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.
A summary of the risks that might 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 and REG power plants, 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 experience a cyber incident, cyber security breach, severe natural
event or physical attack on our operational networks and information
technology systems.
• 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 or economic instability and major
hostilities or acts of terrorism.
• 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.
• 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", 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.
• Our BLM leases may be terminated if we fail to comply with any of theprovisions of the Geothermal Steam Act or if we fail to comply with the terms
or stipulations of such leases.
• Some of our leases (or subleases) could terminate if the lessor (or sublessor)
under any such lease (or sublease) defaults on any debt secured by the
relevant property, thus terminating our rights to access the underlying
geothermal resources at that location.
• Reduced levels of recovered energy required for the operation of our REG power
plants may result in decreased performance of such power plants.
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• Our business development activities may not be successful and our projects
under construction may not commence operation as scheduled.
• Our future growth depends, in part, on the successful enhancement of a number
of our existing facilities.
• 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.
• Storage projects that we are currently operating, currently developing or plan
to develop in the future, may operate as "merchant" facilities without
long-term power services agreements for some or all of their generating
capacity and output 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.
• The power generation industry is characterized by intense competition.
• We face increasing competition from other companies engaged in energy storage
and the combination of solar and energy storage.
• 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.
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 in obtaining and maintaining 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.
• Current and future urbanizing activities and related residential, commercial,
and industrial developments may encroach on or limit geothermal or solar PV
activities in the areas of our power plants, thereby affecting our ability to
utilize access, inject and/or transport geothermal resources on or underneath
the affected surface areas.
•
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.
• 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.
• We may experience fluctuations in the cost of construction, raw materials,
commodities and drilling.
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Table of Contents • 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.
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.
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 report and the "Risk
Factors" section of our Annual Report on Form 10-K for the year ended December
31, 2020 (the "2020 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").
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Table of Contents General Overview We are a leading vertically integrated company that is primarily engaged in the geothermal and recovered energy power businesses. We leveraged our core capabilities and global presence to expand our activity into different energy storage services and solar photovoltaic (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 89.8% of
our total revenues in the three months ended
build, own and operate geothermal, solar PV and recovered energy-based power
plants in
around the world and sell the electricity they generate. In the three months
ended
from our operations in
• Product Segment. In the Product segment, which contributed 6.6% of our total
revenues in the three months ended
and 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
derived 14.6% of our Product segment revenues from our operations in the
United States and 85.4% from the rest of the world.
• Energy Storage Segment. In the Energy Storage segment, which contributed 3.6%
of our total revenues in the three months ended
provide energy storage related services as well as services relating to the
engineering, procurement, construction, operation and maintenance of energy
storage units. 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 storage facilities, recovered energy generation and Solar PV power plants inthe United States . We continue to examine a range of potential acquisitions and investments around the world as part of our growth strategy. Our most recent acquisition was theTG Geothermal Portfolio, LLC (a subsidiary ofTerra-Gen, LLC ) that owns two contracted geothermal assets inNevada with a total net generating capacity of 67.5 MW, a greenfield development asset inNevada , and an underutilized transmission line. We paid approximately$171.0 million in cash (excluding working capital and assumed cash of approximately$10.8 million ) for 100% of the equity interests in the entities holding those assets and assumed a finance obligation of$206 million that was recognized at its fair value of$258.0 million at acquisition-date. 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 report, the Company has implemented significant measures in order to meet government requirements and preserve the health and safety of its employees, including by working remotely when needed and adopting separate shifts from time to time in its power plants, manufacturing facilities and other locations while at the same time trying to continue operations at close to full capacity in all locations. Since the end of the second quarter of 2021, the Company has experienced an easing of government restrictions in a number of countries, including inIsrael , but uncertainty around the impact of COVID-19 continues. With respect to its employees, the Company has not laid-off or furloughed any employees due to COVID-19 and has continued to pay full salaries.
We 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, we are still experiencing curtailments in
the first nine months of 2021 by KPLC in the Olkaria complex. The impact of
the curtailments is limited because the structure of the PPA secures the vast
majority of revenues with fixed capacity payments unrelated to the electricity
actually generated (in the nine months ended
capacity payments represented 74.5% and 71.8% of
respectively). In addition, our future growth in the Electricity segment is
and would be adversely impacted by significant delays we are experiencing in
receiving the required development and construction permits, as well as by the
implications of global and local restrictions on our ability to procure raw
materials, increase raw materials prices and to ship our products.
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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. We experienced delays
and significant cost increases in one of the projects in the Product segment
that adversely impacted our results of operations during the nine months ended
3, 2021, which includes revenue recognition for the period between
2021 and
We believe that our backlog was impacted by the COVID-19 pandemic and the
unwillingness of potential customers to enter into new commitments at this
time.
• 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 is directly impacted by
the prevailing market prices for energy and/or ancillary services.
• 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. We have also experienced an increase in raw material costs as well
as shipping costs, which may put pressure on our operating margins in the
Product segment and increase the costs of building our own power plants.
Despite our efforts to provide insight into the performance of our business and the trends affecting it, as of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. We may continue to become subject to any of the following impacts:
• limitations on the ability of our suppliers to obtain raw materials that are
required for the manufacturing of the products we either sell to third parties
or build for ourselves or to meet delivery requirements and commitments that
may result in penalty payments;
• impact on our efforts to sign new contracts for our Product segment due to
operational and travel restrictions and availability of our customers and
their willingness to enter into new agreements;
• limitations on the ability of our customers to pay us on a timely basis;
• declarations of COVID-19 as force majeure by our customers and suppliers;
• a reduction in the demand for electricity and for our products;
• change in regulations, taxes and levies that may affect our operations and
cost structure;
• risk of infection among employees that may impact the day-to-day operations;
• significant delays in obtaining the required permits that create penalties
and may impact our ability to implement our growth plan;
• Increase in raw materials; and
• limited ability to oversee remote operations due to travel restrictions.
Other Recent Developments
The most significant developments in our Company and business since
• The Puna power plant resumed operations in
quarter of 2021 operated at a stable level of 26 MW. The Company continues
reservoir study and improvement of existing wells to maximize long term
performance of the power plant. In 2019 we signed a new PPA with HELCO for our
Puna power plant. The new PPA, which is subject to
("PUC") approval, extends the term until 2052 with an increased contract
capacity of 46 MW and fixes the price with no escalation, regardless of
changes to fossil fuel pricing. On
suspending the request to approve the PPA application until an environmental
review is conducted on the proposed repowering, and ordered the parties to
renegotiate the PPA rates. HELCO and PGV have filed motions, which are
pending, for reconsideration of the order with the PUC. The existing PPA
remains in effect, with its current terms, until the expansion is completed
and the repowered plant reaches its Commercial Operation Date ("COD").
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• In
joint venture company, PT Toka Tindung Geothermal ("TTG") with PT Archi
companies in
explore the potential of geothermal energy prospects in the Bitung area of the
North Sulawesi region, especially within the Toka Tindung gold mine concession
area. Under the TTG shareholder agreement, subject to completion of certain
conditions,
25% shareholder interest.
• In
products for a 10 MW geothermal air-cooled
Polaris Infrastructure Inc. (TSX: PIF), a
operation, acquisition and development of renewable energy projects in Latin
America, for the
• In
agreement with Pacific Gas and Electric Company (PG&E) for the 20MW/40MWh
will be located adjacent to and will utilize existing infrastructure from the
operating
facility will provide 10MW of Resource Adequacy to PG&E and will also
participate in the energy and ancillary services markets run by the
we will undertake the EPC of this project and expect the project to begin
commercial operation by October 2022 .
