ORMAT TECHNOLOGIES, INC. Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this quarterly report on Form 10-Q, the words "may", "will", "could", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "projects", "potential", or "contemplate" or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors", and "Notes to Condensed Consolidated Financial Statements", but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report on Form 10-Q completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control.
These forward-looking statements are made only as of the date hereof, and, except as legally required, we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
A summary of the risks that may cause actual results to differ from our expectations include, but are not limited to the following:
Risks Related to the Company's Business and Operation
• Our financial performance depends on the successful operation of our
geothermal, REG and Solar PV power plants under the Electricity segment as
well as our energy storage facilities, which are subject to various
operational risks.
• Our exploration, development, and operation of geothermal energy resources are
subject to geological risks and uncertainties, which may result in decreased
performance or increased costs for our power plants.
• We may decide not to implement, or may not be successful in implementing, one
or more elements of our multi-year strategic plan, and the plan may not
achieve its goal of enhancing shareholder value.
• Concentration of customers, specific projects and regions may expose us to
heightened financial exposure.
• Our international operations expose us to risks related to the application of
foreign laws and regulations.
• Political, economic and other conditions in the emerging economies where we
operate may subject us to greater risk than in the developed
• Conditions in and around
and our main production and manufacturing facilities are located, may
adversely affect our operations and may limit our ability to produce and sell
our products or manage our power plants.
• Reduction in our Products backlog may affect our ability to fully utilize our
main production and manufacturing facilities.
• Some of our leases will terminate if we do not extract geothermal resources in
"commercial quantities" or if we fail to comply with the terms or stipulations
of such leases or any of the provisions of the Geothermal Steam Act or if the
lessor under any such lease defaults on any debt secured by the relevant
property, thus requiring us to enter into new leases or secure rights to
alternate geothermal resources, none of which may be available on terms as
favorable to us as any such terminated lease, if at all.
• Reduced levels of recovered energy required for the operation of our REG power
plants may result in decreased performance of such power plants.
• Our business development activities may not be successful and our projects
under construction or facilities undergoing enhancement and repowering may
encounter delays.
• Our future growth depends, in part, on the successful enhancement of a number
of our existing facilities.
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• We rely on power transmission facilities that we do not own or control.
• Our use of joint ventures may limit our flexibility with jointly owned
investments.
• Our operations could be adversely impacted by climate change.
• Geothermal projects that we plan to develop in the future may operate as
"merchant" facilities without long-term PPAs and therefore such projects will
be exposed to market fluctuations.
• We may not be able to successfully complete acquisitions, and we may not be
able to successfully integrate, or realize anticipated synergies from,
companies that we have acquired and may acquire in the future.
• We may not be able to successfully conclude transactions and integrate
companies that we acquired previously and may acquire in the future.
• We encounter intense competition from electric utilities, other power
producers, power marketers, developers and third-party investors.
• Changes in costs and technology may significantly impact our business by
making our power plants and products less competitive, resulting in our
inability to sign new PPAs for our Electricity segment and new supply and EPC
contracts for our Products segment.
• Our intellectual property rights may not be adequate to protect our business.
• We may experience difficulties implementing and maintaining our new enterprise
resource planning system.
• We may experience a cyber-incident, cyber security breach, severe natural
event or physical attack on our operational networks and information
technology systems.
Risks Related to Governmental Regulations, Laws and Taxation
• Our financial performance could be adversely affected by changes in the legal
and regulatory environment affecting our operations.
• Pursuant to the terms of some of our PPAs with investor-owned electric
utilities and publicly-owned electric utilities in states that have renewable
portfolio standards, the failure to supply the contracted capacity and energy
thereunder may result in the imposition of penalties.
• If any of our domestic power plants loses its current Qualifying Facility
status under PURPA, or if amendments to PURPA are enacted that substantially
reduce the benefits currently afforded to Qualifying Facilities, our domestic
operations could be adversely affected.
• We may experience a reduction or elimination of government incentives.
• We are a holding company and our cash depends substantially on the performance
of our subsidiaries and the power plants they operate, most of which are
subject to restrictions and taxation on dividends and distributions.
• The costs of compliance with federal, state, local and foreign environmental
laws and our ability to obtain and maintain environmental permits and
governmental approvals required for development, construction and/or operation
may result in liabilities, costs and delays in construction (as well as any
fines or penalties that may be imposed upon us in the event of any
non-compliance or delays with such laws or regulations).
• We could be exposed to significant liability for violations of hazardous
substances laws because of the use or presence of such substances at our power
plants.
•
affect us.
Risks Related to Economic and Financial Conditions
• We may be unable to obtain the financing we need on favorable terms to pursue
our growth strategy and any future financing we receive may be less favorable
to us than our current financing arrangements.
• We have incurred substantial indebtedness that may decrease our business
flexibility, access to capital, and/or increase our borrowing costs, and we
may still incur substantially more debt, which may adversely affect our
operations and financial results.
• Our debt obligations may adversely affect our ability to raise additional
capital and will be a burden on our future cash resources, particularly if we
elect to settle these obligations in cash upon conversion or upon maturity or
required repurchase.
• The Capped Call Transactions may affect the value of the Notes and our common
stock and we are subject to counterparty risk with respect to the Capped Call
Transactions.
• Our foreign power plants and foreign manufacturing operations expose us to
risks related to fluctuations in currency rates, which may reduce our profits
from such power plants and operations.
• Our power plants have generally been financed through a combination of our
corporate funds and limited or non-recourse project finance debt and lease
financing. If our project subsidiaries default on their obligations under such
limited or non-recourse debt or lease financing, we may be required to make
certain payments to the relevant debt holders, and if the collateral
supporting such leveraged financing structures is foreclosed upon, we may lose
certain of our power plants.
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• We may experience fluctuations in the cost of construction, raw materials,
commodities and drilling.
• Our commodity derivative activity may limit potential gains, increasepotential losses, result in earnings volatility and involve other risks.
• We are exposed to swap counterparty credit risk.
• We may not be able to obtain sufficient insurance coverage to cover damages
resulting from any damages to our assets and profitability including, but not
limited to, natural disasters such as volcanic eruptions, lava flows, wind and
earthquakes.
Risks Related to Force Majeure
• The global spread of a public health crisis, including the COVID-19 pandemic
may have an adverse impact on our business.
• The existence of a prolonged force majeure event or a forced outage affecting
a power plant, or the transmission systems could reduce our net income.
• Threats of terrorism may impact our operations in unpredictable ways and could
adversely affect our business, financial condition, future results and cash
flow.
Risks Related to Our Stock
• A substantial percentage of our common stock is held by stockholders whose
interests may conflict with the interests of our other stockholders.
• The price of our common stock may fluctuate substantially, and your investment
may decline in value.
• We may issue additional shares of our common stock in connection withconversions of the Notes, and thereby dilute our existing stockholders and
potentially adversely affect the market price of our common stock.
• The fundamental change provisions of the Notes may delay or prevent an
otherwise beneficial takeover attempt of us.
Investors are cautioned that these forward-looking statements are inherently
uncertain. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein. Other than as required by law, we
undertake no obligation to update forward-looking statements even though our
situation may change in the future. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking statements.
The following discussion and analysis of our financial condition and results of
operations should be read together with our condensed consolidated financial
statements and related notes included elsewhere in this quarterly report and the
"Risk Factors" section of our Annual Report on Form 10-K for the year ended
December 31, 2021 (the "2021 Annual Report") and any updates contained herein as
well as those set forth in our reports and other filings made with the
Securities and Exchange Commission (the "SEC").
Company Contact and Sources of Information
Our website is www.ormat.com. Information contained on our website is not part of this quarterly report. Information that we furnish to or file with theU.S. Securities and Exchange Commission (the "SEC"), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through our website as soon as reasonably practicable. OurSEC filings, including exhibits filed therewith, are also available directly on theSEC's website at www.sec.gov. We may use our website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through our website at www.ormat.com. Accordingly, investors should monitor this channel, in addition to following our press releases,SEC filings and public conference calls and webcasts. 33
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Table of Contents General Overview We are a leading vertically integrated company that is primarily engaged in the geothermal energy power business. We are leveraging our core capabilities and global presence to expand our activity in recovered energy generation and into different energy storage services and solar PV (including hybrid geothermal and solar PV as well as energy storage plus solar PV). Our objective is to become a leading global provider of renewable energy and we have adopted a strategic plan to focus on several key initiatives to expand our business.
We currently conduct our business activities in three business segments:
• Electricity Segment. In the Electricity segment, which contributed 86.9% 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 8.1% 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 8.9% of our Product segment revenues from our operations in the United
States and 91.1% from the rest of the world.
• Energy Storage Segment. In the Energy Storage segment, which contributed 5.0%
of our total revenues in the three months ended
operate grid connected
("BESS"), which provide capacity, energy and/or ancillary services directly to
the electric grid. In the three months ended
all of our Energy Storage segment revenues from our operations in the United
States.
Our current generating portfolio of approximately 1.1 GW includes geothermal
power plants in the United States , Kenya , Guatemala , Honduras , Guadeloupe and
Indonesia , as well as energy storage facilities, recovered energy generation and
Solar PV power plants in the United States .
