently
under construction or in development in
the right for one time adjustment to the maximum portfolio within 120 days
from signing Capacity is subject to CAISO connection approval.
• In
first PPA, signed in 2021, NV Energy will purchase 25 MW of power over 25
years generated by the
expected to come online by early 2023. Additionally, NV Energy will purchase
up to 135 MW of power generated by a portfolio of the Company's new and
existing geothermal power plants under a PPA signed in May. Both PPAs are
subject to the Nevada Public Utility Commission's approval.
• In
2 geothermal power plant, which sells an additional 13 MW to the Southern
addition of
plant increased our total Tungsten complex geothermal capacity to 42 MW.
• In
provides more than 3,500 gigawatt hours of electricity to
the
Peninsula Clean Energy's Board of Directors, effective
Peninsula Clean Energy will purchase 26 MW of clean, renewable energy from
marks the successful completion of
with a request for bids (RFB) on the
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• Our 40 MW Heber 1 geothermal power plant located in
an outage following a fire on
to the steam turbine-generator area. The
MW Heber complex and sells its electricity under a long-term contract with the
the cost and the time to restore all or part of the
to operation. In mid-April, the Company gradually re-started operation of the
binary units and the
20 MW. We hold business interruption insurance subject to a 45-day deductible
period in addition to property damage insurance with customary deductibles,
and are working with insurers to collect under those policies. We estimate
that the outage will reduce the monthly revenues by approximately
million. At this stage, we believe the insurance proceeds from the property
damage will exceed the depreciated book value of the damaged property.
Trends and Uncertainties
Different trends, factors and uncertainties may impact our operations and
financial condition, including many that we do not or cannot foresee. However,
we believe that our results of operations and financial condition for the
foreseeable future will be primarily affected by trends, factors and
uncertainties discussed in our 2021 Annual Report under "Part II - Item 7 -
Management Discussion and Analysis of Financial Condition and Results of
Operation", in addition to the information set forth in this quarterly report.
These trends, factors and uncertainties are, from time to time, also subject to
market cycles.
•
impacts as a result of sanctions and economic disruption, has complicated and
may continue to further complicate existing supply chain constraints. Supply
chain constraints may cause cost increases of raw materials, commodities and
equipment that could adversely affect our profit margins.
• In the markets in which we operate, there have been higher rates of inflation
in recent months. While most of our contracts are not indexed to inflation, in
general, most of our international-based contracts are indexed to inflation.
If inflation continues to increase in our markets, it may increase our
expenses such that our profit margins could be adversely impacted. It may also
increase the costs of some of our development projects that could negatively
impact their competitiveness.
Revenues
For the six months ended June 30, 2022 , 90.7% of our Electricity segment
revenues were from PPAs with fixed energy rates, which are not affected by
fluctuations in energy commodity prices. We have variable price PPAs in
California and Hawaii , which provide for payments based on the local utilities'
avoided cost, which is the incremental cost that the power purchaser avoids by
not having to generate such electrical energy itself or purchase it from others,
as follows:
• The energy rates under the PPAs in
in the
prices. We recently signed a new PPA for the
1, 2023, with a fixed energy rate.
• The prices for electricity pursuant to the 25 MW PPA for the
as other commodities. In 2019, we signed a new PPA related to Puna with fixed
prices, increased capacity and extended the term until 2052.
To comply with obligations under their respective PPAs, certain of our project
subsidiaries are structured as special purpose, bankruptcy remote entities and
their assets and liabilities are ring-fenced. Such assets are not generally
available to pay our debt, other than debt at the respective project subsidiary
level. However, these project subsidiaries are allowed to pay dividends and make
distributions of cash flows generated by their assets to us, subject in some
cases to restrictions in debt instruments, as described below.
Electricity segment revenues are also subject to seasonal variations and are
affected by higher-than-average ambient temperatures, as described below under
"Seasonality".
Revenues attributable to our Product segment are based on the sale of equipment,
engineering, procurement and construction contracts and the provision of various
services to our customers. Product segment revenues vary from period to period
because of the timing of our receipt of purchase orders and the progress of our
equipment manufacturing and execution of the relevant project.
Revenues attributable to our Energy Storage segment are generated by several
grid-connected BESS facilities that we own and operate that sell energy,
capacity and/or ancillary services in merchant markets like PJM Interconnect,
ISO New England , ERCOT and CAISO. The revenues fluctuate over time since a large
portion of such revenues are generated in the merchant markets, where price
volatility is inherent.
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The following table sets forth a breakdown of our revenues for the periods
indicated:
Revenue Increase (decrease)
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2022 2021 2022 2021 2022 2022
Revenues:
Electricity $ 151,195 $ 133,864 $ 313,720 $ 278,852 $ 17,331 12.9 % $ 34,868 12.5 %
Product 10,392 7,410 25,020 16,053 2,982 40.2 % 8,967 55.9 %
Energy storage 7,491 5,627 14,048 18,348 1,864 33.1 % (4,300 ) (23.4 )%
Total $ 169,078 $ 146,901 $ 352,788 $ 313,253 $ 22,177 15.1 % $ 39,535 12.6 %
% of Revenues for Period Indicated
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Revenues:
Electricity 89.4 % 91.1 % 88.9 % 89.0 %
Product 6.1 5.0 7.1 5.1
Energy storage 4.4 3.8 4.0 5.9
Total 100.0 % 100.0 % 100.0 % 100.0 %
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The following table sets forth the geographic breakdown of the revenues
attributable to our Electricity, Product and Energy Storage segments for the
periods indicated:
Revenue Increase (decrease)
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2022 2021 2022 2021 2022 2022
(Dollars in thousands) (Dollars in thousands)
Electricity
Segment:
United States $ 105,193 $ 87,564 $ 221,302 $ 186,540 $ 17,629 20.1 % $ 34,762 18.6 %
Foreign 46,002 46,300 92,418 92,312 (298 ) (0.6 ) 106 0.1
Total $ 151,195 $ 133,864 $ 313,720 $ 278,852 $ 17,331 12.9 % $ 34,868 12.5 %
Product Segment:
United States $ 1,134 $ 647 $ 1,669 $ 2,500 $ 487 75.3 % $ (831 ) (33.2 )%
Foreign 9,258 6,763 23,351 13,553 2,495 36.9 9,798 72.3
Total $ 10,392 $ 7,410 $ 25,020 $ 16,053 $ 2,982 40.2 % $ 8,967 55.9 %
Energy Storage
Segment:
United States $ 7,491 $ 5,627 $ 14,048 $ 18,348 $ 1,864 33.1 % $ (4,300 ) (23.4 )%
Total $ 7,491 $ 5,627 $ 14,048 $ 18,348 $ 1,864 33.1 % $ (4,300 ) (23.4 )%
% of Revenues for Period Indicated
Three Months Six Months
Ended June 30, Ended June 30,
2022 2021 2022 2021Electricity Segment: United States 69.6 % 65.4 % 70.5 % 66.9 % Foreign 30.4 34.6 29.5 33.1 Total 100.0 % 100.0 % 100.0 % 100.0 % Product Segment: United States 10.9 % 8.7 % 6.7 % 15.6 % Foreign 89.1 91.3 93.3 84.4 Total 100.0 % 100.0 % 100.0 % 100.0 % Energy Storage: United States 100.0 % 100.0 % 100.0 % 100.0 % Total 100.0 % 100.0 % 100.0 % 100.0 % In the six months endedJune 30, 2022 and 2021, 33% and 34% of our total revenues, respectively were derived from foreign locations, and our foreign operations were significantly more profitable than ourU.S. operations in each of those periods. A substantial portion of international revenues came fromKenya and, to a lesser extent, fromHonduras ,Guadeloupe ,Guatemala and other countries. Our operations inKenya contributed disproportionately to gross profit and net income. The contribution to combined pre-tax income of our domestic and foreign operations within our Electricity segment and Product segment differ in a number of ways. Electricity Segment. Domestic revenues were approximately 71% and 67% of our total Electricity segment for the six months endedJune 30, 2022 and 2021, respectively. However, domestic operations have higher costs of revenues and expenses than our foreign operations. Our foreign power plants are located in lower-cost regions, likeKenya ,Guatemala ,Honduras andGuadeloupe , which favorably impact payroll, and maintenance expenses among other items. Our power plants in foreign locations are also newer than most of our domestic power plants and therefore tend to have lower maintenance costs and higher availability factors than our domestic power plants. Consequently, in the six months endedJune 30, 2022 and 2021, our Electricity segment foreign operations accounted for 45% and 48% of our total gross profits, 74% and 78% of our net income (assuming the majority of corporate operating expenses and financing are recorded under domestic jurisdiction) and 39% and 51% of our EBITDA, respectively. 41
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Product Segment. Foreign revenues were approximately 93% and 84% of our total
Product segment revenues for the six months ended
Energy Storage Segment. Domestic revenues were 100% of our total Energy storage
segment revenues for each of the six three months ended
Seasonality Electricity generation from some of our geothermal power plants is subject to seasonal variations. In the winter, our power plants produce more energy primarily attributable to the lower ambient temperature, which has a favorable impact on the energy component of our Electricity segment revenues, and in the summer, our power plants produce less energy primarily attributable to the higher ambient temperature. The prices under many of our contracts are fixed throughout the year with no time-of-use impact, however, the prices paid for electricity under the PPAs for one of theHeber 2 power plants in theHeber Complex , theMammoth Complex and theNorth Brawley power plant inCalifornia , theRaft River power plant inIdaho , theNeal Hot Springs power plant inOregon and the recently acquiredDixie Valley power plant inNevada are higher in the months of June through September. The higher payments payable under these PPAs in the summer months partially offset the negative impact on our revenues from lower generation in the summer. As a result, we expect the revenues and gross profit in the winter months to be higher than the revenues and gross profit in the summer months and in general we expect the first and fourth quarters to generate higher revenues than the second and third quarters.