• In
subsidiary of
working capital and assumed cash of approximately
the equity interests in entities holding the below described assets and
assumed debt and associated lease obligation with a fair value of
approximately
operating geothermal power plants in
Valley geothermal power plant, one of the largest geothermal power plants in
to
high resource potential, and an underutilized transmission line, capable of
handling between 300MW and 400MW of 230KV electricity, connecting
to California .
• In
PPAs entered into between various independent power producers and KPLC,
including
received a letter from the
to various questions and to provide materials regarding our Olkaria complex
operation and its PPA. In
report from the appointed task force, which recommended to KPLC to review and
renegotiate with Independent Power Producers to secure immediate reduction in
PPA tariffs within existing contractual arrangements.
• In
(PPA) with the
electricity provider in
renewable energy to customers in the nation. Under terms of the agreement,
effective
from
The PPA replaces the original PPA with
Authority ("SCPPA"), which had a shorter remaining duration and was subject to
an early termination option. This is
the potential for additional agreements in the future as CPA pursues
aggressive goals to provide renewable energy to southern California .
• In
Hills Phase 3 geothermal power plant in
completed in May, 2021, increases the power plant net capacity by 15 MW,
bringing the entire
McGinness Hills Phase 3 power plant continues to sell its electricity under
the current 25-year long term portfolio power purchase agreement with SCPPA.
• In
Vallecito Battery Energy Storage System ("Vallecito BESS"). The Vallecito BESS
provides local resource adequacy to Southern California Edison ("SCE") under a
20-year energy storage resource adequacy agreement. In addition, the facility
will provide ancillary services and energy optimization through participation
in merchant markets run by the CAISO.
• In
independent directors to investigate, among other things, certain claims made
in a report published by a short seller regarding the Company's compliance
with anti-corruption laws. The Special Committee is working with outside legal
counsel to investigate the claims made. All members of the Special Committee
are "independent" in accordance with our Corporate Governance Guidelines, the
NYSE listing standards and
general. We are also providing information as requested by the
related to the claims.
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• In
20 MW/20MWh
are located in
targeting commercial operation in the first half of 2022.
• In February 2021 , extreme weather conditions in Texas resulted in asignificant increase in demand for electricity on the one hand and a decrease
in electricity supply in the region on the other hand. On
the
Emergency Alert Level 3 ("EEA 3") prompting rotating outages in
ultimately led to a significant increase in the Responsive Reserve Service
("RRS") market prices, where the Company operates its Rabbit Hill battery
energy storage facility which provides ancillary services and energy
optimization to the wholesale markets managed by
supply shortage,
from
the Rabbit Hill storage facility to provide RRS. As a result, the Company
incurred losses of approximately
from a hedge transaction in relation to its inability to provide RRS during
that period. Starting
facility resumed operation at full capacity. In addition, the Company recorded
a provision for approximately
imbalance charges from the grid operator in respect of its demand response
operation as it estimated it is probable it may be unable to collect such
receivables. The provision for uncollectible receivables is included in
"General and administrative expenses" in the condensed consolidated statements
of operations and comprehensive income for the first quarter of 2021. The
Company is currently in discussions with
imbalance charges and revenue allocated to its Demand Response services and
customers, the outcome of which may impact the final amount.
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 2020 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 report. These
trends, factors and uncertainties are, from time to time, also subject to market
cycles.
Revenues
For the nine months ended September 30, 2021 , 89.9% 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
the Heber Complex change primarily based on fluctuations in natural gas
prices.
• The prices paid for electricity pursuant to the 25 MW PPA for the
in
well as other commodities. In 2019, we signed a new PPA related to Puna with
fixed prices, increased capacity and extended the term until 2052. The PUC
suspended the approval of the PPA, as discussed above.
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.
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Revenues attributable to our Energy Storage segment are generated by several
grid-connected battery energy storage system ("BESS")facilities that we own and
operate from selling energy, capacity and/or ancillary services in merchant
markets like PJM Interconnect, ISO New England , the 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.
The following table sets forth a breakdown of our revenues for the periods
indicated:
Revenue Increase (decrease)
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020 2021 2021
Revenues:
Electricity $ 142,651 $ 123,660 $ 421,503 $ 395,201 $ 18,991 15.4 % $ 26,302 6.7 %
Product 10,527 29,625 26,580 120,737 (19,098 ) (64.5 )% (94,157 ) (78.0 )%
Energy storage 5,664 5,662 24,012 10,022 2 - % 13,990 139.6 %
Total $ 158,842 $ 158,947 $ 472,095 $ 525,960 $ (105 ) (0.1 )% $ (53,865 ) (10.2 )%
% of Revenues for Period Indicated
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Electricity 89.8 % 77.8 % 89.3 % 75.1 %
Product 6.6 18.6 5.6 23.0
Energy storage 3.6 3.6 5.1 1.9
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 Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020 2021 2021
(Dollars in thousands) (Dollars in thousands)
Electricity
Segment:
United States $ 98,551 $ 73,180 $ 285,090 $ 245,299 $ 25,371 34.7 % $ 39,791 16.2 %
Foreign 44,101 50,480 136,413 149,902 (6,379 ) (12.6 ) (13,489 ) (9.0 )
Total $ 142,652 $ 123,660 $ 421,503 $ 395,201 $ 18,992 15.4 % $ 26,302 6.7 %
Product Segment:
United States $ 1,541 $ 435 $ 4,041 $ 1,412 $ 1,106 254.3 % $ 2,629 186.2 %
Foreign 8,986 29,190 22,539 119,325 (20,204 ) (69.2 ) (96,786 ) (81.1 )
Total $ 10,527 $ 29,625 $ 26,580 $ 120,737 $ (19,098 ) (64.5 )% $ (94,157 ) (78.0 )%
Energy Storage
Segment:
United States $ 5,664 $ 5,662 $ 24,012 $ 10,022 $ 2 0.0 % $ 13,990 139.6 %
Total $ 5,664 $ 5,662 $ 24,012 $ 10,022 $ 2 0.0 % $ 13,990 139.6 %
% of Revenues for Period Indicated
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020Electricity Segment: United States 69.1 % 59.2 % 67.6 % 62.1 % Foreign 30.9 40.8 32.4 37.9 Total 100.0 % 100.0 % 100.0 % 100.0 % Product Segment: United States 14.6 % 1.5 % 15.2 % 1.2 % Foreign 85.4 98.5 84.8 98.8 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 nine months endedSeptember 30, 2021 and 2020, 34% and 51% of our total revenues were derived from foreign locations, respectively, and our foreign operations had higher gross margins than ourU.S. operations in each of those periods. A substantial portion of international revenues came fromKenya and, to a lesser extent, fromHonduras ,Guadeloupe andGuatemala 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. Our Electricity segment domestic revenues were approximately 68% and 62% of our total Electricity segment for the nine months endedSeptember 30, 2021 and 2020, respectively. However, domestic operations have higher cost of revenues and expenses than our foreign operations. Our foreign power plants are located in lower-cost regions, likeKenya ,Guatemala ,Honduras andGuadeloupe , which favorably impacts 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 nine months endedSeptember 30, 2021 and 2020, our Electricity segment foreign operations accounted for 47% and 53% of our total gross profits, 72% and 71% of our net income (assuming the majority of corporate operating expenses and financing are recorded under domestic jurisdiction) and 47% and 45% of our EBITDA, respectively. However, financing costs related to the foreign projects are higher than financing costs related to our domestic activity. 39