COVID-19 Update
In March 2020 , the World Health Organization declared the outbreak of the novel
coronavirus ("COVID-19") a pandemic. Since that time and through the date of
this quarterly report, the Company has implemented significant measures and
continues to make efforts in order to meet government requirements and preserve
the health and safety of its employees. The Company's preventative measures
against COVID-19 and the recent spread of variant strains include working
remotely when needed and adopting separate shifts in its power plants,
manufacturing facilities and other locations while working to continue
operations at close to full capacity in all locations. Since the end of the
second quarter of 2021, the Company experienced an easing of government
restrictions in areas it operates in, but uncertainty around the impact of
COVID-19 continues in addition to supply chain challenges and rising interest
rates. The Company has not laid-off or furloughed any employees due to COVID-19
and has continued to pay full salaries.
We will continue to monitor developments affecting both our workforce and our
customers, and we have taken, and will continue to take, health and safety
measures that we determine are necessary in order to mitigate the impacts. To
date, as a result of these business continuity measures, we have not experienced
material disruptions in our operations due to COVID-19, but have nevertheless
experienced the following impacts on our segment operations:
• In our Electricity segment, almost all of our revenues in the nine months
ended
majority of contracts have a fixed energy rate. As a result, despite
logistical and other challenges, COVID-19 caused limited impact on our
Electricity segment. Nevertheless, growth in the Electricity segment was and
may continue to be adversely impacted by delays in receiving the required
development and construction permits, as well as the implications of global
and local restrictions on our ability to procure and transport raw materials
and increases in the cost of raw materials and transportation.
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• Our Product segment revenues are generated from sales of products and services
pursuant to contracts, under which we have a right to payment for any product
that was produced for the customer. Recognition of revenue under these
contracts is impacted by delays in the progress of the third-party projects,
into which our products and services are incorporated. COVID-19 outbreaks
resulted in the extended shutdown of certain businesses in certain regions,
delays in the supply and increases in the cost of raw materials and components
that we purchased for our equipment manufacturing, and increases in the cost
of marine transportation. The cost increases limited our ability to secure new
purchase orders from potential customers and led to a reduction in our
operating margins, which in turn negatively impacted our profitability. Over
the last few months we have experienced higher demand for our product segment
resulting in increased backlog and improved profitability. We had a product
backlog of
recognition for the period between
compared to $66.9 million as of November 3, 2021 .
• Our Energy Storage segment generates revenues mainly from participating in the
energy and ancillary services markets, run by regional transmission operators
and independent system operators in the various markets where our assets
operate. Therefore, the revenues these assets generate are directly impacted
by the prevailing market prices for energy and/or ancillary services.
Nevertheless, we have experienced and are experiencing supply chain
difficulties, as well as an increase in the cost of raw materials and
batteries, which caused delays in commercial operation of some of our energy
storage facilities and may impact our ability to complete other future
projects on time and increase overall project costs.
• In addition, we experience delays in the permitting for new projects in all
segments that may result in contractual penalties and cause a delay in those
projects.
Recent Developments
The most significant developments in our Company and business since
• In
Agreement (ESPPA) with
Bottleneck Battery Energy Storage System (BESS) located in the
of
operation, is expected to increase 2022 revenues by 50%.
• In
for a new maximum continuous performance 59MW geothermal power plant in New
Zealand and signed a 6MW supply contract with
$100 million . • InJuly 2022 , we announced the commercial operation of the CD4 30 MW
geothermal power plant. The CD4 facility provides 7 MW of geothermal power to
two Community Choice Aggregators, Silicon Valley Clean Energy and Central
Coast Community Energy, each under a 10-year power purchase agreement ("PPA"),
with a total of 14MW. In addition, the facility provides 16 MW of geothermal
power to the Southern California Public Power Authority ("SCPPA") under a
25-year agreement.
• In
Hills Solar plant in
be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA;
and (2) the 20MW Wister power plant in
long-term contract with San Diego Gas & Electric .
• In
its 2.5% convertible senior notes due 2027 (the "Notes"). The Notes were
offered and sold in a private offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended, pursuant
to an indenture between the Company and
trustee. Additionally, the Company granted the initial purchasers an option to
purchase up to an additional
Notes. The initial purchasers executed their option on
that, increased the total aggregated principal amount of the Notes issued to
converted, redeemed or repurchased. Interest will accrue on the Notes at a
rate of 2.50% per year and will be payable semiannually in arrears on January
15 and
The Notes are convertible at the option of the holders, prior to the close of
business on the business day immediately preceding
under certain circumstances and during certain periods, and thereafter, at any
time until the close of business on the second scheduled trading day
immediately preceding the maturity date. The initial conversion rate for the
Notes will be 11.0776 shares of the Company's common stock for each
principal amount of Notes (equivalent to an initial conversion price of
approximately
conversion price of the Notes represents a premium of approximately 30% over
the last reported sales price of the Company's common stock on the
to the aggregate principal amount of the Notes to be converted and pay or
deliver, as the case may be, cash, shares of the Company's common stock or a
combination of cash and shares of the Company's common stock, at the Company's
election, in respect of the remainder, if any, of the Company's conversion
obligation in excess of the aggregate principal amount of the Notes being
converted. The Notes will not be redeemable at the Company's option prior to
trading day immediately preceding the maturity date, the Notes will be
redeemable at the Company's option if the last reported sale price of the
Company's common stock has been at least 130% of the conversion price then in
effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period)
ending on and including the trading day immediately preceding the date on
which the Company provides notice of redemption at a redemption price equal to
100% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date.
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The net proceeds from the sale of the Notes were approximately
The Company used (1) approximately
offering to repurchase concurrently with the closing of the offering shares of
its common stock in privately negotiated transactions at a price per share
equal to
offering to pay the cost of the capped call transactions (as described below),
(3) approximately
and accrued and unpaid interest thereon, and make-whole payments, and (4) the
remainder for general corporate purposes. The Company intends to allocate an
amount equivalent to the net proceeds from this offering to finance and/or
refinance, in whole or in part, one or more "eligible green projects" in
accordance with the Company's Green Finance Framework, which is available on
our website under "Sustainability-Ormat Polices. In addition to proceeds from
the offering, the Company may use cash from operations or borrowings under its
credit facilities in order to effect such allocation. Information on our
website is not incorporated by reference in this Quarterly Report.
In connection with the issuance of the convertible notes described above, the
Company entered into capped call transactions (the "Capped Calls") with
certain counterparties. The capped call transactions is described in details
under Item 1 - Financial Statements.
• In
Buena Battery Energy Storage System (Tierra Buena BESS). The Tierra Buena BESS
will provide local resource adequacy to two Community Choice Aggregators
(CCAs),
each, under 10-year agreements. In addition, the facility will provide
ancillary services and energy optimization through participation in merchant
markets run by the
facility will connect to the adjacent Pacific Gas & Electric distribution
circuit.
• In
Bonds. The payment included the outstanding amount that was due in September
2022 and the interest related to the prepayment make-whole.
• In
the Company's Board of Directors, effective immediately.
serve as the Chair of the Audit Committee and a member of the Compensation
Committee.
Falk and
of Ormat's Board of Directors will be represented by women.
• In
Power (
deliveries under the portfolio PPA are expected to start in the second quarter
of 2024, with the expectation that the entire portfolio covered under the new
PPA will be online by the end of 2026. The portfolio PPA covers up to 125MW
for a term of 20 years and is comprised entirely of new projects currently
under construction or in development in
the right for one time adjustment to the maximum portfolio within 120 days
from signing. Capacity is subject to CAISO connection approval.
• In
first PPA, signed in 2021, NV Energy will purchase 25 MW of power over 25
years generated by the
expected to come online by early 2023. Additionally, NV Energy will purchase
up to 135 MW of power generated by a portfolio of the Company's new and
existing geothermal power plants under a PPA signed in May. The portfolio
PPA is subject to Public Utility Commission's approval.
• In
2 geothermal power plant, which sells an additional 13 MW to the Southern
addition of
plant increased our total Tungsten complex geothermal capacity to 42 MW.
• In
provides more than 3,500 gigawatt hours of electricity to
the
Peninsula Clean Energy's Board of Directors, effective
Peninsula Clean Energy will purchase 26 MW of clean, renewable energy from
marks the successful completion of
with a request for bids (RFB) on the
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• Our 40 MW Heber 1 geothermal power plant located in
an outage following a fire on
to the steam turbine-generator area. The
MW Heber complex and sells its electricity under a long-term contract with the
the cost and the time to restore all or part of the
to operation. In mid-April, the Company gradually re-started operation of the
binary units and the
20 MW. We hold business interruption insurance subject to a 45-day deductible
period in addition to property damage insurance with customary deductibles,
and are working with insurers to collect under those policies. We estimate
that the outage will reduce the monthly revenues by approximately
million. At this stage, we believe the insurance proceeds from the property
damage will exceed the depreciated book value of the damaged property.
Trends and Uncertainties
Different trends, factors and uncertainties may impact our operations and
financial condition, including many that we do not or cannot foresee. However,
we believe that our results of operations and financial condition for the
foreseeable future will be primarily affected by trends, factors and
uncertainties discussed in our 2021 Annual Report under "Part II - Item 7 -
Management Discussion and Analysis of Financial Condition and Results of
Operation", in addition to the information set forth in this quarterly report.