Breakdown of Cost of Revenues
The principal cost of revenues attributable to our three segments are discussed in our 2021 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation".
Critical Accounting Estimates and Assumptions
A comprehensive discussion of our critical accounting estimates and assumptions is included in our 2021 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation."
New Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements.
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Table of Contents Results of Operations Our historical operating results in dollars and as a percentage of total revenues are presented below. A comparison of the different years described below may be of limited utility due to (i) our recent construction of power plants and enhancement of acquired power plants; (ii) fluctuation in revenues from our Product segment; and (iii) the impact of the lava eruption on our Puna plant inHawaii and the related insurance proceeds. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands, except (Dollars in thousands, except per per share data) share data) Statements of Operations Historical Data: Revenues: Electricity$ 151,195 $ 133,864 $ 313,720 $ 278,852 Product 10,392 7,410 25,020 16,053 Energy storage 7,491 5,627 14,048 18,348 Total Revenues 169,078 146,901 352,788 313,253 Cost of revenues: Electricity 95,517 83,736 190,038 163,587 Product 10,367 5,924 23,980 13,998 Energy storage 5,593 5,266 11,264 10,046 Total cost of revenues 111,477 94,926 225,282 187,631 Gross profit Electricity 55,678 50,128 123,682 115,265 Product 25 1,486 1,040 2,055 Energy storage 1,898 361 2,784 8,302 Total gross profit 57,601 51,975 127,506 125,622 Operating expenses: Research and development expenses 1,388 1,128 2,452 2,004 Selling and marketing expenses 3,952 3,988 8,317 8,264 General and administrative expenses 13,526 18,240 31,098 36,846 Write-off of Energy Storage projects and assets 128 - 1,954 - Operating income 38,607 28,619 83,685 78,508 Other income (expense): Interest income 179 808 521 1,071 Interest expense, net (20,418 ) (18,626 ) (41,499 ) (37,642 ) Derivatives and foreign currency transaction gains (losses) (3,998 ) 658 (3,738 ) (16,208 ) Income attributable to sale of tax benefits 9,527 7,420 17,232 13,775 Other non-operating income (expense), net (1,260 ) (21 ) (1,185 ) (352 ) Income from operations before income tax and equity in earnings (losses) of investees 22,637 18,858 55,016 39,152 Income tax provision (6,130 ) (4,268 ) (16,293 ) (7,275 ) Equity in earnings (losses) of investees, net (1,562 ) 605 (985 ) 1,147 Net income 14,945 15,195 37,738 33,024 Net income attributable to noncontrolling interest (3,685 ) (2,169 ) (8,048 ) (4,739 ) Net income attributable to the Company's stockholders 11,260$ 13,026 $ 29,690 $ 28,285 Earnings per share attributable to the Company's stockholders: Basic:$ 0.20 $ 0.23 $ 0.53 $ 0.51 Diluted:$ 0.20 $ 0.23 $ 0.53 $ 0.50 Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders: Basic 56,114 55,992 56,089 55,990 Diluted 56,498 56,316 56,431 56,502 43
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Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Statements of Operations Data:
Revenues:
Electricity 89.4 % 91.1 % 88.9 % 89.0 %
Product 6.1 5.0 7.1 5.1
Energy storage 4.4 3.8 4.0 5.9
Total Revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Electricity 63.2 62.6 60.6 58.7
Product 99.8 79.9 95.8 87.2
Energy storage 74.7 93.6 80.2 54.8
Total cost of revenues 65.9 64.6 63.9 59.9
Gross profit
Electricity 36.8 37.4 39.4 41.3
Product 0.2 20.1 4.2 12.8
Energy storage 25.3 6.4 19.8 45.2
Total gross profit 34.1 35.4 36.1 40.1
Operating expenses:
Research and development expenses 0.8 0.8 0.7 0.6
Selling and marketing expenses 2.3 2.7 2.4 2.6
General and administrative expenses 8.0 12.4 8.8 11.8
Write-off of Energy Storage projects and
assets 0.1 0.0 0.6 0.0
Operating income 22.8 19.5 23.7 25.1
Other income (expense):
Interest income 0.1 0.6 0.1 0.3
Interest expense, net (12.1 ) (12.7 ) (11.8 ) (12.0 )
Derivatives and foreign currency
transaction gains (losses) (2.4 ) 0.4 (1.1 ) (5.2 )
Income attributable to sale of tax
benefits 5.6 5.1 4.9 4.4
Other non-operating income (expense),
net (0.7 ) 0.0 (0.3 ) (0.1 )
Income from operations before income tax
and equity in earnings (losses) of
investees 13.4 12.8 15.6 12.5
Income tax provision (3.6 ) (2.9 ) (4.6 ) (2.3 )
Equity in earnings (losses) of
investees, net (0.9 ) 0.4 (0.3 ) 0.4
Net income 8.8 10.3 10.7 10.5
Net income attributable to
noncontrolling interest (2.2 ) (1.5 ) (2.3 ) (1.5 )
Net income attributable to the Company's
stockholders 6.7 % 8.9 % 8.4 % 9.0 %
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Table of Contents
Comparison of the Three Months Ended
Total Revenues
The table below compares revenues for the three months ended
Three Months Ended June 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 151.2 $ 133.9 12.9 %
Product segment 10.4 7.4 40.2
Energy Storage segment 7.5 5.6 33.1
Total revenues $ 169.1 $ 146.9 15.1 %
Electricity Segment
Revenues attributable to our Electricity segment for the three months ended June
30, 2022 were $151.2 million , compared to $133.9 million for the three months
ended June 30, 2021 . The increase in our Electricity segment revenues was mainly
due to: (i) the consolidation of Dixie Valley and Beowawe power plants which
were acquired on July 13, 2021 , and contributed revenues of $8.8 million ; this
contribution was offset by approximately $4.0 million due to unplanned shutdown
of our Dixie Valley power plant at the beginning of April 2022 , due to
mechanical issues, during which we have accelerated overhaul maintenance work on
the steam turbine that is scheduled every six years and had been planned in the
second part of the year, (ii) higher generation levels as well as increased
energy rates at the Puna power plant, which resumed operations in the third
quarter of 2021; and (iii) the expansion of Tungsten Mountain complex in April
2022 , partially offset by a decrease in revenues as a result of a shutdown at
our Heber 1 power plant following a fire that caused damage to the steam
turbine.