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Product Segment. Our Product segment foreign revenues were approximately 85% and 99% of our total Product segment revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Our Product segment foreign activity also benefits from lower costs of revenues and expenses than Product segment domestic activity such as labor and transportation costs. Accordingly, our Product segment foreign activity contributes more than our Product segment domestic activity to our pre-tax income from operations. 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 the prices under many of our contracts are fixed throughout the year with no time-of-use impact. The prices paid for electricity under the PPAs for theHeber 2 power plant in theHeber Complex , theMammoth Complex and theNorth Brawley power plant inCalifornia , theRaft River power plant inIdaho , theNeal Hot Springs power plant inOregon and the recent 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 attributable to a higher ambient temperature. 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 2020 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 the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in our 2020 Annual Report. 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 Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (Dollars in thousands, (Dollars in thousands, except per share data) except per share data) Statements of Operations Historical Data: Revenues: Electricity$ 142,651 $ 123,660 $ 421,503 $ 395,201 Product 10,527 29,625 26,580 120,737 Energy storage 5,664 5,662 24,012 10,022 Total Revenues 158,842 158,947 472,095 525,960 Cost of revenues: Electricity 81,549 76,670 245,136 219,988 Product 9,182 24,037 23,180 95,724 Energy storage 4,971 4,210 15,017 9,014 Total cost of revenues 95,702 104,917 283,333 324,726 Gross profit Electricity 61,102 46,990 176,367 175,213 Product 1,345 5,588 3,400 25,013 Energy storage 693 1,452 8,995 1,008 Total gross profit 63,140 54,030 188,762 201,234 Operating expenses: Research and development expenses 1,175 1,490 3,179 4,281 Selling and marketing expenses 2,671 4,076 10,935 13,724 General and administrative expenses 23,554 14,539 60,400 43,154 Business interruption insurance income (248 ) (17,761 ) (248 ) (20,743 ) Operating income 35,988 51,686 114,496 160,818 Other income (expense): Interest income 519 626 1,590 1,469 Interest expense, net (22,230 ) (21,756 ) (59,872 ) (58,814 ) Derivatives and foreign currency transaction gains (losses) (21 ) 1,047 (16,229 ) 2,111 Income attributable to sale of tax benefits 7,879 7,014 21,654 16,818 Other non-operating income (expense), net 44 961 (308 ) 1,343 Income from operations before income tax and equity in earnings (losses) of investees 22,179 39,578 61,331 123,745 Income tax provision (2,048 ) (15,361 ) (9,323 ) (45,275 ) Equity in earnings (losses) of investees, net 649 (1,119 ) 1,796 (196 ) Net income 20,780 23,098 53,804 78,274 Net income attributable to noncontrolling interest (5,878 ) (7,419 ) (10,617 ) (13,516 ) Net income attributable to the Company's stockholders$ 14,902 $ 15,679
Earnings per share attributable to the Company's stockholders: Basic:$ 0.27 $ 0.31 $ 0.77 $ 1.27 Diluted:$ 0.26 $ 0.31 $ 0.77 $ 1.26 Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders: Basic 56,003 51,072 55,995 51,051 Diluted$ 56,298 $ 51,282 $ 56,413 $ 51,386 41
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Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Statements of Operations Data:
Revenues:
Electricity 89.8 % 77.8 % 89.3 % 75.1 %
Product 6.6 18.6 5.6 23.0
Energy storage 3.6 3.6 5.1 1.9
Total Revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Electricity 57.2 62.0 58.2 55.7
Product 87.2 81.1 87.2 79.3
Energy storage 87.8 74.4 62.5 89.9
Total cost of revenues 60.2 66.0 60.0 61.7
Gross profit
Electricity 42.8 38.0 41.8 44.3
Product 12.8 18.9 12.8 20.7
Energy storage 12.2 25.6 37.5 10.1
Total gross profit 39.8 34.0 40.0 38.3
Operating expenses:
Research and development expenses 0.7 0.9 0.7 0.8
Selling and marketing expenses 1.7 2.6 2.3 2.6
General and administrative expenses 14.8 9.1 12.8 8.2
Business interruption insurance income (0.2 ) (11.2 ) (0.1 ) (3.9 )
Operating income 22.7 32.5 24.3 30.6
Other income (expense):
Interest income 0.3 0.4 0.3 0.3
Interest expense, net (14.0 ) (13.7 ) (12.7 ) (11.2 )
Derivatives and foreign currency
transaction gains (losses) 0.0 0.7 (3.4 ) 0.4
Income attributable to sale of tax
benefits 5.0 4.4 4.6 3.2
Other non-operating income (expense),
net 0.0 0.6 (0.1 ) 0.3
Income from operations before income tax
and equity in earnings (losses) of
investees 14.0 24.9 13.0 23.5
Income tax provision (1.3 ) (9.7 ) (2.0 ) (8.6 )
Equity in earnings (losses) of
investees, net 0.4 (0.7 ) 0.4 0.0
Net income 13.1 14.5 11.4 14.9
Net income attributable to
noncontrolling interest (3.7 ) (4.7 ) (2.2 ) (2.6 )
Net income attributable to the Company's
stockholders 9.4 % 9.9 % 9.1 % 12.3 %
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Comparison of the Three Months EndedSeptember 30, 2021 to the Three Months EndedSeptember 30, 2020 Total Revenues Three Months Ended September 30, 2021 2020 Change (Dollars in millions) Electricity segment $ 142.7 $ 123.7 15.4 % Product segment 10.5 29.6 (64.5 ) Energy Storage segment 5.7 5.7 - Total revenues $ 158.8 $ 158.9 (0.1 )% Total revenues for the three months endedSeptember 30, 2021 were$158.8 million , compared to$158.9 million for the three months endedSeptember 30, 2020 , which represented a 0.1% decrease from the prior year period. This decrease was attributable to a$19.1 million , or 64.5%, decrease in our Product segment revenues compared to the corresponding period in 2020, offset partially by a$19.0 million , or 15.4% increase in Electricity segment revenues compared to the corresponding period in 2020, all as discussed below. Electricity Segment Revenues attributable to our Electricity segment for the three months endedSeptember 30, 2021 were$142.7 million , compared to$123.7 million for the three months endedSeptember 30, 2020 . The increase in our Electricity segment revenues was mainly due to: (i) the consolidation ofDixie Valley andBeowawe power plants which were acquired onJuly 13, 2021 as part of theTG Geothermal Portfolio, LLC , acquisition, with revenues of$13.1 million and$1.3 million , respectively; (ii) the resumption of operations of the Puna power plant to 25 MW in the third quarter of 2020, and (iii) the expansion ofMcGinness Hills complex inMay 2021 , partially offset by a decrease in revenues from the Olkaria complex due to a combination of lower resource performance that caused a capacity reduction and continued curtailment by our local customer, KPLC and lower revenues at the Bouillante power plant due to resource performance. In addition, inBrawley we are experiencing a surface leak in one of the injection wells that reduced significantly the generation. The repair work atBrawley is still in process. Power generation in our power plants increased by 13.8% from 1,339,147 MWh in the three months endedSeptember 30, 2020 to 1,523,897 MWh in the three months endedSeptember 30, 2021 . Product Segment Revenues attributable to our Product segment for the three months endedSeptember 30, 2021 were$10.5 million , compared to$29.6 million for the three months endedSeptember 30, 2020 , which represented a 64.5% decrease. The decrease in our Product segment revenues was mainly due to slowdown in Products sales as a result of the COVID-19 pandemic, projects inTurkey ,New Zealand andChile , which started in 2019, and provided$21.3 million in revenue recognized during the three months endedSeptember 30, 2020 compared to$1.5 million in the three months endedSeptember 30, 2021 , and projects inTurkey , which started in 2020, and provided$3.4 million in revenue recognized during the three months endedSeptember 30, 2020 compared to nil in the three months endedSeptember 30, 2021 . Energy Storage Segment
Revenues attributable to our Energy Storage segment for the three months ended
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Total Cost of Revenues
Three Months Ended September 30,
2021 2020 Change
(Dollars in millions)
Electricity segment $ 81.5 $ 76.7 6.4 %
Product segment 9.2 24.0 (61.8 )
Energy Storage segment 5.0 4.2 18.1
Total cost of revenues $ 95.7 $ 104.9 (8.8 )%
Total cost of revenues for the three months ended September 30, 2021 was $95.7
million , compared to $104.9 million for the three months ended September 30,
2020 , which represented a 8.8% decrease. This decrease was attributable to a
decrease of $14.9 million , or 61.8%, in cost of revenues from our Product
segment offset partially by an increase of $4.9 million , or 6.4%, in cost of
revenues from our Electricity segment, and an increase of $0.8 million , or
18.1%, in cost of revenues from our Energy Storage segment, all as discussed
below. As a percentage of total revenues, our total cost of revenues for the
three months ended September 30, 2021 decreased to 60.2% from 66.0% for the
three months ended September 30, 2020 .