These trends, factors and uncertainties are, from time to time, also subject to
market cycles.
•
impacts as a result of sanctions and economic disruption, has complicated and
may continue to further complicate existing supply chain constraints. Supply
chain constraints may cause cost increases of raw materials, commodities and
equipment that could adversely affect our profit margins.
• In the markets in which we operate, particularly in the
higher rates of inflation in recent months. While our
indexed to inflation most of our international-based contracts are indexed to
inflation. If inflation continues to increase in our markets, it may increase
our expenses such that our profit margins could be adversely impacted. It may
also increase the costs of some of our development projects that could
negatively impact their competitiveness.
• Interest rate increases for both short-term and long-term debt have increased
sharply. Although our outstanding debt mostly bears fixed interest rates, as
we refinance it, or borrow additional amounts, we may incur additional
interest expense versus expiring loans.
Revenues
For the nine months ended September 30, 2022 , 89.3% of our Electricity segment
revenues were from PPAs with fixed energy rates, which are not affected by
fluctuations in energy commodity prices. We have variable price PPAs in
California and Hawaii , which provide for payments based on the local utilities'
avoided cost, which is the incremental cost that the power purchaser avoids by
not having to generate such electrical energy itself or purchase it from others,
as follows:
• The energy rates under the PPAs in
in the
prices. We recently signed a new PPA for the
1, 2023, with a fixed energy rate.
• The prices for electricity pursuant to the 25 MW PPA for the
as other commodities.
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 BESS facilities that we own and operate that sell energy, capacity and/or ancillary services in merchant markets like PJM Interconnect,ISO New England ,ERCOT and CAISO. The revenues fluctuate over time since a large portion of such revenues are generated in the merchant markets, where price volatility is inherent. 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, 2022 2021 2022 2021 2022 2022 Revenues: Electricity$ 152,820 $ 142,651 $ 466,540 $ 421,503 $ 10,169 7.1 %$ 45,037 10.7 % Product 14,217 10,527 39,237 26,580 3,690 35.1 % 12,657 47.6 % Energy storage 8,848 5,664 22,896 24,012 3,184 56.2 % (1,116 ) (4.6 )% Total$ 175,885 $ 158,842 $ 528,673 $ 472,095 $ 17,043 10.7 %$ 56,578 12.0 % % of Revenues for Period Indicated Three Months Nine Months Ended September 30, Ended September 30, 2022 2021 2022 2021 Revenues: Electricity 86.9 % 89.8 % 88.2 % 89.3 % Product 8.1 6.6 7.4 5.6 Energy storage 5.0 3.6 4.3 5.1 Total 100.0 % 100.0 % 100.0 % 100.0 % 38
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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,
2022 2021 2022 2021 2022 2022
(Dollars in thousands) (Dollars in thousands)
Electricity
Segment:
United States $ 106,490 $ 98,551 $ 327,792 $ 285,090 $ 7,940 8.1 % $ 42,702 15.0 %
Foreign 46,330 44,101 138,748 136,413 2,229 5.1 2,335 1.7
Total $ 152,820 $ 142,652 $ 466,540 $ 421,503 $ 10,169 7.1 % $ 45,037 10.7 %
Product
Segment:
United States $ 1,267 $ 1,541 $ 2,936 $ 4,041 $ (274 ) (17.8 )% $ (1,105 ) (27.3 )%
Foreign 12,950 8,986 36,301 22,539 3,964 44.1 13,762 61.1
Total $ 14,217 $ 10,527 $ 39,237 $ 26,580 $ 3,690 35.1 % $ 12,657 47.6 %
Energy Storage
Segment:
United States $ 8,848 $ 5,664 $ 22,896 $ 24,012 $ 3,184 56.2 % $ (1,116 ) (4.6 )%
Total $ 8,848 $ 5,664 $ 22,896 $ 24,012 $ 3,184 56.2 % $ (1,116 ) (4.6 )%
% of Revenues for Period Indicated
Three Months Nine Months
Ended September Ended September
30, 30,
2022 2021 2022 2021Electricity Segment: United States 69.7 % 69.1 % 70.3 % 67.6 % Foreign 30.3 30.9 29.7 32.4 Total 100.0 % 100.0 % 100.0 % 100.0 % Product Segment: United States 8.9 % 14.6 % 7.5 % 15.2 % Foreign 91.1 85.4 92.5 84.8 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, 2022 and 2021, 33% and 34% of our total revenues, respectively, were derived from foreign locations, and our foreign operations were significantly more profitable than ourU.S. operations in each of those periods. A substantial portion of international revenues came fromKenya and, to a lesser extent, fromHonduras ,Guadeloupe ,Guatemala and other countries. Our operations inKenya contributed disproportionately to gross profit and net income. The contribution to combined pre-tax income of our domestic and foreign operations within our Electricity segment and Product segment differ in a number of ways. Electricity Segment. Domestic revenues were approximately 70% and 68% of our total Electricity segment for the nine months endedSeptember 30, 2022 and 2021, respectively. However, domestic operations have higher costs of revenues and expenses than our foreign operations. Our foreign power plants are located in lower-cost regions, likeKenya ,Guatemala ,Honduras andGuadeloupe , which favorably impact payroll, and maintenance expenses among other items. Our power plants in foreign locations are also newer than most of our domestic power plants and therefore tend to have lower maintenance costs and higher availability factors than our domestic power plants. Consequently, in the nine months endedSeptember 30, 2022 and 2021, our Electricity segment foreign operations accounted for 46% and 47% of our total gross profits, 74% and 72% of our net income (assuming the majority of corporate operating expenses and financing are recorded under our domestic jurisdiction) and 39% and 47% of our EBITDA, respectively. 39
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Product Segment. Foreign revenues were approximately 93% and 85% of our total Product segment revenues for the nine months endedSeptember 30, 2022 and 2021, respectively.
Energy Storage Segment. Domestic revenues were 100% of our total Energy storage
segment revenues for each of the three months ended
Seasonality Electricity generation from some of our geothermal power plants is subject to seasonal variations. In the winter, our power plants produce more energy primarily attributable to the lower ambient temperature, which has a favorable impact on the energy component of our Electricity segment revenues, and in the summer, our power plants produce less energy primarily attributable to the higher ambient temperature. The prices under many of our contracts are fixed throughout the year with no time-of-use impact, however, the prices paid for electricity under the PPAs for one of theHeber 2 power plants in theHeber Complex , theMammoth Complex and theNorth Brawley power plant inCalifornia , theRaft River power plant inIdaho , theNeal Hot Springs power plant inOregon and the recently acquiredDixie Valley power plant inNevada are higher in the months of June through September. The higher payments payable under these PPAs in the summer months partially offset the negative impact on our revenues from lower generation in the summer. As a result, we expect the revenues and gross profit in the winter months to be higher than the revenues and gross profit in the summer months and in general we expect the first and fourth quarters to generate higher revenues than the second and third quarters.
Breakdown of Cost of Revenues
The principal cost of revenues attributable to our three segments are discussed in our 2021 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation".
Critical Accounting Estimates and Assumptions
A comprehensive discussion of our critical accounting estimates and assumptions is included in our 2021 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation."
New Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements.