Power generation in our power plants increased by 1.5% from 1,479,169 MWh in the
three months ended June 30, 2021 to 1,500,827 MWh in the three months ended June
30, 2022 .
Product Segment
Revenues attributable to our Product segment for the three months ended June 30,
2022 were $10.4 million , compared to $7.4 million for the three months ended
June 30, 2021 , which represented a 40.2% increase. The increase in our Product
segment revenues was primarily due to certain new projects in Nicaragua and
Indonesia for which we recorded revenues for in the second quarter of 2022 and
which were higher than revenues related to different projects which were
completed in 2021.
Energy Storage Segment
Revenues attributable to our Energy Storage segment for the three months ended
June 30, 2022 were $7.5 million compared to $5.6 million for the three months
ended June 30, 2021 . The increase is mainly due to high energy rates at PJM
facilities increasing our revenues at Plumsted and Striker energy storage
facilities.
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Table of Contents Total Cost of Revenues
The table below compares cost of revenues for the three months ended
Three Months Ended June 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 95.5 $ 83.7 14.1 %
Product segment 10.4 5.9 75.0
Energy Storage segment 5.6 5.3 6.2
Total cost of revenues $ 111.5 $ 94.9 17.4 %
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the three
months ended June 30, 2022 was $95.5 million , compared to $83.7 million for the
three months ended June 30, 2021 . This increase was primarily attributable to:
(i) the consolidation of Dixie Valley and Beowawe power plants which were
acquired on July 13, 2021 , and contributed approximately $9.0 million to cost of
revenues altogether; (ii) the Puna power plant resumption of operations and
increase in generation levels which contributed approximately $2.7 million to
the overall increase in cost of revenues; and (iii) higher costs at Ormesa
primarily due to pump replacements, partially offset by approximately $3.4
million of income from business interruption insurance proceeds related to the
fire at the Heber 1 power plant.
Our total Electricity segment cost of revenues for the three months ended June
30, 2022 was 63.2% of Electricity revenues, compared to 62.6% for the three
months ended June 30, 2021 , including the impact from business interruption
insurance proceeds as described above. The cost of revenues attributable to our
international power plants for the three months ended June 30, 2022 was 19% of
our total Electricity segment cost of revenues for this period.
Product Segment
Total cost of revenues attributable to our Product segment for the three months
ended June 30, 2022 was $10.4 million , compared to $5.9 million for the three
months ended June 30, 2021 , which represented a 75.0% increase. This increase
was primarily attributable to the increase in Product segment revenues, as
discussed above as well as higher costs related to our contracts as a result of
recent rising raw materials and marine costs which contributed amongst other
things to a decrease in projects gross profit. As a percentage of total Product
segment revenues, our total cost of revenues attributable to our Product segment
for the three months ended June 30, 2022 and 2021, was 99.8% and 79.9%,
respectively.
Energy Storage Segment
Cost of revenues attributable to our Energy Storage segment for the three months
ended June 30, 2022 were $5.6 million compared to $5.3 million for the three
months ended June 30, 2021 . The Energy Storage segment includes cost of revenues
related to the delivery of energy storage, demand response and energy management
services.
Research and Development Expenses, Net
Research and development expenses for the three months endedJune 30, 2022 were$1.4 million , compared to$1.1 million for the three months endedJune 30, 2021 . This increase is mainly attributable to the timing of research and development projects that took place during the reported periods.
Selling and Marketing Expenses
Selling and marketing expenses for the three months endedJune 30, 2022 were$4.0 million compared to$4.0 million for the three months endedJune 30, 2021 . Selling and marketing expenses for the three months endedJune 30, 2022 constituted 2.3% of total revenues for such period, compared to 2.7% for the three months endedJune 30, 2021 . 46
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General and Administrative Expenses
General and administrative expenses for the three months endedJune 30, 2022 were$13.5 million compared to$18.2 million for the three months endedJune 30, 2021 . This decrease in expenses of$4.7 million was primarily attributable to lower legal costs mainly related to the special committee as further described under Note 10 to the condensed consolidated financial statements. General and administrative expenses for the three months endedJune 30, 2022 constituted 8.0% of total revenues for such period, compared to 12.4% for the three months endedJune 30, 2021 .
Write-off of
Write-off of Energy Storage projects and assets for the three months endedJune 30, 2022 was$0.1 million compared to none for the three months endedJune 30, 2021 . This write-off is related to various energy storage projects that the Company is no longer pursuing. Interest Expense, Net Interest expense, net for the three months endedJune 30, 2022 was$20.4 million , compared to$18.6 million for the three months endedJune 30, 2021 . This increase of$1.8 million was primarily related to: (i) approximately$1.8 million in interest expense related to the financing liability assumed as part of the business combination purchase transaction of the Terra-Gen geothermal assets; (ii) approximately$2.8 million in interest expenses related to Bank Hapoalim Loan received inJuly 2021 , HSBC Bank Loan received inJuly 2021 , Bank Discount Loan received inSeptember 2021 andBank Mizrahi Loan received inApril 2022 , partially offset by an increase of$2.0 million in interest capitalized to projects under construction as well as lower interest expenses on other long-term loans as a result of regular principal payments.
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction gains and losses for the three months endedJune 30, 2022 were$4.0 million losses, compared to$0.7 million gains for the three months endedJune 30, 2021 . Derivatives and foreign currency transaction gains (losses) for the three months endedJune 30, 2022 primarily includes losses from foreign currency forward contracts which were not accounted for as hedge transactions.
Income Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits for the three months endedJune 30, 2022 was$9.5 million , compared to$7.4 million for the three months endedJune 30, 2021 . This income primarily represents the value of production tax credits ("PTCs") and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of$2.1 million is primarily related to theSteamboat Hills tax equity partnership entered into inOctober 2021 .
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net for the three months endedJune 30, 2022 was an expense of$1.3 million , compared to an expense of$0.0 million for the three months endedJune 30, 2021 . Other non-operating income (expense), net for the three months endedJune 30, 2022 , primarily includes the make-whole premium from the prepayment of Series 3 Bonds during the second quarter of 2022, as further described under Note 1 to the condensed consolidated financial statements. 47
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Table of Contents Income Taxes Income tax provision for the three months endedJune 30, 2022 was$6.1 million compared to income tax provision of$4.3 million for the three months endedJune 30, 2021 . Our effective tax rate for the three months endedJune 30, 2022 and 2021, was 27.1% and 22.6%, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the jurisdictional mix of earnings at differing tax rates, movement in the valuation allowance and generation of production tax credits.
Equity in Earnings (losses) of Investees, Net
Equity in losses of investees, net for the three months endedJune 30, 2022 was$1.6 million , compared to equity in earnings of investees of$0.6 million for the three months endedJune 30, 2021 . Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in theSarulla Consortium ("Sarulla"). The increase in equity losses in investees, net between the reported periods is primarily related to our portion of the devaluation of the local currency against theU.S Dollar, lower net income in Sarulla as a result of lower generation as well as a write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant's performance, however, uncertainty remains regarding Sarulla's ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the three months endedJune 30, 2022 was$11.3 million , compared to net income attributable to the Company's stockholders of$13.0 million for the three months endedJune 30, 2021 , which represents a decrease of$1.8 million . This decrease was attributable to a decrease of$0.2 million in net income which was affected by all the explanations above, and an increase in net income attributable to non controlling interest, mainly due to higher profits at the Puna power plant inHawaii , in the three months endedJune 30, 2022 , compared to the three months endedJune 30, 2021 .