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the three
months ended September 30, 2021 was $81.5 million , compared to $76.7 million for
the three months ended September 30, 2020 . This increase was primarily
attributable to: (i) the consolidation of Dixie Valley and Beowawe power plants
which was acquired on July 13, 2021 as part of the TG Geothermal Portfolio, LLC ,
acquisition, with cost of revenues of $6.4 million and $1.0 million ,
respectively; (ii) the resumption of operations of the Puna power plant to 26
MW, which was offset by business interruption insurance recovery of $15.5
million in the three months ended September 30, 2021 , compared to $2.6 million
in the three months ended September 30, 2020 . As a percentage of total
Electricity revenues, our total cost of revenues attributable to our Electricity
segment for the three months ended September 30, 2021 was 57.2%, compared to
62.0% for the three months ended September 30, 2020 . This decrease was primarily
attributable to the $15.5 million business interruption insurance recovery.
Excluding business interruption recovery, as a percentage of total Electricity
revenues, our total cost of revenues attributable to our Electricity segment for
the three months ended September 30, 2021 was 68.0%, compared to 64.1% for the
three months ended September 30, 2020 . The cost of revenues attributable to our
international power plants for the three months ended September 30, 2021 was 22%
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 September 30, 2021 was $9.2 million , compared to $24.0 million for the
three months ended September 30, 2020 , which represented a 61.8% decrease. This
decrease was primarily attributable to the decrease in Product segment revenues,
as discussed above. As a percentage of total Product segment revenues, our total
cost of revenues attributable to our Product segment for the three months ended
September 30, 2021 and 2020, was 87.2% and 81.1%, respectively.
Energy Storage Segment
Cost of revenues attributable to our Energy Storage segment for the three months
ended September 30, 2021 were $5.0 million compared to $4.2 million for the
three months ended September 30, 2020 . Cost of revenues attributable to our
Energy Storage segment for the three months ended September 30, 2021 includes
$1.7 million from the acquisition of the Pomona energy storage asset, in July
2020 , compared to $1.3 million for the three months ended September 30, 2020 .
The Energy Storage segment includes cost of revenues related to the delivery of
energy storage, demand response and energy management services.
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Research and Development Expenses, Net
Research and development expenses for the three months endedSeptember 30, 2021 were$1.2 million , compared to$1.5 million for the three months endedSeptember 30, 2020 .
Selling and Marketing Expenses
Selling and marketing expenses for the three months endedSeptember 30, 2021 were$2.7 million compared to$4.1 million for the three months endedSeptember 30, 2020 . The decrease was mainly due to a decrease in sales commissions as a result of the decrease in Product segment revenues. Selling and marketing expenses for the three months endedSeptember 30, 2021 constituted 1.7% of total revenues for such period, compared to 2.6% for the three months endedSeptember 30, 2020 .
General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2021 were$23.6 million compared to$14.5 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to$4.5 million of transaction costs, including$3.7 million related to theTG Geothermal Portfolio, LLC , acquisition, onJuly 13, 2021 and legal costs mainly associated with the investigation by the Special Committee. General and administrative expenses for the three months endedSeptember 30, 2021 constituted 14.8% of total revenues for such period, compared to 9.1% for the three months endedSeptember 30, 2020 .
Business Interruption Insurance Income
Business interruption insurance income for the three months endedSeptember 30, 2021 was$0.2 million compared to$17.8 million for the three months endedSeptember 30, 2020 . Business interruption insurance income for the three months endedSeptember 30, 2021 and 2020 are attributable to business interruption recovery proceeds relating to the Puna power plant. Interest Expense, Net Interest expense, net for the three months endedSeptember 30, 2021 was$22.2 million , compared to$21.8 million for the three months endedSeptember 30, 2020 . This increase was primarily due to a$0.5 million increase in interest expense primarily due to: (i)$290 million of proceeds from Bonds Series 4 received inJuly 2020 ; (ii)$125.0 million of proceeds from Bank Hapoalim Loan received inJuly 2021 ; (iii)$50.0 million of proceeds from HSBC Bank Loan received inJuly 2021 ; (iv)$259 million related to Finance Lease liability related to theTG Geothermal Portfolio, LLC , acquisition, in July, 2021; (v)$100.0 million of proceeds from Bank Discount Loan received inSeptember 2021 , and (vi) a$2.1 million increase in interest related to the sale of tax benefits, partially offset by a$1.9 million increase in interest capitalized to projects and lower interest expense as a result of principal payments of long term debt.