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Table of Contents
Results of Operations
Our historical operating results in dollars and as a percentage of total
revenues are presented below. A comparison of the different years described
below may be of limited utility due to (i) our recent construction of power
plants and enhancement of acquired power plants; (ii) fluctuation in revenues
from our Product segment; and (iii) one-time events such as insurance proceeds
that impact one period but not the other.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
Statements of Operations Historical
Data:
Revenues:
Electricity $ 152,820 $ 142,651 $ 466,540 $ 421,503
Product 14,217 10,527 39,237 26,580
Energy storage 8,848 5,664 22,896 24,012
Total Revenues 175,885 158,842 528,673 472,095
Cost of revenues:
Electricity 97,053 81,549 287,091 245,136
Product 11,664 9,182 35,644 23,180
Energy storage 6,060 4,971 17,324 15,017
Total cost of revenues 114,777 95,702 340,059 283,333
Gross profit
Electricity 55,767 61,102 179,449 176,367
Product 2,553 1,345 3,593 3,400
Energy storage 2,788 693 5,572 8,995
Total gross profit 61,108 63,140 188,614 188,762
Operating expenses:
Research and development expenses 1,238 1,175 3,690 3,179
Selling and marketing expenses 4,093 2,671 12,410 10,935
General and administrative expenses 16,057 23,554 47,155 60,400
Business interruption insurance income - (248 ) - (248 )
Write-off of Energy Storage projects and
assets - - 1,954 -
Write-off of unsuccessful exploration
activities 827 - 827 -
Operating income 38,893 35,988 122,578 114,496
Other income (expense):
Interest income 1,659 519 2,180 1,590
Interest expense, net (22,403 ) (22,230 ) (63,902 ) (59,872 )
Derivatives and foreign currency
transaction gains (losses) (293 ) (21 ) (4,031 ) (16,229 )
Income attributable to sale of tax
benefits 9,113 7,879 26,345 21,654
Other non-operating income (expense),
net 673 44 (512 ) (308 )
Income from operations before income tax
and equity in earnings (losses) of
investees 27,642 22,179 82,658 61,331
Income tax provision (7,227 ) (2,048 ) (23,520 ) (9,323 )
Equity in earnings (losses) of
investees, net (589 ) 649 (1,574 ) 1,796
Net income 19,826 20,780 57,564 53,804
Net income attributable to
noncontrolling interest (1,716 ) (5,878 ) (9,764 ) (10,617 )
Net income attributable to the Company's
stockholders $ 18,110 $ 14,902 $ 47,800 $ 43,187
Earnings per share attributable to the
Company's stockholders:
Basic: $ 0.32 $ 0.27 $ 0.85 $ 0.77
Diluted: $ 0.32 $ 0.26 $ 0.85 $ 0.77
Weighted average number of shares used
in computation of earnings per share
attributable to the Company's
stockholders:
Basic 55,999 56,003 56,058 55,995
Diluted 56,457 56,298 56,479 56,413
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Table of Contents
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Statements of Operations Data:
Revenues:
Electricity 86.9 % 89.8 % 88.2 % 89.3 %
Product 8.1 6.6 7.4 5.6
Energy storage 5.0 3.6 4.3 5.1
Total Revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Electricity 63.5 57.2 61.5 58.2
Product 82.0 87.2 90.8 87.2
Energy storage 68.5 87.8 75.7 62.5
Total cost of revenues 65.3 60.2 64.3 60.0
Gross profit
Electricity 36.5 42.8 38.5 41.8
Product 18.0 12.8 9.2 12.8
Energy storage 31.5 12.2 24.3 37.5
Total gross profit 34.7 39.8 35.7 40.0
Operating expenses:
Research and development expenses 0.7 0.7 0.7 0.7
Selling and marketing expenses 2.3 1.7 2.3 2.3
General and administrative expenses 9.1 14.8 8.9 12.8
Business interruption insurance income - (0.2 ) - (0.1 )
Write-off of Energy Storage projects and
assets - - 0.4 -
Write-off of unsuccessful exploration
activities 0.5 - 0.2 -
Operating income 22.1 22.7 23.2 24.3
Other income (expense):
Interest income 0.9 0.3 0.4 0.3
Interest expense, net (12.7 ) (14.0 ) (12.1 ) (12.7 )
Derivatives and foreign currency
transaction gains (losses) (0.2 ) - (0.8 ) (3.4 )
Income attributable to sale of tax
benefits 5.2 5.0 5.0 4.6
Other non-operating income (expense),
net 0.4 - (0.1 ) (0.1 )
Income from operations before income tax
and equity in earnings (losses) of
investees 15.7 14.0 15.6 13.0
Income tax provision (4.1 ) (1.3 ) (4.4 ) (2.0 )
Equity in earnings (losses) of
investees, net (0.3 ) 0.4 (0.3 ) 0.4
Net income 11.3 13.1 10.9 11.4
Net income attributable to
noncontrolling interest (1.0 ) (3.7 ) (1.8 ) (2.2 )
Net income attributable to the Company's
stockholders 10.3 % 9.4 % 9.0 % 9.1 %
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Table of Contents
Comparison of the Three Months Ended
Total Revenues
The table below compares revenues for the three months ended
Three Months Ended September 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 152.8 $ 142.7 7.1 %
Product segment 14.2 10.5 35.1
Energy Storage segment 8.8 5.7 56.2
Total revenues $ 175.9 $ 158.8 10.7 %
Electricity Segment
Revenues attributable to our Electricity segment for the three months ended
September 30, 2022 were $152.8 million , compared to $142.7 million for the three
months ended September 30, 2021 . This increase was mainly due to: (i) higher
revenues in Puna of approximately $4.2 million primarily due to higher
electricity rates; (ii) CD4 facility starting commercial operation in July 2022 ,
which contributed approximately $3.5 million to Electricity revenues; and (iii)
Tungsten Mountain 2 and Dixie Valley power plants, which contributed
approximately $1.8 million each, as a result of the start of commercial
operations of Tungsten Mountain 2 power plant in April 2022 and the inclusion of
Dixie Valley power plant which was acquired in July 2021 . This increase was
partially offset by approximately $2.3 million due to a decrease in revenues as
a result of a shutdown at the Heber 1 power plant following a fire that caused
damage to the steam turbine.
Power generation in our power plants increased by 6.6% from 1,523,897 MWh in the
three months ended September 30, 2021 to 1,624,003 MWh in the three months ended
September 30, 2022 .
Product Segment
Revenues attributable to our Product segment for the three months ended
September 30, 2022 were $14.2 million , compared to $10.5 million for the three
months ended September 30, 2021 , which represented a 35.1% increase. The
increase in our Product segment revenues was primarily due to our project in New
Zealand for which we started to record revenues in the third quarter of 2022 as
well as other certain projects for which revenues were recognized during the
three months ended September 30, 2022 , compared to different projects for which
revenues were recorded in the same period in 2021.
Energy Storage Segment
Revenues attributable to our Energy Storage segment for the three months ended
September 30, 2022 were $8.8 million compared to $5.7 million for the three
months ended September 30, 2021 . The increase is mainly due to high energy rates
at PJM and CAISO facilities increasing our revenues at most of our storage
assets due to higher overall merchant prices.
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Table of Contents Total Cost of Revenues
The table below compares cost of revenues for the three months ended
Three Months Ended September 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 97.1 $ 81.5 19.0 %
Product segment 11.7 9.2 27.0
Energy Storage segment 6.1 5.0 21.9
Total cost of revenues $ 114.8 $ 95.7 19.9 %
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the three
months ended September 30, 2022 was $97.1 million , compared to $81.5 million for
the three months ended September 30, 2021 . This increase was primarily
attributable to: (i) business interruption insurance income related to the Heber
1 fire of $4.0 million , which was included in the three months ended September
30, 2022 , compared to $15.5 million of business interruption insurance income
related to the lava eruption that damaged the Puna power plant in 2018, which
was included in the three months ended September 30, 2021 ; and (ii) the
commercial operation of CD4 and Tungsten Mountain 2 in July 2022 and April 2022 ,
respectively, as well as the consolidation of Dixie Valley and Beowawe which
were acquired in July 2021 . This increase was partially offset as a result of a
shutdown at the Heber 1 power plant following a fire that caused damage to the
steam turbine.
Our total Electricity segment cost of revenues for the three months ended
September 30, 2022 was 63.5% of Electricity revenues, compared to 57.2% for the
three months ended September 30, 2021 , including the impact from business
interruption insurance proceeds as described above. The cost of revenues
attributable to our international power plants for the three months ended
September 30, 2022 was 16.9% 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, 2022 was $11.7 million , compared to $9.2 million for the
three months ended September 30, 2021 , which represented a 27.0% increase. This
increase was primarily attributable to the increase 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, 2022 and 2021, was 82.0% and 87.2%, respectively.
Energy Storage Segment
Cost of revenues attributable to our Energy Storage segment for the three months
ended September 30, 2022 were $6.1 million compared to $5.0 million for the
three months ended September 30, 2021 . The Energy Storage segment includes cost
of revenues related to the delivery of energy storage and energy management
services.
Research and Development Expenses, Net
Research and development expenses for the three months endedSeptember 30, 2022 were$1.2 million , compared to$1.2 million for the three months endedSeptember 30, 2021 .
Selling and Marketing Expenses
Selling and marketing expenses for the three months endedSeptember 30, 2022 were$4.1 million compared to$2.7 million for the three months endedSeptember 30, 2021 . This increase is partially related to a new product contract that started in the third quarter of 2022 as well as to other marketing initiatives. Selling and marketing expenses for the three months endedSeptember 30, 2022 constituted 2.3% of total revenues for such period, compared to 1.7% for the three months endedSeptember 30, 2021 . 44
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General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2022 were$16.1 million compared to$23.6 million for the three months endedSeptember 30, 2021 . This decrease of$7.5 million was primarily attributable to$4.5 million of transaction costs, including$3.7 million related to theTG Geothermal Portfolio, LLC , acquisition included in the third quarter of 2021 as well as higher legal costs in 2021 mainly associated with the investigation by the Special Committee. General and administrative expenses for the three months endedSeptember 30, 2022 constituted 9.1% of total revenues for such period, compared to 14.8% for the three months endedSeptember 30, 2021 .
Business Interruption Insurance Income
There was no business interruption insurance income classified under operating expenses for the three months endedSeptember 30, 2022 , compared to$0.2 million for the three months endedSeptember 30, 2021 . Business interruption insurance income for the three months endedSeptember 30, 2021 is attributable to business interruption recovery proceeds relating to the Puna power plant.
Write-off of
There were no write-offs of Energy Storage projects and assets for the three
months ended
Write-off of Unsuccessful Exploration Activities
Write-off of unsuccessful exploration activities for the three months ended
Interest Income Interest Income for the three months endedSeptember 30, 2022 was$1.7 million , compared to$0.5 million for the three months endedSeptember 30, 2021 . This increase was primarily related to higher interest rates on cash and cash equivalents. Interest Expense, Net Interest expense, net for the three months endedSeptember 30, 2022 was$22.4 million , compared to$22.2 million for the three months endedSeptember 30, 2021 . This increase of$0.2 million was primarily attributable to: (i) approximately$2.8 million related to the Convertible Senior Notes which we entered into inJune 2022 ; and (ii) approximately$0.8 million related toBank Mizrahi Loan which was received inApril 2022 . This increase was partially offset by$2.4 million related to the prepayment of Series 3 Bonds inJune 2022 as well as to lower interest expenses on other long-term loans as a result of regular principal payments.