Comparison of the Six Months Ended
Total Revenues
The table below compares revenues for the six months ended
Six Months Ended June 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 313.7 $ 278.9 12.5 %
Product segment 25.0 16.1 55.9
Energy Storage segment 14.0 18.3 (23.4 )
Total revenues $ 352.8 $ 313.3 12.6 %
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Table of Contents Electricity Segment Revenues attributable to our Electricity segment for the six months endedJune 30, 2022 , were$313.7 million , compared to$278.9 million for the six months endedJune 30, 2021 . The increase in our Electricity segment revenues was mainly due to: (i) the consolidation ofDixie Valley and Bewawe power plants which were acquired onJuly 13, 2021 , and contributed revenues of$20.9 million altogether; (ii) higher generation levels as well as increased energy rates at the Puna power plant which resumed operations in the third quarter of 2021; and (iii) the expansion of theMcGinness Hills complex inMay 2021 , partially offset by a decrease in revenues as a result of a shutdown at ourHeber 1 power plant following a fire that caused damage to the steam turbine and the unplanned shutdown of ourDixie Valley power plan as discussed above. Power generation in our power plants increased by 5.2% from 3,156,062 MWh in the six months endedJune 30, 2021 to 3,321,312 MWh in the six months endedJune 30, 2022 . Product Segment Revenues attributable to our Product segment for the six months endedJune 30, 2022 were$25.0 million , compared to$16.1 million for the six months endedJune 30, 2021 , which represented an increase of 55.9%. The increase in our Product segment revenues was primarily due to certain new projects inNicaragua andIndonesia for which we recorded revenues for in the first half of 2022 and which were higher than revenues related to different projects inNew-Zealand andChile which were substantially completed in 2021. Energy Storage Segment Revenues attributable to our Energy Storage segment for the six months endedJune 30, 2022 were$14.0 million compared to$18.3 million for the six months endedJune 30, 2021 . The decrease is mainly due to a decrease of$6.8 million in revenues from the Rabbit Hill battery energy storage facility primarily as a result of theFebruary 2021 power crisis inTexas , which resulted in a record high increase in demand for electricity on the one hand and a significant decrease in electricity supply in the region on the other hand. This led to a significant increase in the Responsive Reserve Service market price during this weather event. This decrease from 2021 was offset by higher revenues at PJM facilities due to high energy rates and increased performance of the assets in 2022. Total Cost of Revenues
The table below compares cost of revenues for the six months ended
Six Months Ended June 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 190.0 $ 163.6 16.2 %
Product segment 24.0 14.0 71.3
Energy Storage segment 11.3 10.0 12.1
Total cost of revenues $ 225.3 $ 187.6 20.1 %
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the six
months ended June 30, 2022 was $190.0 million , compared to $163.6 million for
the six months ended June 30, 2021 . This increase was primarily attributable to:
(i) the consolidation of Dixie Valley and Beowawe power plants which was
acquired on July 13, 2021 and contributed to cost of revenues $17.0 million
altogether; (ii) the Puna power plant resumption of operations and increase in
generation levels which contributed approximately $4.3 million to the overall
increase in cost of revenues; and (iii) the expansion of the McGinness Hills
complex in May 2021 as well as higher costs at Ormesa, primarily due to pump
replacements. This increase was partially offset by: (i) approximately $5.2
million of income from business interruption insurance proceeds, $3.4 million of
which, related to the fire at the Heber 1 power plant; and (ii) lower
operational costs at Heber 1 due to the same reason.
Our total Electricity segment cost of revenues for the six months ended June 30,
2022 was 60.6% of Electricity revenues, compared to 58.7% for the six months
ended June 30, 2021 , including the impact from business interruption insurance
proceeds described above. The cost of revenues attributable to our international
power plants for the six months ended June 30, 2022 was 18.5% of our total
Electricity segment cost of revenues for this period.
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Table of Contents Product Segment Total cost of revenues attributable to our Product segment for the six months endedJune 30, 2022 was$24.0 million , compared to$14.0 million for the six months endedJune 30, 2021 , which represented a 71.3% increase. This increase was primarily attributable to the increase in Product segment revenues and higher costs, as discussed above. As a percentage of total Product segment revenues, our total cost of revenues attributable to our Product segment for the six months endedJune 30, 2022 and 2021, was 95.8% and 87.2%, respectively. Energy Storage Segment Cost of revenues attributable to our Energy Storage segment for the six months endedJune 30, 2022 were$11.3 million compared to$10.0 million for the six months endedJune 30, 2021 . This increase was mainly due to the addition of theVallecito battery energy storage system to our commercially operating sites inApril 2021 . The Energy Storage segment includes cost of revenues related to the delivery of energy storage and energy management services.
Research and Development Expenses, Net
Research and development expenses for the six months endedJune 30, 2022 were$2.5 million , compared to$2.0 million for the six months endedJune 30, 2021 . The increase is mainly attributable to the timing of research and development projects that took place during the six months endedJune 30, 2022 compared to the corresponding period in 2021.
Selling and Marketing Expenses
Selling and marketing expenses for the six months endedJune 30, 2022 were$8.3 million compared to$8.3 million for the six months endedJune 30, 2021 . Selling and marketing expenses for the six months endedJune 30, 2022 , constituted 2.4% of total revenues for such period, compared to 2.6% for the six months endedJune 30, 2021 .
General and Administrative Expenses
General and administrative expenses for the six months endedJune 30, 2022 were$31.1 million compared to$36.8 million for the six months endedJune 30, 2021 . The decrease of$5.7 million was primarily attributable to lower legal costs mainly related to the special committee as further described under Note 10 to the condensed consolidated financial statements as well as lower professional advisory costs. Additionally, general and administrative expenses for the six months endedJune 30, 2021 include a provision for doubtful debts of$3.0 million relating to imbalance charges from the grid operator in respect of our demand response operations that we were unable to collect due to the February power crisis inTexas .
General and administrative expenses for the six months ended
Write-off of Energy Storage projects and assets
Write-off of Energy Storage projects and assets for the six months endedJune 30, 2022 was$2.0 million compared to none for the six months endedJune 30, 2021 . This write-off is primarily related to accumulated costs of energy storage projects that the Company is no longer pursuing as well as specific certain customer related assets. Interest Expense, Net Interest expense, net for the six months endedJune 30, 2022 was$41.5 million , compared to$37.6 million for the six months endedJune 30, 2021 . This increase of$3.9 million was primarily due to: (i) approximately$3.3 million in interest expense related to the financing liability assumed as part of the business combination purchase transaction of the Terra-Gen geothermal assets; (ii) approximately$4.9 million in interest expenses related to Bank Hapoalim Loan received inJuly 2021 , HSBC Bank Loan received inJuly 2021 , Bank Discount Loan received inSeptember 2021 andBank Mizrahi Loan received inApril 2022 , partially offset by an increase of$3.8 million in interest capitalized to projects under construction as well as lower interest expenses on other long-term loans as a result of regular principal payments. 50
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Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction losses for the six months endedJune 30, 2022 were$3.7 million , compared to losses of$16.2 million for the six months endedJune 30, 2021 . Derivatives and foreign currency transaction losses for the six months endedJune 30, 2021 include$14.5 million in losses relating to the hedge transaction associated with our Rabbit Hill battery energy storage facility, due to extreme weather conditions in the area ofGeorgetown, Texas inFebruary 2021 . In 2022, expenses mainly related to the change in market value in hedges designated to reduce exposure to the USD/NIS exchange rate. In addition, we recorded losses from foreign currency forward contracts which were not accounted for as hedge transactions.
Income Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits for the six months endedJune 30, 2022 was$17.2 million , compared to$13.8 million for the six months endedJune 30, 2021 . This income primarily represents the value of PTCs and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of$3.5 million is primarily related theSteamboat Hills tax equity partnership entered into inOctober 2021 .