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction gains for the three months endedSeptember 30, 2021 were$0.0 million , compared to$1.0 million for the three months endedSeptember 30, 2020 . Derivatives and foreign currency transaction gains (losses) for the three months endedSeptember 30, 2021 includes gains 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 ended
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Other Non-Operating Income (Expense), Net
Other non-operating income for the three months endedSeptember 30, 2021 was nil, compared to$1.0 million for the three months endedSeptember 30, 2020 . Other non-operating income for the three months endedSeptember 30, 2020 , mainly includes$0.6 million of property damage recovery related to the Puna power plant. Income Taxes Income tax provision for the three months endedSeptember 30, 2021 was$2.0 million compared to income tax provision of$15.4 million for the three months endedSeptember 30, 2020 . Our effective tax rate for the three months endedSeptember 30, 2021 and 2020, was 9.2% and 38.8%, 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 earnings of investees, net for the three months endedSeptember 30, 2021 was$0.6 million , compared to equity in losses of$1.1 million for the three months endedSeptember 30, 2020 . 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 equity in losses for the three months endedSeptember 30, 2020 , was mainly due to failure of short term drilling campaign, SOl is currently evaluating the viability of a long term remediation plan to restore generation back to previous levels. We are following the remediation plans in Sarulla as well as the accounting impact and its implication on our financial statements on our investment in Sarulla.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the three months endedSeptember 30, 2021 was$14.9 million , compared to net income attributable to the Company's stockholders of$15.7 million for the three months endedSeptember 30, 2020 , which represents a decrease of$0.8 million . This decrease was attributable to the decrease of$2.3 million in net income which was affected by all the explanations above, partially offset by a decrease in net income attributable to non controlling interest mainly due to lower business interruption recovery of the Puna power plant inHawaii , in the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Comparison of the Nine Months EndedSeptember 30, 2021 to the Nine Months EndedSeptember 30, 2020 Total Revenues Nine Months Ended September 30, 2021 2020 Change (Dollars in millions) Electricity segment $ 421.5 $ 395.2 6.7 % Product segment 26.6 120.7 (78.0 ) Energy Storage segment 24.0 10.0 139.6 Total revenues $ 472.1 $ 526.0 (10.2 )% 46
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Total revenues for the nine months endedSeptember 30, 2021 were$472.1 million , compared to$526.0 million for the nine months endedSeptember 30, 2020 , which represented a 10.2% decrease from the prior year period. This decrease was attributable to a$94.2 million , or 78.0%, decrease in our Product segment revenues compared to the corresponding period in 2020, partially offset by a$26.3 million , or 6.7% increase in Electricity segment revenues and a$14.0 million , or 139.6% increase in Energy Storage segment revenues as compared to the corresponding period in 2020. Electricity Segment Revenues attributable to our Electricity segment for the nine months endedSeptember 30, 2021 were$421.5 million , compared to$395.2 million for the nine months endedSeptember 30, 2020 . The increase in our Electricity segment revenues was mainly due to: (i) the consolidation ofDixie Valley and Bewawe power plants which was acquired onJuly 13, 2021 as part of theTG Geothermal Portfolio, LLC , acquisition, with revenues of$13.1 million and$1.3 million , respectively; (ii) the enhancement ofSteamboat Hills inJune 2020 ; (iii) the resumption of operations of the Puna power plant to 25MW in the third quarter of 2021; and (iv) the expansion ofMcGinness Hills complex inMay 2021 , partially offset by a decrease in revenues from the Olkaria complex due to lower resource performance that caused a capacity reduction as well as continued curtailment by our local customer, KPLC. In addition, in the second quarter 2021, we had a mechanical issue in the Steamboat complex that was resolved after a few days, and inBrawley we are experiencing a surface leak in one of the injection wells that reduced significantly the generation. The repair work atBrawley is still in process. Power generation in our power plants increased by 5.6% from 4,429,834 MWh in the nine months endedSeptember 30, 2020 to 4,679,959 MWh in the nine months endedSeptember 30, 2021 . Product Segment Revenues attributable to our Product segment for the nine months endedSeptember 30, 2021 were$26.6 million , compared to$120.7 million for the nine months endedSeptember 30, 2020 , which represented a 78.0% decrease. The decrease in our Product segment revenues was mainly due to slowdown in Products sales as a result of COVID-19, projects inTurkey ,New Zealand andChile , which started in 2019, and provided$81.4 million in revenue recognized during the nine months endedSeptember 30, 2020 compared to$8.8 million in the nine months endedSeptember 30, 2021 , and projects inTurkey , which started in 2020, and provided$22.9 million in revenue recognized during the nine months endedSeptember 30, 2020 compared to zero in the nine months endedSeptember 30, 2021 . Energy Storage Segment Revenues attributable to our Energy Storage segment for the nine months endedSeptember 30, 2021 were$24.0 million compared to$10.0 million for the nine months endedSeptember 30, 2020 . The increase is mainly due to an increase of$7.4 million in revenues from the Rabbit Hill battery energy storage facility primarily as a result of the February 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. In addition, we recorded$7.2 million of revenues from thePomona energy storage asset that we acquired inJuly 2020 in the nine months endedSeptember 30, 2021 , compared to$2.4 million in the nine months endedSeptember 30, 2020 . Total Cost of Revenues Nine Months Ended September 30, 2021 2020 Change (Dollars in millions) Electricity segment $ 245.1 $ 220.0 11.4 % Product segment 23.2 95.7 (75.8 ) Energy Storage segment 15.0 9.0 66.6 Total cost of revenues $ 283.3 $ 324.7 (12.7 )% 47
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Total cost of revenues for the nine months endedSeptember 30, 2021 was$283.3 million , compared to$324.7 million for the nine months endedSeptember 30, 2020 , which represented a 12.7% decrease. This decrease was attributable to a decrease of$72.5 million , or 75.8%, in cost of revenues from our Product segment partially offset by an increase of$25.1 million , or 11.4%, in cost of revenues from our Electricity segment, and an increase of$6.0 million , or 67%, in cost of revenues from our Energy Storage segment, all as discussed below. As a percentage of total revenues, our total cost of revenues for the nine months endedSeptember 30, 2021 decreased to 60.0% from 61.7% for the nine months endedSeptember 30, 2020 . Electricity Segment Total cost of revenues attributable to our Electricity segment for the nine months endedSeptember 30, 2021 was$245.1 million , compared to$220.0 million for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to: (i) the consolidation ofDixie Valley andBeowawe power plants which was acquired onJuly 13, 2021 as part of theTG Geothermal Portfolio, LLC , acquisition, with cost of revenues of$6.4 million and$1.0 million , respectively; (ii) cost of revenues related to the enhancement ofSteamboat Hills inJune 2020 and (iii) the resumption of operations of the Puna power plant to 25MW in the third quarter of 2021, which was offset by business interruption insurance recovery of$15.5 million in the nine months endedSeptember 30, 2021 , compared to$7.8 million in the nine months endedSeptember 30, 2020 . As a percentage of total Electricity revenues, our total cost of revenues attributable to our Electricity segment for the nine months endedSeptember 30, 2021 was 58.2%, compared to 55.7% for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to the decrease in gross profit relating to higher operational costs in some of our power plants. The cost of revenues attributable to our international power plants for the nine months endedSeptember 30, 2021 was 21.7% of our total Electricity segment cost of revenues for this period. Product Segment Total cost of revenues attributable to our Product segment for the nine months endedSeptember 30, 2021 was$23.2 million , compared to$95.7 million for the nine months endedSeptember 30, 2020 , which represented a 75.8% decrease. This decrease was primarily attributable to the decrease in Product segment revenues, as discussed above. As a percentage of total Product segment revenues, our total cost of revenues attributable to our Product segment for the nine months endedSeptember 30, 2021 and 2020, was 87.2% and 79.3%, respectively. Energy Storage Segment Cost of revenues attributable to our Energy Storage segment for the nine months endedSeptember 30, 2021 were$15.0 million compared to$9.0 million for the nine months endedSeptember 30, 2020 . Cost of revenues attributable to our Energy Storage segment for the nine months endedSeptember 30, 2021 includes$4.9 million from the acquisition of thePomona energy storage asset that was acquired inJuly 2020 , compared to$1.3 million in the nine months endedSeptember 30, 2020 . 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 nine months endedSeptember 30, 2021 were$3.2 million , compared to$4.3 million for the nine months endedSeptember 30, 2020 . The decrease is mainly attributable to the timing of new development projects that took place during the nine months endedSeptember 30, 2021 compared to the corresponding period in 2020.
Selling and Marketing Expenses
Selling and marketing expenses for the nine months endedSeptember 30, 2021 were$10.9 million compared to$13.7 million for the nine months endedSeptember 30, 2020 . The decrease was mainly due to a decrease in sales commissions as a result of the decrease in Product segment revenues. Selling and marketing expenses for the nine months endedSeptember 30, 2021 , constituted 2.3% of total revenues for such period, compared to 2.6% for the nine months endedSeptember 30, 2020 . 48
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General and Administrative Expenses
General and administrative expenses for the nine months endedSeptember 30, 2021 were$60.4 million compared to$43.2 million for the nine months endedSeptember 30, 2020 . The increase was primarily attributable to: (i) the provision for doubtful debts of$3.0 million relating to imbalance charges from the grid operator in respect of our demand response operation that we may be unable to collect due to the February power crisis inTexas ; (ii)$5.5 million transaction costs including$4.7 million related to theTG Geothermal Portfolio, LLC , acquisition, onJuly 13, 2021 ; (iii) legal costs associated with the investigation by the Special Committee, and (iv) a gain of$1.3 million from the sale of concession in the nine months endedSeptember 30, 2020 . General and administrative expenses for the nine months endedSeptember 30, 2021 constituted 12.8% of total revenues for such period, compared to 8.2% for the nine months endedSeptember 30, 2020 .