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction gains and losses for the three months endedSeptember 30, 2022 was a loss of$0.3 million , compared to a loss of$0.0 million for the three months endedSeptember 30, 2021 . Derivatives and foreign currency transaction gains (losses) for the three months endedSeptember 30, 2022 primarily includes losses from foreign currency forward contracts which were not accounted for as hedge transactions.
Income Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits for the three months endedSeptember 30, 2022 was$9.1 million , compared to$7.9 million for the three months endedSeptember 30, 2021 . This income primarily represents the value of production tax credits ("PTCs") and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of$1.2 million is primarily related to theSteamboat Hills tax equity partnership entered into inOctober 2021 . 45
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Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net for the three months endedSeptember 30, 2022 was an expense of$0.7 million , compared to an expense of$0.0 million for the three months endedSeptember 30, 2021 . Other non-operating income (expense), net for the three months endedSeptember 30, 2022 , primarily consisted of a sale of certain equipment to a third party. Income Taxes Income tax provision for the three months endedSeptember 30, 2022 was$7.2 million compared to income tax provision of$2.0 million for the three months endedSeptember 30, 2021 . Our effective tax rate for the three months endedSeptember 30, 2022 and 2021, was 26.1% and 9.2%, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the jurisdictional mix of earnings at differing tax rates, movement in the valuation allowance and generation of production tax credits.
Equity in Earnings (losses) of Investees, Net
Equity in losses of investees, net for the three months endedSeptember 30, 2022 was$0.6 million , compared to equity in earnings of investees of$0.6 million for the three months endedSeptember 30, 2021 . Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in theSarulla Consortium ("Sarulla"). The increase in equity losses in investees, net between the reported periods is primarily related to our portion of the devaluation of the local currency against theU.S Dollar, lower net income in Sarulla as a result of lower generation as well as a write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant's performance, the recovery plan is ongoing; however, uncertainty remains regarding Sarulla's ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the three months endedSeptember 30, 2022 was$18.1 million , compared to net income attributable to the Company's stockholders of$14.9 million for the three months endedSeptember 30, 2021 , which represents an increase of$3.2 million . This increase was attributable to a decrease of$1.0 million in net income which was affected by the explanations described above, and a decrease of$4.2 million in net income attributable to noncontrolling interest in the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 , mainly due to the impact of$15.8 million of business interruption insurance income which was recorded in the third quarter of 2021 in relation to the Puna power plant inHawaii . 46
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Comparison of the Nine Months Ended
Total Revenues
The table below compares revenues for the nine months ended
Nine Months Ended September 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 466.5 $ 421.5 10.7 %
Product segment 39.2 26.6 47.6
Energy Storage segment 22.9 24.0 (4.6 )
Total revenues $ 528.7 $ 472.1 12.0 %
Electricity Segment
Revenues attributable to our Electricity segment for the nine months ended
September 30, 2022 , were $466.5 million , compared to $421.5 million for the nine
months ended September 30, 2021 . The increase in our Electricity segment
revenues was mainly due to: (i) higher revenues in Puna of approximately $18.0
million primarily due to higher electricity rates; (ii) start of commercial
operation of our CD4 power plant facility in July 2022 , which contributed $4.0
million to the increase in Electricity revenues; (iii) Dixie Valley and Beowawe
power plants which contributed approximately $22.7 million , as a result of their
inclusion in our condensed consolidated financial statements starting July 2021 ,
as part of the Terra-Gen Transaction; and (iv) start of commercial operations of
Tungsten Mountain 2 in April 2022 , which contributed $2.7 million to this
increase. This increase was partially offset by $8.8 million due to a decrease
in revenues as a result of a shutdown at the Heber 1 power plant following a
fire that caused damage to the steam turbine.
Power generation in our power plants increased by 5.7% from 4,679,959 MWh in the
nine months ended September 30, 2021 to 4,945,315 MWh in the nine months ended
September 30, 2022 .
Product Segment
Revenues attributable to our Product segment for the nine months ended September
30, 2022 were $39.2 million , compared to $26.6 million for the nine months ended
September 30, 2021 , which represented an increase of 47.6%. The increase in our
Product segment revenues was primarily due to certain new projects in New
Zealand , Nicaragua and Indonesia for which we recorded revenues for in the first
nine months of 2022 and which were higher than revenues related to different
projects in New Zealand and Chile which were substantially completed in 2021.
Energy Storage Segment
Revenues attributable to our Energy Storage segment for the nine months ended
September 30, 2022 were $22.9 million compared to $24.0 million for the nine
months ended September 30, 2021 . The decrease is mainly due to a decrease of
$6.8 million in revenues from the Rabbit Hill battery energy storage facility
primarily as a result of the February 2021 power crisis in Texas , which resulted
in a record high increase in demand for electricity on the one hand and a
significant decrease in electricity supply in the region on the other hand. This
led to a significant increase in the Responsive Reserve Service market price
during this weather event. This decrease from 2021 was offset by higher revenues
at PJM and CAISO facilities due to high energy rates and increased performance
of the assets in 2022.
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Table of Contents Total Cost of Revenues
The table below compares cost of revenues for the nine months ended
Nine Months Ended September 30,
2022 2021 Change
(Dollars in millions)
Electricity segment $ 287.1 $ 245.1 17.1 %
Product segment 35.6 23.2 53.8
Energy Storage segment 17.3 15.0 15.4
Total cost of revenues $ 340.1 $ 283.3 20.0 %
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the nine
months ended September 30, 2022 was $287.1 million , compared to $245.1 million
for the nine months ended September 30, 2021 . This increase was primarily
attributable to: (i) the consolidation of Dixie Valley and Beowawe power plants
which were acquired in July, 2021, and contributed a total of $23.2 million to
the increase in cost of revenues; (ii) $7.1 million related to the Puna power
plant resumption of operations; (iii) higher business interruption insurance
income of $6.3 million related to the lava eruption at the Puna power plant and
the fire at our Heber 1 power plant; and (vi) $5.2 million related to the
expansion of the McGinness Hills complex in May 2021 , Tungsten 2 in April 2022 ,
and CD4 in July 2022 .
Our total Electricity segment cost of revenues for the nine months ended
September 30, 2022 was 61.5% of Electricity revenues, compared to 58.2% for the
nine months ended September 30, 2021 , including the impact from business
interruption insurance proceeds described above. The cost of revenues
attributable to our international power plants for the nine months ended
September 30, 2022 was 18.0% 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
ended September 30, 2022 was $35.6 million , compared to $23.2 million for the
nine months ended September 30, 2021 , which represented a 53.8% increase. This
increase was primarily attributable to the increase in Product segment revenues
and higher costs, as discussed above. As a percentage of total Product segment
revenues, our total cost of revenues attributable to our Product segment for the
nine months ended September 30, 2022 and 2021, was 90.8% and 87.2%,
respectively.
Energy Storage Segment
Cost of revenues attributable to our Energy Storage segment for the nine months
ended September 30, 2022 were $17.3 million compared to $15.0 million for the
nine months ended September 30, 2021 . This increase was mainly due to the
addition of the Vallecito battery energy storage system to our commercially
operating sites in April 2021 and Tierra Buena in June 2022 . The Energy Storage
segment includes cost of revenues related to the delivery of energy storage and
energy management services.
Research and Development Expenses, Net
Research and development expenses for the nine months endedSeptember 30, 2022 were$3.7 million , compared to$3.2 million for the nine months endedSeptember 30, 2021 . The increase is mainly attributable to the timing of research and development projects that took place during the nine months endedSeptember 30, 2022 compared to the corresponding period in 2021.
Selling and Marketing Expenses
Selling and marketing expenses for the nine months endedSeptember 30, 2022 were$12.4 million compared to$10.9 million for the nine months endedSeptember 30, 2021 . Selling and marketing expenses for the nine months endedSeptember 30, 2022 , constituted 2.3% of total revenues for such period, compared to 2.3% for the nine months endedSeptember 30, 2021 , and the increase period over period is associated with the corresponding increase in total revenues. 48
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General and Administrative Expenses
General and administrative expenses for the nine months endedSeptember 30, 2022 were$47.2 million compared to$60.4 million for the nine months endedSeptember 30, 2021 . The decrease of$13.2 million was primarily due to$4.5 million of transaction costs, including$3.7 million related to theTG Geothermal Portfolio, LLC , acquisition included in the third quarter of 2021 as well as higher legal costs in 2021 mainly associated with the investigation by the Special Committee. Additionally, general and administrative expenses for the nine months endedSeptember 30, 2021 include a provision for doubtful debts of$3.0 million relating to imbalance charges from the grid operator in respect of our demand response operations that we were unable to collect due to the February power crisis inTexas . General and administrative expenses for the nine months endedSeptember 30, 2022 constituted 8.9% of total revenues for such period, compared to 12.8% for the nine months endedSeptember 30, 2021 .
Business Interruption Insurance Income
There was no business interruption insurance income classified under operating expenses for the nine months endedSeptember 30, 2022 , compared to$0.2 million for the nine months endedSeptember 30, 2021 . Business interruption insurance income in 2021 is attributable to business interruption recovery relating to the Puna power plant.