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net for the six months endedJune 30, 2022 was an expense of$1.2 million , compared to an expense of$0.4 million for the six months endedJune 30, 2021 . Other non-operating income (expense), net for the six months endedJune 30, 2022 , primarily includes the make-whole premium from the prepayment of Series 3 Bonds during the second quarter of 2022, as further described under Note 1 to the condensed consolidated financial statements. Income Taxes Income tax provision for the six months endedJune 30, 2022 was$16.3 million compared to$7.3 million for the six months endedJune 30, 2021 . Our effective tax rate for the six months endedJune 30, 2022 and 2021, was 29.6% and 18.6%, respectively. The effective rate differs from the federal statutory rate of 21% for the six months endedJune 30, 2022 primarily due to the jurisdictional mix of earnings at differing tax rates from the federal statutory tax rate; movement in the valuation allowance; and generation of production tax credits.
Equity in Earnings (losses) of Investees, Net
Equity in losses of investees, net for the six months endedJune 30, 2022 was$1.0 million , compared to earnings of$1.1 million for the six months endedJune 30, 2021 . Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in the Sarulla consortium. The change between the reported periods is primarily related to our portion in the lower net income in Sarulla as a result of lower generations as well as higher write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant's performance, however, uncertainty remains regarding Sarulla's ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the six months endedJune 30, 2022 was$29.7 million , compared to$28.3 million for the six months endedJune 30, 2021 , which represents an increase of$1.4 million . This increase was attributable to the increase of$4.7 million in net income which was affected by all the explanations above, partially offset by an increase in net income attributable to non controlling interest mainly due to the resumption of operations of the Puna power plant to 25MW during the third quarter of 2021. 51
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Liquidity and Capital Resources
Our principal sources of liquidity have been derived from cash flows from operations, proceeds from third party debt such as borrowings under our credit facilities, private or public offerings and issuances of debt or equity securities, project financing and tax monetization transactions, short term borrowing under our lines of credit, and proceeds from the sale of equity interests in one or more of our projects. We have utilized this cash to develop and construct power plants, fund our acquisitions, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs.
As of
Our estimated capital needs for the remainder of 2022 include$254.0 million for capital expenditures on new projects under development or construction including energy storage projects, exploration activity and maintenance capital expenditures for our existing projects. In addition,$72.9 million will be needed for long-term debt repayment. We expect to finance these requirements with: (i) the sources of liquidity described above; (ii) positive cash flows from our operations; and (iii) future project financings and re-financings (including construction loans and tax equity). Management believes that, based on the current stage of implementation of our strategic plan, the sources of liquidity and capital resources described above will address our anticipated liquidity, capital expenditures, and other investment requirements. As ofJune 30, 2022 , we continue to maintain our assertion to no longer indefinitely reinvest foreign funds held by our foreign subsidiaries, with the exception of a certain balance held inIsrael , and have accrued the incremental foreign withholding taxes. Accordingly, during the six months endedJune 30, 2022 , we included a foreign income tax expense of$0.9 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries.
Letters of Credits Under Credit Agreements
Some of our customers require our project subsidiaries to post letters of credit in order to guarantee their respective performance under relevant contracts. We are also required to post letters of credit to secure our obligations under various leases and licenses and may, from time to time, decide to post letters of credit in lieu of cash deposits in reserve accounts under certain financing arrangements. In addition, our subsidiary,Ormat Systems , is required from time to time to post performance letters of credit in favor of our customers with respect to orders of products. Issued and Outstanding as of Termination Credit Agreements Amount Issued June
30, 2022 Date
(Dollars in millions)
Committed lines for credit and letters of credit $ 468.0 $
81.1 July 2022-November 2023
Committed lines for letters of credit 155.0 90.0 October 2022-August 2023
Non-committed lines - 13.6 October 2022
Total $ 623.0 $ 184.7
Restrictive Covenants
Our obligations under the credit agreements, the loan agreements, and the trust
instrument governing the bonds described above, are unsecured, but we are
subject to a negative pledge in favor of the banks and the other lenders and
certain other restrictive covenants. These include, among other things,
restraints on: (i) creating any floating charge or any permanent pledge, charge
or lien over our assets without obtaining the prior written approval of the
lender; (ii) guaranteeing the liabilities of any third party without obtaining
the prior written approval of the lender; and (iii) selling, assigning,
transferring, conveying or disposing of all or substantially all of our assets,
or a change of control in our ownership structure. Some of the credit
agreements, the term loan agreements, and the trust instrument contain
cross-default provisions with respect to other material indebtedness owed by us
to any third party. In some cases, we have agreed to maintain certain financial
ratios, which are measured quarterly, such as: (i) equity of at least $750
million and in no event less than 25% of total assets; (ii) 12-month debt, net
of cash, cash equivalents, and short-term bank deposits to Adjusted EBITDA ratio
not to exceed 6.0; and (iii) dividend distributions not to exceed 50% of net
income in any calendar year. As of June 30, 2022 : (i) total equity was $1,979.3
million and the actual equity to total assets ratio was 43.6% and (ii) the
12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 4.0.
During the six months ended June 30, 2022 , we distributed interim dividends in
an aggregate amount of $13.5 million . The failure to perform or observe any of
the covenants set forth in such agreements, subject to various cure periods,
would result in the occurrence of an event of default and would enable the
lenders to accelerate all amounts due under each such agreement.
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As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, (except as described below), and believe that the restrictive covenants, financial ratios and other terms of any of our full-recourse bank credit agreements will not materially impact our business plan or operations.
As ofJune 30, 2022 , we did not meet the dividend distribution criteria related to the DAC 1 Senior Secured Notes, which resulted in certain equity distribution restrictions from this related subsidiary. Future minimum payments Future minimum payments under long-term obligations (including long-term debt, lease obligations and financing liability), as ofJune 30, 2022 , are as follows: (Dollars in thousands) Year endingDecember 31 : 2022 $ 89,487 2023 204,642 2024 267,213 2025 178,347 2026 179,175 Thereafter 1,239,169 Total $ 2,158,033 Third-Party Debt Our third-party debt consists of (i) non-recourse and limited-recourse project finance debt or acquisition financing debt that we or our subsidiaries have obtained for the purpose of developing and constructing, refinancing or acquiring our various projects; (ii) full-recourse debt incurred by us or our subsidiaries for general corporate purposes; (iii) financing liability related to the business combination purchase transaction of the Terra-Gen geothermal assets and (iv) convertible senior notes issued in the second quarter of 2022 as further described under Note 1 to the condensed consolidated financial statements. 53
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Non-Recourse and Limited-Recourse Third-Party Debt
Amount Outstanding
as of June 30,
Loan Amount Issued 2022 Interest Rate Maturity Date Related Project Location
(Dollars in millions)
McGinness Hills
OFC 2 Senior Secured phase 1 and
Notes - Series A $ 151.7 $ 75.3 4.67 % 2032 Tuscarora U.S.
OFC 2 Senior Secured McGinness Hills
Notes - Series B 140.0 89.5 4.61 % 2032 phase 2 U.S.
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 1 85.0 40.1 6.34 % 2030 Complex Kenya
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 2 180.0 84.7 6.29 % 2030 Complex Kenya
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 3 45.0 22.8 6.12 % 2030 Complex Kenya
Amatitlan Financing(1) 42.0 17.5 LIBOR+4.35% 2027 Amatitlan Guatemala
Don A. Campbell Senior Don A. Campbell
Secured Notes 92.5 64.8 4.03 % 2033 Complex U.S.
Prudential Capital Neal Hot Springs
Group Idaho Loan(2) 20.0 16.1 5.80 % 2023 and Raft River U.S.
U.S. Department of
Energy Loan(3) 96.8 37.6 2.60 % 2035 Neal Hot Springs U.S.
Prudential Capital
Group Nevada Loan 30.7 24.6 6.75 % 2037 San Emidio U.S.
Platanares Loan with
DFC 114.7 84.0 7.02 % 2032 Platanares Honduras
Viridity - Plumstriker 23.5 13.2 LIBOR+3.5% 2026 Plumsted+Striker U.S.