Business Interruption Insurance Income
Business interruption insurance income for the nine months endedSeptember 30, 2021 was$0.2 million compared to$20.7 million for the nine months endedSeptember 30, 2020 . Business interruption insurance income for the nine months endedSeptember 30, 2021 and 2020 is attributable to business interruption recovery relating to the Puna power plant. Interest Expense, Net Interest expense, net for the nine months endedSeptember 30, 2021 was$59.9 million , compared to$58.8 million for the nine months endedSeptember 30, 2020 . This increase was primarily due to a$1.1 million increase in interest expense primarily related to: (i)$79.4 million of proceeds from a Senior Unsecured Bonds Series 3 received in April andMay 2020 ; (ii)$50.0 million of proceeds from a Senior Unsecured Loan received inApril 2020 , (iii)$290 million of proceeds from Bonds Series 4 received inJuly 2020 , (iv)$125.0 million of proceeds from Bank Hapoalim Loan received inJuly 2021 ; (v)$50.0 million of proceeds from HSBC Bank Loan received inJuly 2021 ; (vi)$259 million related to Finance Lease liability related to theTG Geothermal Portfolio, LLC , acquisition, in July, 2021; (vii)$100.0 million of proceeds from Bank Discount Loan received inSeptember 2021 , and (viii) a$2.2 million increase in interest related to sale of tax benefits, partially offset by a$3.9 million increase in interest capitalized to projects and lower interest expense as a result of principal payments of long term debt.
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction losses for the nine months endedSeptember 30, 2021 were$16.2 million , compared to gains of$2.1 million for the nine months endedSeptember 30, 2020 . Derivatives and foreign currency transaction gains (losses) for the nine months endedSeptember 30, 2021 includes$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 as described above. 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 nine months endedSeptember 30, 2021 was$21.7 million , compared to$16.8 million for the nine months endedSeptember 30, 2020 . Tax equity is a form of financing used for renewable energy projects. 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.
Other Non-Operating Income (Expense), Net
Other non-operating loss for the nine months endedSeptember 30, 2021 was$0.3 million , compared to Other non-operating income of$1.0 million for the nine months endedSeptember 30, 2020 . Other non-operating income for the nine months endedSeptember 30, 2020 , mainly includes$0.6 million of property damage recovery related to the Puna power plant. Income Taxes Income tax provision for the nine months endedSeptember 30, 2021 was$9.3 million compared to$45.3 million for the nine months endedSeptember 30, 2020 . Our effective tax rate for the nine months endedSeptember 30, 2021 and 2020, was 15.2% and 36.6%, respectively. The effective rate differs from the federal statutory rate of 21% for the nine months endedSeptember 30, 2021 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. 49
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Equity in Earnings (losses) of Investees, Net
Equity in earnings (losses) of investees, net for the nine months endedSeptember 30, 2021 was$1.8 million , compared to a loss$(0.2) million for the nine months endedSeptember 30, 2020 . Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in theSarulla Consortium ("Sarulla"). Due to failure of short term drilling campaign, SOl is currently evaluating the viability of a long term remediation plan to restore generation back to previous levels. We are following the remediation plans in Sarulla as well as the accounting impact and its implication on our financial statements on our investment in Sarulla.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the nine months endedSeptember 30, 2021 was$43.2 million , compared to$64.8 million for the nine months endedSeptember 30, 2020 , which represents a decrease of$21.6 million . This decrease was attributable to the decrease of$24.5 million in net income which was affected by all the explanations above, partially offset by a decrease in net income attributable to non controlling interest mainly due to lower business interruption recovery of the Puna power plant inHawaii , in the nine months endedSeptember 30, 2021 , compared to nine months endedSeptember 30, 2020 .
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 ofSeptember 30, 2021 , we had access to (i)$267.8 million in cash and cash equivalents, of which$48.5 million is held by our foreign subsidiaries; (ii)$45.5 million in marketable securities and (iii)$385.9 million of unused corporate borrowing capacity under existing committed lines of credit with different commercial banks. Our estimated capital needs for the remainder of 2021 include$177.0 million for capital expenditures on new projects under development or construction including storage projects, exploration activity and maintenance capital expenditures for our existing projects. In addition,$29.4 million will be needed for 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 ofSeptember 30, 2021 , 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 nine months endedSeptember 30, 2021 , we included a foreign income tax expense of$2.3 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries. 50
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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 Credit Agreements Issued Amount Outstanding as of Termination September 30, Date 2021 (Dollars in millions) Committed lines for credit and letters of credit $ 468.0 $ 82.1 November 2021-August 2023 Committed lines for letters of credit 160.0 117.3 October 2021-June 2022 Non-committed lines - 10.1 December 2021 Total $ 628.0 $ 209.5 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 ofSeptember 30, 2021 : (i) total equity was$1,972.4 million and the actual equity to total assets ratio was 45.2% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 4.0. During the nine months endedSeptember 30, 2021 , we distributed interim dividends in an aggregate amount of$19.9 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. As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, 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. Future minimum payments
Future minimum payments under long-term obligations, excluding revolving credit
lines with commercial banks, as of
(Dollars in thousands)
Year ending December 31 :
2021 $ 31,389
2022 397,746
2023 197,752
2024 260,312
2025 171,683
Thereafter 959,331
Total $ 2,018,213
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Table of Contents 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 and (ii) full-recourse debt incurred by us or our subsidiaries for general corporate purposes.
Non-Recourse and Limited-Recourse Third-Party Debt
Loan Amount Amount Interest Rate Maturity Related Project Location
Issued Outstanding Date
as of
September 30,
2021
(Dollars in millions)
McGinness Hills
OFC 2 Senior Secured phase 1 and
Notes - Series A $ 151.7 $ 81.6 4.67% 2032 Tuscarora U.S.
OFC 2 Senior Secured McGinness Hills
Notes - Series B 140.0 95.8 4.61% 2032 phase 2 U.S.
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 1 85.0 43.7 6.34% 2030 Complex Kenya
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 2 180.0 92.6 6.29% 2030 Complex Kenya
Olkaria III Financing
Agreement with DFC - Olkaria III
Tranche 3 45.0 24.9 6.12% 2030 Complex Kenya
Amatitlan Financing(1) 42.0 20.1 LIBOR+4.35% 2027 Amatitlan Guatemala
Don A. Campbell Senior Don A. Campbell
Secured Notes 92.5 69.3 4.03% 2033 Complex U.S.
Prudential Capital Group Neal Hot Springs
Idaho Loan(2) 20.0 16.9 5.80% 2023 and Raft River U.S.
U.S. Department of
Energy Loan(3) 96.8 39.0 2.60% 2035 Neal Hot Springs U.S.
Prudential Capital Group
Nevada Loan 30.7 25.6 6.75% 2037 San Emidio U.S.