Write-off of Energy Storage projects and assets
Write-off of Energy Storage projects and assets for the nine months endedSeptember 30, 2022 was$2.0 million compared to none for the nine months endedSeptember 30, 2021 . The write-off in 2022 is primarily related to accumulated costs of energy storage projects that the Company is no longer pursuing as well as specific certain customer related assets.
Write-off of Unsuccessful Exploration Activities
Write-offs of unsuccessful exploration activities for the nine months ended
Interest Income
Interest Income for the nine months ended
Interest Expense, Net Interest expense, net for the nine months endedSeptember 30, 2022 was$63.9 million , compared to$59.9 million for the nine months endedSeptember 30, 2021 . This increase of$4.0 million was primarily due to: (i)$2.9 million related to the Convertible Senior Notes which we entered into inJune 2022 ; (ii) higher$3.4 million of interest expenses related to the financing liability assumed as part of the business combination purchase transaction of the Terra-Gen geothermal assets inJuly 2021 ; and (iii) higher$4.8 million of interest expenses related to Bank Hapoalim Loan received inJuly 2021 , HSBC Bank Loan received inJuly 2021 , Bank Discount Loan received inSeptember 2021 andBank Mizrahi Loan received inApril 2022 . This increase was partially offset by an increase of$4.0 million in interest capitalized to projects under construction,$2.5 million related to the prepayment of Series 3 Bonds inJune 2022 , and lower interest expenses on other long-term loans as a result of regular principal payments.
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction losses for the nine months endedSeptember 30, 2022 were$4.0 million , compared to losses of$16.2 million for the nine months endedSeptember 30, 2021 . Derivatives and foreign currency transaction losses for the nine months endedSeptember 30, 2021 included$14.5 million in losses relating to the hedge transaction associated with our Rabbit Hill battery energy storage facility, due to extreme weather conditions in the area ofGeorgetown, Texas inFebruary 2021 . In addition, we recorded losses from foreign currency forward contracts which were not accounted for as hedge transactions. 49
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Income Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits for the nine months endedSeptember 30, 2022 was$26.3 million , compared to$21.7 million for the nine months endedSeptember 30, 2021 . This income primarily represents the value of PTCs and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of$4.7 million is primarily related to theSteamboat Hills tax equity partnership entered into inOctober 2021 .
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net for the nine months endedSeptember 30, 2022 was an expense of$0.5 million , compared to an expense of$0.3 million for the nine months endedSeptember 30, 2021 . Other non-operating income (expense), net for the nine months endedSeptember 30, 2022 , primarily includes make-whole premium of$1.1 million from the prepayment of Series 3 Bonds during the second quarter of 2022, as further described under Note 1 to the condensed consolidated financial statements, net of gain from a sale of certain equipment to a third party. Income Taxes Income tax provision for the nine months endedSeptember 30, 2022 was$23.5 million compared to$9.3 million for the nine months endedSeptember 30, 2021 . Our effective tax rate for the nine months endedSeptember 30, 2022 and 2021, was 28.5% and 15.2%, respectively. The effective rate differs from the federal statutory rate of 21% for the nine months endedSeptember 30, 2022 primarily due to the jurisdictional mix of earnings at differing tax rates from the federal statutory tax rate; movement in the valuation allowance; and generation of production tax credits.
Equity in Earnings (losses) of Investees, Net
Equity in losses of investees, net for the nine months endedSeptember 30, 2022 was$1.6 million , compared to earnings of$1.8 million for the nine months endedSeptember 30, 2021 . Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in the Sarulla consortium. The change between the reported periods is primarily related to our portion in the lower net income in Sarulla as a result of lower generation as well as higher write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant's performance, the recovery plan is ongoing; however, uncertainty remains regarding Sarulla's ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the nine months endedSeptember 30, 2022 was$47.8 million , compared to$43.2 million for the nine months endedSeptember 30, 2021 , which represents an increase of$4.6 million . This increase was attributable to the increase of$3.8 million in net income which was affected by the explanations described above, as well as a decrease in net income attributable to noncontrolling interest primarily due to the resumption of operations of the Puna power plant to 25MW in the third quarter of 2021, offset by business interruption insurance income related to the lava eruption in the Puna power plant of$15.8 million in the nine months endedSeptember 30, 2021 , compared to$1.8 million in the nine months endedSeptember 30, 2022 .
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.
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As ofSeptember 30, 2022 , we had access to (i)$154.6 million in cash and cash equivalents, of which$40.7 million is held by our foreign subsidiaries; and (ii)$387.4 million of unused corporate borrowing capacity under existing committed lines of credit with different commercial banks. Our estimated capital needs for the remainder of 2022 include$160.0 million for capital expenditures on new projects under development or construction including energy storage projects, exploration activity and maintenance capital expenditures for our existing projects. In addition,$34.0 million will be needed for long-term debt repayment. We expect to finance these requirements with: (i) the sources of liquidity described above; (ii) positive cash flows from our operations; and (iii) future project financings and re-financings (including construction loans and tax equity). Management believes that, based on the current stage of implementation of our strategic plan, the sources of liquidity and capital resources described above will address our anticipated liquidity, capital expenditures, and other investment requirements. As ofSeptember 30, 2022 , we continue to maintain our assertion to no longer indefinitely reinvest foreign funds held by our foreign subsidiaries, with the exception of a certain balance held inIsrael , and have accrued the incremental foreign withholding taxes. Accordingly, during the nine months endedSeptember 30, 2022 , we included a foreign income tax expense of$1.4 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries.
Letters of Credits Under Credit Agreements
Some of our customers require our project subsidiaries to post letters of credit in order to guarantee their respective performance under relevant contracts. We are also required to post letters of credit to secure our obligations under various leases and licenses and may, from time to time, decide to post letters of credit in lieu of cash deposits in reserve accounts under certain financing arrangements. In addition, our subsidiary,Ormat Systems , is required from time to time to post performance letters of credit in favor of our customers with respect to orders of products. Issued and Credit Agreements Amount Outstanding as of Termination Issued September 30, Date 2022 (Dollars in millions) Committed lines for credit and letters of credit$ 468.0 $ 80.6 Mar 2023-July 2025 Committed lines for letters of October 2022-August credit 155.0 107.8 2023 Non-committed lines - 14.9 October 2022 Total$ 623.0 $ 203.3 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; and (ii) 12-month debt, net of cash, cash equivalents, and short-term bank deposits to Adjusted EBITDA ratio not to exceed 6.0. As ofSeptember 30, 2022 : (i) total equity was$1,992.3 million and the actual equity to total assets ratio was 44.0% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 4.12. During the nine months endedSeptember 30, 2022 , we distributed interim dividends in an aggregate amount of$20.2 million . The failure to perform or observe any of the covenants set forth in such agreements, subject to various cure periods, would result in the occurrence of an event of default and would enable the lenders to accelerate all amounts due under each such agreement. 51
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As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, (except as described below), and believe that the restrictive covenants, financial ratios and other terms of any of our full-recourse bank credit agreements will not materially impact our business plan or operations.
As ofSeptember 30, 2022 , we did not meet the dividend distribution criteria related to the DAC 1 Senior Secured Notes, and the financing liability assumed as part of the Terra-Gen purchase transaction which resulted in certain equity distribution restrictions from these related subsidiaries. Future minimum payments Future minimum payments under long-term obligations (including long-term debt, lease obligations and financing liability), as ofSeptember 30, 2022 , are as follows: (Dollars in thousands) Year endingDecember 31 : 2022$ 35,663 2023 204,499 2024 266,946 2025 178,128 2026 178,905 Thereafter 1,237,697 Total$ 2,101,838 Third-Party Debt Our third-party debt consists of (i) non-recourse and limited-recourse project finance debt or acquisition financing debt that we or our subsidiaries have obtained for the purpose of developing and constructing, refinancing or acquiring our various projects; (ii) full-recourse debt incurred by us or our subsidiaries for general corporate purposes; (iii) financing liability related to the business combination purchase transaction of the Terra-Gen geothermal assets and (iv) convertible senior notes issued in the second quarter of 2022 as further described under Note 1 to the condensed consolidated financial statements.
Non-Recourse and Limited-Recourse Third-Party Debt
Loan Amount Issued Amount Outstanding Interest Maturity Related Project Location
as of Rate Date
September 30,
2022
(Dollars in millions)
McGinness HillsOFC 2 Senior Secured phase 1 and Notes - Series A $ 151.7 $ 74.0 4.67 % 2032 Tuscarora U.S. OFC 2 Senior Secured McGinness Hills Notes - Series B 140.0 88.3 4.61 % 2032 phase 2 U.S. Olkaria III Financing Agreement with DFC - Olkaria III Tranche 1 85.0 38.9 6.34 % 2030 Complex Kenya Olkaria III Financing Agreement with DFC - Olkaria III Tranche 2 180.0 82.1 6.29 % 2030 Complex Kenya Olkaria III Financing Agreement with DFC - Olkaria III Tranche 3 45.0 22.2 6.12 % 2030 Complex Kenya Amatitlan Financing(1) 42.0 16.6 LIBOR+4.35 % 2027 Amatitlan Guatemala Don A. Campbell Don A. Campbell Senior Secured Notes 92.5 64.1 4.03 % 2033 Complex U.S. Prudential Capital Neal Hot Springs Group Idaho Loan(2) 20.0 16.0 5.80 % 2023 and Raft River U.S. U.S. Department of Energy Loan(3) 96.8 36.1 2.60 % 2035 Neal Hot Springs U.S. Prudential Capital Group Nevada Loan 30.7 24.3 6.75 % 2037 San Emidio U.S. Platanares Loan with DFC 114.7 81.9 7.02 % 2032 Platanares Honduras Viridity - Plumstriker 23.5 12.9 LIBOR+3.5 % 2026 Plumsted+Striker U.S. Géothermie Géothermie Bouillante(4) 8.9 4.3 1.52 % 2026 Bouillante Guadeloupe Géothermie Géothermie Bouillante(4) 8.9 5.4 1.93 % 2026 Bouillante Guadeloupe Total$ 1,039.7 $ 567.1
1. LIBOR cannot be lower than 1.25%. Margin of 4.35% as long as the Company's
guaranty of the loan is outstanding (current situation) or 4.75% otherwise.