Géothermie Géothermie
Bouillante(4) 8.9 4.9 1.52 % 2026 Bouillante Guadeloupe
Géothermie Géothermie
Bouillante(4) 8.9 6.3 1.93 % 2026 Bouillante Guadeloupe
Total $ 1,039.7 $ 581.4
1. LIBOR cannot be lower than 1.25%. Margin of 4.35% as long as the Company's
guaranty of the loan is outstanding (current situation) or 4.75% otherwise.
2. Secured by equity interest. 3. Secured by the assets. 4. Loan issued in total aggregate amount ofEUR 8.0 million .
Full-Recourse Third-Party Debt
Loan Amount Issued Outstanding
Interest Rate Maturity Date
Amount as of June
30, 2022
(Dollars in millions)
Mizrahi Loan $ 75.0 $ 75.0 4.10 % April 2030
Hapoalim Loan 125.0 107.1 3.45 % June 2028
HSBC Loan 50.0 46.4 3.45 % July 2028
Discount Loan 100.0 93.8 2.90 % September 2029
Senior Unsecured Bonds
Series 4 (1) 289.8 257.1 3.35 % June 2031
Senior unsecured Loan 1 100.0 91.6 4.80 % March 2029
Senior unsecured Loan 2 50.0 45.8 4.60 % March 2029
Senior unsecured Loan 3 50.0 45.8 5.44 % March 2029
DEG Loan 2 50.0 30.0 6.28 % June 2028
DEG Loan 3 41.5 26.2 6.04 % June 2028
Total $ 931.3 $ 818.8
(1) Bonds issued in total aggregate principal amount of NIS 1.0 billion .
Financing Liability -
The financing liability is related to the business combination purchase
transaction of the Terra-Gen geothermal assets. The financial liability
outstanding amount as of
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Convertible Senior Notes
The convertible senior notes ("Notes") were issued in June 2022 as further
described under Note 1 to the condensed consolidated financial statements. The
Notes bear annual interest of 2.5%, payable semiannually in arrears on January
15 and July 15 of each year, beginning on January 15, 2023 . The Notes mature on
July 15, 2027 , unless earlier converted, redeemed or repurchased and the
outstanding aggregate amount of the Notes as of June 30, 2022 is $431.3
million .
Liquidity Impact of Uncertain Tax Positions
The Company has a liability associated with unrecognized tax benefits and related interest and penalties in the amount of approximately$6.2 million as ofJune 30, 2022 . This liability is included in long-term liabilities in our condensed consolidated balance sheet because we generally do not anticipate that settlement of the liability will require payment of cash within the next twelve months. We are not able to reasonably estimate when we will make any cash payments required to settle this liability. Dividends
The following are the dividends declared by us since
Dividend
Amount per
Date Declared Share Record Date Payment Date
February 25, 2020 $ 0.11 March 12, 2020 March 26, 2020
May 8, 2020 $ 0.11 May 21, 2020 June 2, 2020
August 4, 2020 $ 0.11 August 18, 2020 September 1, 2020
November 4, 2020 $ 0.11 November 18, 2020 December 2, 2020
February 24, 2021 $ 0.12 March 11, 2021 March 29, 2021
May 5, 2021 $ 0.12 May 18, 2021 June 1, 2021
August 4, 2021 $ 0.12 August 18, 2021 September 1, 2021
November 3, 2021 $ 0.12 November 17, 2021 December 3, 2021
May 2, 2022 $ 0.12 May 16, 2022 May 31, 2022
August 3, 2022 $ 0.12 August 17, 2022 August 31, 2022
Historical Cash Flows
The following table sets forth the components of our cash flows for the periods
indicated:
Six Months Ended June 30,
2022 2021
(Dollars in thousands)
Net cash provided by operating activities $ 115,290 $ 98,844
Net cash used in investing activities (225,036 ) (254,512 )
Net cash provided by (used in) financing activities 123,010 (50,976 ) Net change in cash and cash equivalents and restricted cash and cash equivalents
12,937 (206,901 )
For the Six Months Ended
Net cash provided by operating activities for the six months endedJune 30, 2022 was$115.3 million , compared to$98.8 million for the six months endedJune 30, 2021 . The net increase of$16.4 million was primarily due to: (i) a decrease in accounts payable and accrued expenses of$15.1 million in the six months endedJune 30, 2022 , compared to a decrease of$37.7 million in the six months endedJune 30, 2021 , mainly due to timing of payments to our supplier and construction of power plants. The increase was partially offset by (i) an increase in receivables of$0.6 million in the six months endedJune 30, 2022 , compared to a decrease of$9.9 million in the six months endedJune 30, 2021 , as a result of the timing of collection from our customers and (ii) a net increase of$0.6 million in costs and estimated earnings in excess of billings on uncompleted contracts, in the six months endedJune 30, 2022 , compared to a net decrease of$13.0 million in the six months endedJune 30, 2021 , as a result of timing of billing to our customers. 55
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Net cash used in investing activities for the six months endedJune 30, 2022 was$225.0 million , compared to$254.5 million for the six months endedJune 30, 2021 . The principal factors that affected our net cash used in investing activities during the six months endedJune 30, 2022 were : capital expenditures of$263.4 million , primarily for our facilities under construction that support our growth plan, net of proceeds received from sales and maturities of marketable securities. The principal factors that affected our net cash used in investing activities during the six months endedJune 30, 2021 were: (i) capital expenditures of$207.9 million , primarily for our facilities under construction that support our growth plan; and (ii) purchase of marketable securities of$47.6 million . Net cash provided by financing activities for the six months endedJune 30, 2022 was$123.0 million , compared to net cash used in financing activities of$51.0 million for the six months endedJune 30, 2021 . The principal factors that affected the net cash provided by financing activities during the six months endedJune 30, 2022 were: (i) net proceeds of$420.4 million and$75.0 million from issuance of convertible notes and the Mizrahi Loan, respectively, primarily offset by: (i) prepayment of Series 3 Bonds in the amount of$219.1 million ; (ii) repayment of long-term debt in the amount of$96.9 million ; (iii) a$13.5 million cash dividend payment; (iv) purchase of capped call instruments in the amount of$24.5 million ; (v) purchase of treasury stock in the amount of$18.0 million , and (vi)$3.9 million cash paid to a noncontrolling interest. The principal factors that affected our net cash provided by financing activities during the six months endedJune 30, 2021 were: (i) the repayment of long-term debt in the amount of $$36.5 million; and (ii) a$13.2 million cash dividend paid.
Non-GAAP Measures: EBITDA and Adjusted EBITDA
We calculate EBITDA as net income before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for (i) mark-to-market gains or losses from accounting for derivatives, (ii) stock-based compensation, (iii) merger and acquisition transaction costs, (iv) gain or loss from extinguishment of liabilities, and (v) other unusual or non-recurring items. We adjust for these factors as they may be non-cash, unusual in nature and/or are not factors used by management for evaluating operating performance. We believe that presentation of these measures will enhance an investor's ability to evaluate its financial and operating performance. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted inthe United States , orU.S. GAAP, and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net earnings as indicators of our operating performance or any other measures of performance derived in accordance withU.S. GAAP. Our Board of Directors and senior management use EBITDA and Adjusted EBITDA to evaluate our financial performance. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. Net income for the three and six months endedJune 30, 2022 was$14.9 million and$37.7 million , compared to$15.2 million and$33.0 million , for the three and six months endedJune 30, 2021 respectively.