Platanares Loan with DFC 114.7 90.1 7.02% 2032 Platanares Honduras
Viridity - Plumstriker 23.5 16.2 LIBOR+3.5%
2026 Plumsted+Striker
Géothermie
Géothermie Bouillante(4) 8.9 6.4 1.52%
2026 Bouillante
Géothermie
Géothermie Bouillante(4) 8.9 8.4 1.93% 2026 Bouillante Guadeloupe
Total $ 1,039.7 $ 630.6
1. LIBO Rate 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 in Euro and issued amount is EUR 8.0 million
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Full-Recourse Third-Party Debt
Loan Issued Outstanding Interest Rate Maturity Date
Amount Amount as of
September 30,
2021
(Dollars in millions)
Hapoalim Loan $ 125.0 $ 125.0 3.45% June 2028
HSBC Loan 50.0 50.0 3.45% July 2028
Discount Loan 100.0 100.0 2.90% September 2029
Senior Unsecured Bonds
Series 3 218.0 218.0 4.45% September 2022
Senior Unsecured Bonds
Series 4 (1) 289.8 309.7 3.35% June 2031
Senior unsecured Loan 1 100.0 100.0 4.80% March 2029
Senior unsecured Loan 2 50.0 50.0 4.60% March 2029
Senior unsecured Loan 3 50.0 50.0 5.44% March 2029
DEG Loan 2 50.0 35.0 6.28% June 2028
DEG Loan 3 41.5 30.6 6.04% June 2028
Total $ 1,074.3 $ 1,068.3 (1 ) Bonds issued in total aggregate principal amount of
Finance Liability -
The finance liability is related to the business combination purchase transaction of geothermal assets as further described under Note 1 to the condensed consolidated financial statements. The financial liability outstanding amount as ofSeptember 30, 2021 is$252.9 million , it bears a fixed interest rate of 2.5% per annum and matures inMarch 2033 .
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$3.7 million as ofSeptember 30, 2021 . 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
August 7, 2019 $ 0.11 August 20, 2019 August 27, 2019
November 6, 2019 $ 0.11 November 20, 2019 December 4, 2019
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
August 4, 2021 $ 0.12 August 18, 2021 September 1, 2021
November 3, 2021 $ 0.12 November 17, 2021 December 3, 2021
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Historical Cash Flows
The following table sets forth the components of our cash flows for the periods
indicated:
Nine Months Ended
September 30,
2021 2020
(Dollars in thousands)
Net cash provided by operating activities $ 144,791 $ 238,890
Net cash used in investing activities (509,945 ) (292,970 )
Net cash provided by (used in) financing activities 185,012 189,992
Net change in cash and cash equivalents and restricted cash and cash equivalents (180,478 ) 136,432
For the Nine Months Ended
Net cash provided by operating activities for the nine months endedSeptember 30, 2021 was$144.8 million , compared to$238.9 million for the nine months endedSeptember 30, 2020 . The net decrease of$94.1 million was primarily due to: (i) a decrease in accounts payable and accrued expenses of$30.3 million in the nine months endedSeptember 30, 2021 , compared to an increase of$2.6 million in the nine months endedSeptember 30, 2020 , mainly due to timing of payments to our supplier; and (ii) a decrease of$9.0 million in deferred income tax provision in the nine months endedSeptember 30, 2021 compared to an increase of$25.5 million in the nine months endedSeptember 30, 2020 . Net cash used in investing activities for the nine months endedSeptember 30, 2021 was$509.9 million , compared to$293.0 million for the nine months endedSeptember 30, 2020 . The principal factors that affected our net cash used in investing activities during the nine months endedSeptember 30, 2021 were: (i) capital expenditures of$288.4 million , primarily for our facilities under construction that support our growth plan; (ii) cash paid for the acquisition of the TG Geothermal Portfolio for a total net consideration of$171.0 million ; (iii) purchase of marketable securities of$49.3 million and (iv) an investment in an unconsolidated company of$6.2 million . The principal factors that affected our net cash used in investing activities during the nine months endedSeptember 30, 2020 were: (i) capital expenditures of$231.8 million , primarily for our facilities under construction that support our growth plan; (ii) cash paid for the acquisition of thePomona energy storage asset inCalifornia fromAlta Gas for a total net consideration of$43.3 million ; and (iii) an investment in an unconsolidated company of$14.8 million . Net cash provided by financing activities for the nine months endedSeptember 30, 2021 was$185.0 million , compared to$190.0 million for the nine months endedSeptember 30, 2020 . The principal factors that affected the net cash provided by financing activities during the nine months endedSeptember 30, 2021 were:$275.0 million proceeds from long term loans from banks, partially offset by: (i) the repayment of long-term debt in the amount of$58.4 million ; (ii) a$19.9 million cash dividend payment and (iii)$7.0 million cash paid to a noncontrolling interest. The principal factors that affected our net cash provided by financing activities during the nine months endedSeptember 30, 2020 were: (i)$289.9 million of proceeds from bonds series 4; (ii)$79.4 million of proceeds from a senior secured bonds series 3; and (iii)$50.0 million of proceeds from a senior unsecured loan; partially offset by: (i) the repayment of commercial paper debt in the amount of$50.0 million ; (ii) the repayment of$40.6 million from our revolving credit lines with commercial banks which were withdrawn primarily to secure cash in hand in order to meet our capital needs in light of the uncertainty related to the COVID-19 pandemic; (iii) the repayment of long-term debt in the amount of$115.6 million ; (iii) a$16.9 million cash dividend paid; and (iv)$9.2 million cash paid to a noncontrolling interest.
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) termination fees, (ii) impairment of long-lived assets, (iii) write-off of unsuccessful exploration activities, (iv) any mark-to-market gains or losses from accounting for derivatives, (v) merger and acquisition transaction costs, (vi) stock-based compensation, (vii) gains or losses from extinguishment of liabilities, (viii) gains or losses on sale of subsidiaries and property, plant and equipment and (ix) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in theU.S. (U.S. GAAP) and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or as 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. 54
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Net income for the three and nine months ended
Adjusted EBITDA for the three and nine months endedSeptember 30, 2021 was$101.6 million and$285.4 million , respectively, compared to$107.1 million and$311.0 million , respectively, for the three and nine months endedSeptember 30, 2020 .
The following table reconciles net income to EBITDA and Adjusted EBITDA for the
three and nine months period ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(Dollars in thousands) (Dollars in thousands)
Net income $ 20,780 $ 23,098 $ 53,804 $ 78,274
Adjusted for:
Interest expense, net (including
amortization of deferred financing
costs) 21,711 21,130 58,282 57,345
Income tax provision (benefit) 2,048 15,361 9,323 45,275
Adjustment to investment in an
unconsolidated company: our
proportionate share in interest expense,
tax and depreciation and amortization in
Sarulla 2,889 4,395 8,253 10,271
Depreciation and amortization 47,548 39,628 130,503 111,728
EBITDA $ 94,976 $ 103,612 $ 260,165 $ 302,893
Mark-to-market (gains) or losses from
accounting for derivative - 431 1,096 (1,612 )
Stock-based compensation 2,120 2,807 6,840 7,060
Reversal of a contingent liability - - (418 ) -
Allowance for bad debts related to
February power crisis in Texas - - 2,980 -
Hedge losses resulting from February
power crisis in Texas - - 9,133 -
Merger and acquisition transaction costs 4,539 211 5,497 1,369
Other write-off - - 134 -
Settlement expenses - - - 1,277
Adjusted EBITDA $ 101,635 $ 107,061 $ 285,427 $ 310,987
In May 2014 , Sarulla closed $1,170 million in financing. As of September 30,
2021 , the credit facility had an outstanding balance of $940.0 million . In March
2021 , Sarulla failed to meet its debt service coverage ratio under the credit
facility agreement due to lower performance of the power plants. Our
proportionate share in the SOL credit facility is $119.8 million . SOL is
undergoing negotiations with its lenders for a waiver covering this
non-compliance.