2. Secured by equity interest. 3. Secured by the assets. 4. Loan issued in total aggregate amount ofEUR 8.0 million . 52
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Full-Recourse Third-Party Debt
Outstanding
Amount as of
September 30,
Loan Amount Issued 2022 Interest Rate Maturity Date
(Dollars in millions)
Mizrahi Loan $ 75.0 $ 75.0 4.10 % April 2030
Hapoalim Loan 125.0 107.1 3.45 % June 2028
HSBC Loan 50.0 42.9 3.45 % July 2028
Discount Loan 100.0 87.5 2.90 % September 2029
Senior Unsecured Bonds
Series 4 (1) 289.8 254.0 3.35 % June 2031
Senior unsecured Loan 1 100.0 87.4 4.80 % March 2029
Senior unsecured Loan 2 50.0 43.7 4.60 % March 2029
Senior unsecured Loan 3 50.0 43.7 5.44 % March 2029
DEG Loan 2 50.0 30.0 6.28 % June 2028
DEG Loan 3 41.5 26.2 6.04 % June 2028
Total $ 931.3 $ 797.5 (1 ) Bonds issued in total aggregate principal amount of
Financing Liability -
The financing liability is related to the business combination purchase
transaction of the Terra-Gen geothermal assets. The financial liability
outstanding amount as of
Convertible Senior Notes
The convertible senior notes ("Notes") were issued in June 2022 as further
described under Note 1 to the condensed consolidated financial statements. The
Notes bear annual interest of 2.5%, payable semiannually in arrears on January
15 and July 15 of each year, beginning on January 15, 2023 . The Notes mature on
July 15, 2027 , unless earlier converted, redeemed or repurchased and the
outstanding aggregate amount of the Notes as of September 30, 2022 is $431.3
million .
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Liquidity Impact of Uncertain Tax Positions
The Company has a liability associated with unrecognized tax benefits and related interest and penalties in the amount of approximately$6.6 million as ofSeptember 30, 2022 . This liability is included in long-term liabilities in our condensed consolidated balance sheet because we generally do not anticipate that settlement of the liability will require payment of cash within the next twelve months. We are not able to reasonably estimate when we will make any cash payments required to settle this liability. Dividends
The following are the dividends declared by us since
Dividend
Amount per
Date Declared Share Record Date Payment Date
November 4, 2020 $ 0.11 November 18, 2020 December 2, 2020
February 24, 2021 $ 0.12 March 11, 2021 March 29, 2021
May 5, 2021 $ 0.12 May 18, 2021 June 1, 2021
August 4, 2021 $ 0.12 August 18, 2021 September 1, 2021
November 3, 2021 $ 0.12 November 17, 2021 December 3, 2021
February 23, 2022 $ 0.12 March 9, 2022 March 23, 2022
May 2, 2022 $ 0.12 May 16, 2022 May 31, 2022
August 3, 2022 $ 0.12 August 17, 2022 August 31, 2022
November 2, 2022 $ 0.12 November 16, 2022 November 30, 2022
Historical Cash Flows
The following table sets forth the components of our cash flows for the periods
indicated:
Nine Months Ended
September 30,
2022 2021
(Dollars in thousands)
Net cash provided by operating activities $ 206,247 $ 144,791
Net cash used in investing activities (369,577 ) (509,945 )
Net cash provided by (used in) financing activities 73,600 185,012
Net change in cash and cash equivalents and restricted cash and cash equivalents (90,409 ) (180,478 )
For the Nine Months Ended
Net cash provided by operating activities for the nine months endedSeptember 30, 2022 was$206.2 million , compared to$144.8 million for the nine months endedSeptember 30, 2021 . The net increase of$61.5 million was primarily due to: (i) an increase in our operational activities as explained above, period over period; (ii) net increase in the change in accounts payable and accrued expenses of$29.2 million , mainly due to timing of payments to our supplier and construction of power plants; (iii) a decrease in the change in receivables of$3.4 million , as a result of the timing of collection from our customers; and (iv) a decrease in prepaid expenses and other of$11.6 million . The above increases were partially offset by: (i) a net increase of$22.7 million in costs and estimated earnings in excess of billings on uncompleted contracts, period over period, as a result of timing of billing to our customers. 54
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Net cash used in investing activities for the nine months endedSeptember 30, 2022 was$369.6 million , compared to$509.9 million for the nine months endedSeptember 30, 2021 . The principal factors that affected our net cash used in investing activities during the nine months endedSeptember 30, 2022 were: capital expenditures of$408.4 million , primarily for our facilities under construction that support our growth plan, net of proceeds received from sales and maturities of marketable securities. The principal factors that affected our net cash used in investing activities during the 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 of$171.0 million used in the Terra-Gen Transaction; and (iii) purchase of marketable securities of$49.3 million . Net cash provided by financing activities for the nine months endedSeptember 30, 2022 was$73.6 million , compared to net cash used in financing activities of$185.0 million for the nine months endedSeptember 30, 2021 . The principal factors that affected the net cash provided by financing activities during the nine months endedSeptember 30, 2022 were: (i) net proceeds of$419.7 million and$75.0 million from issuance of convertible notes and the Mizrahi Loan, respectively, primarily offset by: (i) prepayment of Series 3 Bonds in the amount of$219.1 million ; (ii) repayment of long-term debt in the amount of$135.7 million ; (iii) cash dividend payment of$20.2 million ; (iv) purchase of capped call instruments in the amount of$24.5 million ; (v) purchase of treasury stock in the amount of$18.0 million , and (vi)$5.9 million cash paid to noncontrolling interest. The principal factors that affected our net cash provided by financing activities during the nine months endedSeptember 30, 2021 were proceeds from long-term loans of$275.0 million , partially offset by: (i) repayments of long-term debt in the amount of$58.4 million ; (ii) cash paid to noncontrolling interest of$7.0 million ; (iii) payments under finance lease obligations of$7.9 million , and (iv) a$19.9 million cash dividend paid.
Non-GAAP Measures: EBITDA and Adjusted EBITDA
We calculate EBITDA as net income before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for (i) mark-to-market gains or losses from accounting for derivatives, (ii) stock-based compensation, (iii) merger and acquisition transaction costs, (iv) gain or loss from extinguishment of liabilities, and (v) other unusual or non-recurring items. We adjust for these factors as they may be non-cash, unusual in nature and/or are not factors used by management for evaluating operating performance. We believe that presentation of these measures will enhance an investor's ability to evaluate its financial and operating performance. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted inthe United States , orU.S. GAAP, and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net earnings as indicators of our operating performance or any other measures of performance derived in accordance withU.S. GAAP. Our Board of Directors and senior management use EBITDA and Adjusted EBITDA to evaluate our financial performance. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do.
Net income for the three and nine months ended
Adjusted EBITDA for the three and nine months ended
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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,
2022 2021 2022 2021
(Dollars in thousands) (Dollars in thousands)
Net income $ 19,826 $ 20,780 $ 57,564 $ 53,804
Adjusted for:
Interest expense, net (including
amortization of deferred financing
costs) 20,744 21,711 61,722 58,282
Income tax provision (benefit) 7,227 2,048 23,520 9,323
Adjustment to investment in an
unconsolidated company: our
proportionate share in interest expense,
tax and depreciation and amortization in
Sarulla 3,150 2,889 9,441 8,253
Depreciation and amortization 48,863 47,548 142,966 130,503
EBITDA $ 99,810 $ 94,976 $ 295,213 $ 260,165
Mark-to-market (gains) or losses from
accounting for derivative (1,234 ) - 2,677 1,096
Stock-based compensation 2,816 2,120 8,629 6,840
Make-whole premium related to long-term
debt prepayment - - 1,102 -
Reversal of a contingent liability - - - (418 )
Allowance for bad debts - - 115 2,980
Hedge losses resulting from the February
power crisis in Texas - - - 9,133
Write-off related to Storage projects
and activity - - 1,954 -
Merger and acquisition transaction costs - 4,539 249 5,497
Other write-off - - - 134
Write-off of unsuccessful exploration
activities 827 - 827 -
Adjusted EBITDA $ 102,219 $ 101,635 $ 310,766 $ 285,427
In May 2014 , the Sarulla consortium closed $1,170 million in financing through
SOL. As of September 30, 2022 , the SOL credit facility had an outstanding
balance of $876.2 million . Our proportionate share in the SOL credit facility is
$111.7 million . In September 2022 , the last calculation period, Sarulla was able
to meet its historical debt service coverage ratio covenant under the credit
facility agreement notwithstanding the lower performance of the power plants,
and it was able to pay the entire current Extended Political Risk Guaranty
(EPRG) premium due in September 2022 (but not to eliminate the overdue EPRG
amount of approx. $1.5 million from past periods). However, the consortium
projects that the minimum DSCR requirement for the next calculation period
ending on March 2023 will not be met. During the second quarter of 2022, Sarulla
agreed with its banks on a framework that will enable it to perform remediation
work that is aimed to restore the plant's performance, however, uncertainty
remains regarding Sarulla's ability to meet the plan and we are evaluating the
impact of the plan on future performance.