Adjusted EBITDA for the three and six months ended
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The following table reconciles net income to EBITDA and Adjusted EBITDA for the
three and six months period ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(Dollars in thousands) (Dollars in thousands)
Net income $ 14,945 $ 15,195 $ 37,738 $ 33,024
Adjusted for:
Interest expense, net (including
amortization of deferred financing
costs) 20,239 17,818 40,978 36,571
Income tax provision (benefit) 6,130 4,268 16,293 7,275
Adjustment to investment in an
unconsolidated company: our
proportionate share in interest expense,
tax and depreciation and amortization in
Sarulla 4,167 2,899 6,291 5,364
Depreciation and amortization 47,334 42,126 94,103 82,955
EBITDA $ 92,815 $ 82,306 $ 195,403 $ 165,189
Mark-to-market (gains) or losses from
accounting for derivative 3,634 (990 ) 3,911 1,096
Stock-based compensation 2,999 2,623 5,813 4,720
Make-whole premium related to long-term
debt prepayment 1,102 - 1,102 -
Reversal of a contingent liability - - - (418 )
Allowance for bad debts - - 115 2,980
Hedge losses resulting from February
power crisis in Texas - - - 9,133
Write-off related to Storage projects
and activity 128 - 1,953 -
Merger and acquisition transaction costs - 474 249 958
Other write-off - 134 - 134
Adjusted EBITDA $ 100,678 $ 84,547 $ 208,546 $ 183,792
In May 2014 , the Sarulla consortium closed $1,170 million in financing through
SOL. As of June 30, 2022 , the SOL credit facility had an outstanding balance of
$907.4 million . Our proportionate share in the SOL credit facility is $115.7
million . In March 2022 , the last calculation period, Sarulla was able to meet
its historical debt service coverage ratio under the credit facility agreement
notwithstanding the lower performance of the power plants, however the
consortium expects that part of the EPRG premium due in September 2022 will be
paid on March 2023 . During the second quarter of 2022, Sarulla agreed with its
banks on a framework that will enable it to perform remediation work that is
aimed to restore the plant's performance, however, uncertainty remains regarding
Sarulla's ability to meet the plan and we are evaluating the impact of the plan
on future performance.
Capital Expenditures
Our capital expenditures primarily relate to: (i) the development and construction of new power plants, (ii) the enhancement of our existing power plants; and (iii) investment in activities under our strategic plan.
The following is an overview of projects that are fully released for construction.
Heber Complex (California ). We are currently in the process of repowering theHeber 1 andHeber 2 power plants. We are planning to replace the steam turbine and old OEC units with new advanced technology equipment that will add a net capacity of 11 MW. Following these enhancements, we expect the capacity of the complex to reach 92 MW. Permitting ofHeber 1 is ongoing and construction ofHeber 2 is underway. We expect commercial operation ofHeber 2 repowering at the second half of 2022 andHeber 1 repowering in the first half of 2023. CD 4 Project (California ). InJuly 2022 , we completed the construction of the CD4 30 MW project at the Mammoth complex. We started to sell the electricity generated under the three PPAs with two local CCAs and with SCPPA.Wister Solar (California ). InJuly 2022 , we completed the construction of the 20MW AC Wister solar PV project located on the Wister site in California.We are currently awaiting CAISO approval for COD. Following the approval we plan to sell the electricity generated under the PPA withSan Diego Gas & Electric . 57
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Dixie Meadows (Nevada ). We are developing the 12 MW Dixie Meadows geothermal power plant inNevada . Construction commenced but has been temporarily paused byOrmat as it works collaboratively through theESA consultation processwith the relevant regulatory agencies. For more information, see Note 10 to the unaudited condensed consolidated financial statements contained in this quarterly report. Steamboat Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our geothermal Steamboat complex inNevada . The project is expected to generate approximately 10 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Construction of the first 5 MW is completed and engineering and procurement for the second 5 MW are ongoing. We expect commercial operation of the second 5 MW in the first half of 2023. Zunil Upgrade (Guatemala ). We are expanding the Zunil geothermal power plant inGuatemala to add 5 MW of additional capacity. We are planning to sell the electricity generated under the existing PPA with the local utility, Instituto Nacional de Electrification or "INDE". Construction has been completed and drilling is still ongoing. Commercial operation is expected in the first half of 2023. North Valley (Nevada ). We are developing the 25MW North Valley geothermal power plant inNevada . We recently signed a long term PPA with NV Energy.Construction is ongoing and commercial operation is expected in H1 2023. Tungsten Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our Tungsten geothermal power plant inNevada . The project is expected to generate approximately 5 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Construction is ongoing and we expect commercial operation in 2022.Brady Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our Brady geothermal complex inNevada . The project is expected to generate approximately 6 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Engineering and procurement are ongoing. We expect commercial operation in Q1 2023. North Valley Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our North Valley geothermal power plant inNevada . The project is expected to generate approximately 7 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Engineering and procurement are ongoing. We expect commercial operation in the first quarter of 2023. Beowawe Upgrade (Nevada ). We are currently in the process of upgrading theBeowawe project that we recently acquired. We are planning to replace the old equipment with new advanced technology equipment that will add a net capacity of 9 MW. Engineering and procurement is ongoing and we expect commercial operation of 5MW in the second half of 2023 and the rest in 2024.
In addition, we are in the process of repowering Ormesa,
Project Name Size Location Customer Expected COD Upton 25MW/25MWh TX ERCOT Q3 2022 Andover 20MW/20MWh NJ PJM Q4 2022 Howell 6.5MW/6.5MWh NJ PJM Q4 2022 Bowling Green 12MW/12MWh OH PJM Q3 2022
Q2 2023
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The following is an overview of projects that are in initial stages of construction:
Carson Lake Project . We plan to develop between 10 MW to 15 MW at the Carson Lake project on BLM leases located inChurchill County, Nevada . We signed a Small Generator Interconnection Agreement with NV Energy inDecember 2017 . As ofJune 30, 2022 , we are planning to begin the drilling activity next year. We have budgeted approximately$550.0 million in capital expenditures for construction of new projects and enhancements to our existing power plants, of which we had invested$279.0 million as ofJune 30, 2022 . We expect to invest approximately$132.0 million in the rest of 2022 and the remaining approximately$139.0 million thereafter. In addition, we estimate approximately$122.0 million in additional capital expenditures in 2022 to be allocated as follows: (i) approximately$42.0 million for the exploration, drilling and development of new projects and enhancements of existing power plants that are not yet released for full construction; (ii) approximately$25.0 million for maintenance capital expenditures for our operating power plants; (iii) approximately$51.0 million for the construction and development of energy storage projects; and (iv) approximately$4.0 million for enhancements to our production facilities.
In the aggregate, we estimate our total capital expenditures for the last two
quarters of 2022 to be approximately
Exposure to Market Risks Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans. However, the cost of obtaining financing for our project needs may increase significantly or such financing may be difficult to obtain. We, like other power plant operators, are exposed to electricity price volatility risk. Our exposure to such market risk is currently limited because the majority of our long-term PPAs have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. Our energy storage projects sell primarily on a "merchant" basis and are exposed to changes in the electricity market prices. The energy payments under the PPAs of theHeber 2 power plant in theHeber Complex are determined by reference to the relevant power purchaser's short run avoided cost. A decline in the price of natural gas will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from natural gas, or by reducing the price of purchasing its electrical energy needs from natural gas power plants, which in turn will reduce the energy payments that we may charge under the relevant PPA for these power plants.The Puna Complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for thePuna Complex . For bothHeber 2 and Puna power plants we signed a new PPA with fixed energy rates, as discussed above. As ofJune 30, 2022 , 98.5% of our consolidated long-term debt was fixed rate debt and therefore was not subject to interest rate volatility risk and 1.5% of our long-term debt was floating rate debt, exposing us to interest rate risk in connection therewith. As ofJune 30, 2022 ,$30.7 million of our long-term debt was subject to interest rate risk.
We currently maintain our surplus cash in short-term, interest-bearing bank
deposits, money market funds, corporate bonds and commercial paper (with a
minimum investment grade rating of A+ by
Our cash equivalents are subject to interest rate risk. Fixed rate securities
may have their market value adversely impacted by a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. As a result of these factors, our future investment income may fall
short of expectations because of changes in interest rates or we may suffer
losses in principal if we are forced to sell securities that decline in market
value because of changes in interest rates.