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 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, engineering and procurement are ongoing and manufacturing was completed. Equipment transportation is ongoing and we experienced delays due to permitting. We expect commercial operation ofHeber 2 at the end of 2022 andHeber 1 in the first quarter of 2023. 55
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CD 4 Project (California ). We plan to develop a 30 MW project at the Mammoth complex on primarilyBureau of Land Management ("BLM") leases. We signed a Wholesale Distribution Access Tariff Cluster Large Generator Interconnection Agreement with Southern California Edison inDecember 2017 . We signed a 25-year PPA with SCPPA for 16 MW that will be sold to the City of Colton inCalifornia , and we recently signed two additional 10-year PPAs withSilicon Valley Clean Energy and Monterey Bay Community Power , each of which will purchase 7 MW (for a total of 14 MW) of power. Construction and drilling are ongoing. We expect commercial operation at the first quarter of 2022.Wister Solar (California ). We are developing a 20MW AC solar PV project on the Wister site inCalifornia . We plan to install a Solar PV system and sell the electricity under a PPA withSan Diego Gas & Electric . Engineering and procurement were completed. PV panels and tracking systems delivered. Construction commencement delayed and we expect the project to be completed in the first half of 2022.Dixie Meadows (Nevada ). We are developing the 12MWDixie Meadows geothermal power plant inNevada . We are planning to sell the electricity generated under the Portfolio SCPPA PPA. Engineering and procurement are completed. Equipment shipped and was stored. Construction commencement is pending permits that are currently not approved. Commercial operation is pending start of construction.
Tungsten expansion (
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 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 portfolio PPA. Engineering and procurement are ongoing. We expect commercial operation in 2022. 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 is ongoing and commercial operation is expected during the first half of 2022.North Valley (Nevada ). We are developing the 25MW North Valley geothermal power plant inNevada . The Project was recently released and we are currently in negotiations to secure a long term PPA. Engineering and procurement are ongoing. Commercial operation is expected at the end of 2022. Tungsten Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our geothermal Tungsten power plant inNevada . The project is expected to generate approximately 4 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 portfolio PPA. Construction commenced and we expect commercial operation in 2022.
In addition, we are in the process of repowering Ormesa,
Project Name Size Location Customer Expected COD
Tierra Buena 5MW/20MWh CA CAISO, RCEA and VCE Q1 2022
Upton 25MW/25MWh TX ERCOT Q1 2021
Andover 20MW/20MWh NJ PJM Q2 2022
Howell 6.5MW/6.5MWh NJ PJM Q2 2022
Bowling Green 12MW/12MWh OH PJM Q3 2022
Pomona 2 20MW/40MWh CA PG&E and CAISO Q3 2022
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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 ofSeptember 30, 2021 , we are planning the drilling activity to begin next year.
We have budgeted approximately
In addition, we estimate approximately$67.0 million in additional capital expenditures in 2021 to be allocated as follows: (i) approximately$25.0 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$10.0 million for maintenance capital expenditures for our operating power plants; (iii) approximately$30.0 million for the construction and development of storage projects; and (iv) approximately$2.0 million for enhancements to our production facilities.
In the aggregate, we estimate our total capital expenditures for the fourth
quarter 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'sShort Run Avoided Cost ("SRAC"). 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 . As ofSeptember 30, 2021 , 97.9% of our consolidated long-term debt was fixed rate debt and therefore was not subject to interest rate volatility risk and 2.1% of our long-term debt was floating rate debt, exposing us to interest rate risk in connection therewith. As ofSeptember 30, 2021 ,$36.3 million of our long-term debt remained 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. As ofSeptember 30, 2021 , our investment in marketable securities was subject to such risk. 57
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We are also exposed to foreign currency exchange risk, in particular the fluctuation of theU.S. dollar versus the 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 the USD 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/USD 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 New Israeli Shekels 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 atSeptember 30, 2021 andDecember 31, 2020 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
September December September December
Risk 30, 2021 31, 2020 30, 2021 31, 2020 Change in the Fair Value of
(Dollars in thousands)
Foreign currency forward
Foreign Currency $ (1,917 ) $ (1,996 ) $ 3,323 $ 2,439 contracts
Interest Rate (986 ) - 1,000 - Discount Loan
Interest Rate (1,162 ) - 1,178 - Hapoalim Loan
Interest Rate (550 ) - 558 - HSBC Loan
Finance liability - Dixie
Interest Rate (3,102 ) - 3,160 - Valley
Interest Rate (2,985 ) (3,025 ) 3,054 3,090 OFC 2 Senior Secured Notes
Interest Rate (2,933 ) (3,193 ) 3,008 3,273 Olkaria III Loan - DFC Loan
Interest Rate (3,778 ) (4,278 ) 3,822 4,313 Senior Unsecured Bonds
Interest Rate (506 ) (586 ) 517 599 DEG 2 Loan
Interest Rate (1,259 ) (1,266 ) 1,294 1,299 DAC 1 Senior Secured Notes
Interest Rate (243 ) (311 ) 248 318 Amatitlan Loan
Migdal Loan, the Additional
Migdal Loan and the Second
Interest Rate (3,003 ) (3,194 ) 3,074 3,270 Addendum Migdal Loan
Interest Rate (924 ) (941 ) 968 983 San Emidio Loan
Interest Rate (492 ) (444 ) 501 450 DOE Loan
Interest Rate (101 ) (151 ) 101 153 Idaho Holdings Loan
Interest Rate (2,026 ) (2,146 ) 2,088 2,209 Platanares DFC Loan
Interest Rate (394 ) (452 ) 401 461 DEG 3 Loan
Interest Rate (132 ) (179 ) 134 181 Plumstriker Loan
Interest Rate (79 ) (107 ) 80
108 Other long-term loans
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InJuly 2019 , theUnited Kingdom's Financial Conduct Authority , which regulates LIBOR (London Interbank Offered Rate), announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether or not LIBOR will cease to exist at that time and/or whether new methods of calculating LIBOR will be established such that it will continue to exist after 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 SOFR (Secured Overnight Financing Rate) index calculated by short-term repurchase agreements, backed byTreasury securities.
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 expect that inflation will not be a significant risk in the near term, given the current global economic conditions, however, we recently experienced an increase and shortage 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. 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. 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 our power plants, thereby increasing our operating costs in the Product segment. We are more likely to be able to offset 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.
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, by implementing 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 Nine Months Ended September 30, September 30, 2021 2020 2021 2020Sierra Pacific Power Company andNevada Power Company 15.8 % 15.4 % 18.7 % 17.1 %Southern California Public Power Authority ("SCPPA") 21.3 % 19.5 % 23.9 % 19.8 % Kenya Power and Lighting Co. Ltd. ("KPLC") 16.1 % 18.2 % 16.3 % 16.5 % We have historically been able to collect on substantially all of our receivable balances. As ofSeptember 30, 2021 , the amount overdue from KPLC inKenya was$33.8 million of which$14.2 million was paid inOctober 2021 , compared to amount overdue of$52.9 million as ofSeptember 30, 2020 . These amounts represent an average of 73 and 83 days overdue, respectively. InHonduras , as ofSeptember 30, 2021 , the total amount overdue from ENEE was$13.8 million of which$2.7 million was received inOctober 2021 . In addition, due to continuing restrictive measures related to the COVID-19 pandemic inHonduras , the Company may experience additional delays in collection. The Company believes it will be able to collect all past due amounts inHonduras .
Government Grants and Tax Benefits
A comprehensive discussion on government grants and tax benefits is included in
our 2020 Annual Report. There have been no material changes to this section
during the nine months ended
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