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We are also exposed to foreign currency exchange risk, in particular the fluctuation of theU.S. dollar versus the New Israeli Shekels ("NIS") inIsrael and the Euro. Risks attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary's ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary, or increase such subsidiary's overall expenses. InKenya , the tax asset is recorded inKenyan Shillings ("KES") similar to the tax liability, however any change in the exchange rate in the KES versus theU.S. dollar has an impact on our financial results. Risks attributable to fluctuations in foreign currency exchange rates can also arise when the currency denomination of a particular contract is not theU.S. dollar. Substantially all of our PPAs in the international markets are eitherU.S. dollar-denominated or linked to theU.S. dollar except for our operations onGuadeloupe , where we own and operate the Boulliante power plant which sells its power under a Euro-denominated PPA with Électricité deFrance S.A. Our construction contracts from time to time contemplate costs which are incurred in local currencies. The way we often mitigate such risk is to receive part of the proceeds from the contract in the currency in which the expenses are incurred. Currently, we have forward and cross-currency swap contracts in place to reduce our NIS/U.S. dollar currency exposure and expect to continue to use currency exchange and other derivative instruments to the extent we deem such instruments to be the appropriate tool for managing such exposure. OnJuly 1, 2020 , we concluded an auction tender and accepted subscriptions for senior unsecured bonds comprised ofNIS 1.0 billion aggregate principal amount (the "Senior Unsecured Bonds - Series 4"). The Senior Unsecured Bonds - Series 4 were issued in NIS and converted to approximately$290 million using a cross-currency swap transaction shortly after the completion of such issuance. We performed a sensitivity analysis on the fair values of our long-term debt obligations, and foreign currency exchange forward contracts. The foreign currency exchange forward contracts listed below principally relate to trading activities. The sensitivity analysis involved increasing and decreasing forward rates atJune 30, 2022 andDecember 31, 2021 by a hypothetical 10% and calculating the resulting change in the fair values. At this time, the development of our strategic plan has not exposed us to any additional market risk. However, as the implementation of the plan progresses, we may be exposed to additional or different market risks.
The results of the sensitivity analysis calculations as of
Assuming a Assuming a
10% Increase in Rates 10% Decrease in Rates
December December 31 ,
Risk June 30, 2022 31, 2021 June 30, 2022 2021 Change in the Fair Value of
(Dollars in thousands)
Foreign Currency Forward
Foreign Currency
$ 3,324 Contracts Interest Rate (922 ) - 939 - Mizrahi Loan Interest Rate (1,549 ) (1,131 ) 1,586 1,148 Hapoalim Loan Interest Rate (655 ) (557 ) 670 566 HSBC Loan Interest Rate (1,400 ) (1,119 ) 1,436 1,131 Discount Loan Interest Rate (4,125 ) (3,394 ) 4,252 3,465 Financing Liability Interest Rate (3,790 ) (3,069 ) 3,927 3,146 OFC 2 Senior Secured Notes Interest Rate (3,344 ) (2,946 ) 3,462 3,025 DFC Loan Interest Rate (252 ) (226 ) 258 231 Amatitlan Loan Interest Rate (3,774 ) (3,833 ) 3,843 3,880 Senior Unsecured Bonds Interest Rate (566 ) (494 ) 583 505 DEG 2 Loan Interest Rate (1,561 ) (1,286 ) 1,628 1,324 DAC 1 Senior Secured Notes Migdal Loan and the Additional Migdal Loan and the Second Interest Rate. (3,939 ) (3,135 ) 4,074 3,214 Addendum Migdal Loan Interest Rate (1,005 ) (920 ) 1,068 965 San Emidio Loan Interest Rate (744 ) (539 ) 769 550 DOE Loan Interest Rate (66 ) (88 ) 67 89 Idaho Holdings Loan Interest Rate (2,297 ) (2,035 ) 2,394 2,100 Platanares DFC Loan Interest Rate (463 ) (389 ) 476 397 DEG 3 Loan Interest Rate (146 ) (121 ) 148 123 Plumstriker Loan Interest Rate (89 ) (81 ) 90 82 Other long-term loans InJuly 2019 , theUnited Kingdom's Financial Conduct Authority (the "FCA"), which regulates LIBOR (London Interbank Offered Rate), announced that it intends to phase out LIBOR. LIBOR is still in use and being published until its phaseout inJune 2023 in order to allow a transition period mainly for contracts that already exist using LIBOR. Additionally, theFCA has stated that no new contracts usingU.S. dollar LIBOR should be entered into afterDecember 31, 2021 . TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, is considering replacingU.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed byTreasury securities ("SOFR"). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it would not take into account bank credit risk (as is the case with LIBOR). Therefore, the SOFR rate, if adopted, would likely be lower than LIBOR rates and is less likely to correlate with the funding costs of financial institutions.
We have evaluated the impact of the transition from LIBOR, and currently believe that the transition will not have a material impact on our consolidated financial statements.
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Table of Contents Effect of Inflation We are seeing an increase in overall operating and other costs as the result of higher inflation rates, in particular inthe United States . In addition, we are experiencing an increase in raw material cost and supply chain delays, which may put pressure on our operating margins in the Product segment and increase our cost to build our own power plants and energy storage assets. To address the possibility of rising inflation, some of our contracts include certain provisions that mitigate inflation risk. In connection with the Electricity segment, none of ourU.S. PPAs, including the SCPPA Portfolio PPA, are directly linked to the Consumer Price Index ("CPI"). Inflation may directly impact an expense we incur for the operation of our projects, thereby increasing our overall operating costs and reducing our profit and gross margin. The negative impact of inflation would be partially offset by price adjustments built into some of our PPAs that could be triggered upon such occurrences. In addition to theHeber 2 and part of the Puna rates that are impacted by higher commodity prices, the energy payments pursuant to our PPAs for some of our power plants such as the Brady power plant, the Steamboat 2 and 3 power plants and theMcGinness Complex increase every year through the end of the relevant terms of such agreements, although such increases are not directly linked to the CPI or any other inflationary index. Lease payments are generally fixed, while royalty payments are generally calculated as a percentage of revenues and therefore are not significantly impacted by inflation. In our Product segment, inflation may directly impact fixed and variable costs incurred in the construction of third party power plants, thereby lowering our profit margins at the Product segment. We are more likely to be able to offset long term, all or part of this inflationary impact through our project pricing. With respect to power plants that we build for our own electricity production, inflationary pricing may impact our operating costs which may be partially offset in the pricing of the new long-term PPAs that we negotiate.
Contractual Obligations and Commercial Commitments
We have various contractual obligations, which are recorded as liabilities in our consolidated condensed financial statements. Other items are not recognized as liabilities in our consolidated condensed financial statements but are required to be disclosed. There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our 2021 Annual Report. Concentration of Credit Risk Our credit risk is currently concentrated with the following major customers:Sierra Pacific Power Company andNevada Power Company (subsidiaries of NV Energy), SCPPA and KPLC. If any of these electric utilities fail to make payments under its PPAs with us, such failure would have a material adverse impact on our financial condition. Also, as we implement our multi-year strategic plan we may be exposed, by expanding our customer base, to different credit profile customers than our current customers.
The Company's revenues from its primary customers as a percentage of total revenues are as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Sierra Pacific Power Company and Nevada
Power Company 17.7 % 19.5 % 18.6 % 20.3 %
Southern California Public Power
Authority ("SCPPA") 21.3 % 25.5 % 21.6 % 25.2 %
Kenya Power and Lighting Co. Ltd.
("KPLC") 15.5 % 17.3 % 14.8 % 16.4 %
We have historically been able to collect on substantially all of our receivable
balances. As of June 30, 2022 , the amount overdue from KPLC in Kenya was $27.2
million of which $9.6 million was paid in July 2022 . In Honduras , as of June 30,
2022 , the total amount overdue from Empresa Nacional de Energía Eléctrica
("ENEE") was $21.4 million of which $0.9 million was paid in July 2022 In
addition, due to continuing restrictive measures related to the COVID-19
pandemic in Honduras , the Company may experience further delays in collection.
The Company believes it will be able to collect all past due amounts in
Honduras .
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Government Grants and Tax Benefits
A comprehensive discussion on government grants and tax benefits is included in
our 2021 Annual Report. There have been no material changes to this section
during the six months ended
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