Capital Expenditures
Our capital expenditures primarily relate to: (i) the development and construction of new power plants, (ii) the enhancement of our existing power plants; and (iii) investment in activities under our strategic plan.
The following is an overview of projects that are fully released for construction.
Heber Complex (California ). We are currently in the process of repowering theHeber 1 andHeber 2 power plants. We are planning to replace the steam turbine and old OEC units with new advanced technology equipment that will add a net capacity of 11 MW. Following these enhancements, we expect the capacity of the complex to reach 92 MW. Construction ofHeber 1 has started and construction ofHeber 2 is near completion. We expect commercial operation ofHeber 2 repowering in the fourth quarter of 2022 andHeber 1 repowering in the first half of 2023.Dixie Meadows (Nevada ). We are developing the 12 MW Dixie Meadows geothermal power plant inNevada . Construction commenced but has been temporarily paused byOrmat as it works collaboratively through theESA consultation process with the relevant regulatory agencies. For more information, see Note 10 to the unaudited condensed consolidated financial statements contained in this quarterly report. 56
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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 SCPPA portfolio PPA. Construction commenced and we expect commercial operation of the Steamboat Solar PV in the first half of 2023. Zunil Upgrade (Guatemala ). We are expanding the Zunil geothermal power plant inGuatemala to add 5 MW of additional capacity. We are planning to sell the electricity generated under the existing PPA with the local utility, Instituto Nacional de Electrification or "INDE". Construction has been completed and drilling is still ongoing. Commercial operation is expected in the first half of 2023. North Valley (Nevada ). We are developing the 25MW North Valley geothermal power plant inNevada . We recently signed a long term PPA with NV Energy. Construction is ongoing and commercial operation is expected in the first quarter of 2023.Brady Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our Brady geothermal complex inNevada . The project is expected to generate approximately 6 MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Construction commenced and equipment deliveries are ongoing. We expect commercial operation in Q1 2023. North Valley Solar (Nevada ). We are currently developing a Solar PV power plant adjacent to our North Valley geothermal power plant inNevada . The project is expected to generate approximately 6 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Engineering and procurement are ongoing. We expect commercial operation in the first half of 2023. Beowawe Upgrade (Nevada ). We are currently in the process of upgrading theBeowawe project that we recently acquired. We are planning to replace the old equipment with new advanced technology equipment that will add a net capacity of 9 MW. Engineering and procurement are ongoing and we expect commercial operation of 5MW in the second half of 2023 and the rest in 2024. Steamboat Hills 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 3.5 MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Project released and we expect commercial operation in the second half of 2023.
In addition, we are in the process of repowering Ormesa,
Project Name Size Location Customer Expected COD Upton 25MW/25MWh TX ERCOT Q4 2022 Andover 20MW/20MWh NJ PJM Q1 2023 Howell 6.5MW/6.5MWh NJ PJM Q1 2023 Bowling Green 12MW/12MWh OH PJM Q1 2023
Q3 2023
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The following is an overview of projects that are in initial stages of construction:
Carson Lake Project . We plan to develop between 10 MW to 15 MW at the Carson Lake project on BLM leases located inChurchill County, Nevada . We signed a Small Generator Interconnection Agreement with NV Energy inDecember 2017 . As ofSeptember 30, 2022 , we are planning to begin the drilling activity next year.
We have budgeted approximately
In addition, we estimate approximately$72.0 million in additional capital expenditures in 2022 to be allocated as follows: (i) approximately$32.0 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$15.0 million for maintenance capital expenditures for our operating power plants; (iii) approximately$23.0 million for the construction and development of energy 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 last two
quarters of 2022 to be approximately
Exposure to Market Risks Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans. However, the cost of obtaining financing for our project needs may increase significantly or such financing may be difficult to obtain. We, like other power plant operators, are exposed to electricity price volatility risk. Our exposure to such market risk is currently limited because the majority of our long-term PPAs have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. Our energy storage projects sell primarily on a "merchant" basis and are exposed to changes in the electricity market prices. The energy payments under the PPAs of theHeber 2 power plant in theHeber Complex until the end of 2022, are determined by reference to the relevant power purchaser's short run avoided cost. A decline in the price of natural gas will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from natural gas, or by reducing the price of purchasing its electrical energy needs from natural gas power plants, which in turn will reduce the energy payments that we may charge under the relevant PPA for these power plants.The Puna Complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for thePuna Complex . For bothHeber 2 and Puna power plants we signed a new PPA with fixed energy rates, as discussed above. As ofSeptember 30, 2022 , 98.6% of our consolidated long-term debt was fixed rate debt and therefore was not subject to interest rate volatility risk and 1.4% of our long-term debt was floating rate debt, exposing us to interest rate risk in connection therewith. As ofSeptember 30, 2022 ,$29.5 million of our long-term debt was subject to interest rate risk.
We currently maintain our surplus cash in short-term, interest-bearing bank
deposits, money market funds, corporate bonds and commercial paper (with a
minimum investment grade rating of A+ by
Our cash equivalents are subject to interest rate risk. Fixed rate securities
may have their market value adversely impacted by a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. As a result of these factors, our future investment income may fall
short of expectations because of changes in interest rates or we may suffer
losses in principal if we are forced to sell securities that decline in market
value because of changes in interest rates.
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We are also exposed to foreign currency exchange risk, in particular the fluctuation of theU.S. dollar versus the New Israeli Shekels ("NIS") inIsrael and the Euro. Risks attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary's ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary, or increase such subsidiary's overall expenses. InKenya , the tax asset is recorded inKenyan Shillings ("KES") similar to the tax liability, however any change in the exchange rate in the KES versus theU.S. dollar has an impact on our financial results. Risks attributable to fluctuations in foreign currency exchange rates can also arise when the currency denomination of a particular contract is not theU.S. dollar. Substantially all of our PPAs in the international markets are eitherU.S. dollar-denominated or linked to theU.S. dollar except for our operations onGuadeloupe , where we own and operate the Boulliante power plant which sells its power under a Euro-denominated PPA with Électricité deFrance S.A. Our construction contracts from time to time contemplate costs which are incurred in local currencies. The way we often mitigate such risk is to receive part of the proceeds from the contract in the currency in which the expenses are incurred. Currently, we have forward and cross-currency swap contracts in place to reduce our NIS/U.S. dollar currency exposure and expect to continue to use currency exchange and other derivative instruments to the extent we deem such instruments to be the appropriate tool for managing such exposure. OnJuly 1, 2020 , we concluded an auction tender and accepted subscriptions for senior unsecured bonds comprised ofNIS 1.0 billion aggregate principal amount (the "Senior Unsecured Bonds - Series 4"). The Senior Unsecured Bonds - Series 4 were issued in NIS and converted to approximately$290 million using a cross-currency swap transaction shortly after the completion of such issuance. InJune 2022 , we issued$431.3 million aggregate principal amount of our 2.5% convertible senior notes due in 2027. The Notes bear annual interest of 2.5%, payable semiannually in arrears, and mature onJuly 15, 2027 , unless earlier converted, redeemed or repurchased. We performed a sensitivity analysis on the fair value 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, 2022 andDecember 31, 2021 by a hypothetical 10% and calculating the resulting change in the fair values. At this time, the development of our strategic plan has not exposed us to any additional market risk. However, as the implementation of the plan progresses, we may be exposed to additional or different market risks. 59
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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 Change in the Fair Value
Risk 30,2022 31, 2021 30,2022 31, 2021 of
(Dollars in thousands)
Foreign Currency Forward
Foreign Currency $ (4,449 ) $ (2,719 ) $ 5,437 $ 3,324 Contracts
Interest Rate (919 ) - 937 - Mizrahi Loan
Interest Rate (1,579 ) (1,131 ) 1,619 1,148 Hapoalim Loan
Interest Rate (666 ) (557 ) 684 566 HSBC Loan
Interest Rate (1,441 ) (1,119 ) 1,481 1,131 Discount Loan
Interest Rate (4,286 ) (3,394 ) 4,429 3,465 Financing Liability
Interest Rate (3,827 ) (3,069 ) 3,972 3,146 OFC 2 Senior Secured Notes
Interest Rate (3,318 ) (2,946 ) 3,440 3,025 DFC Loan
Interest Rate (264 ) (226 ) 272 231 Amatitlan Loan
Interest Rate (3,581 ) (3,833 ) 3,653 3,880 Senior Unsecured Bonds
Interest Rate (560 ) (494 ) 578 505 DEG 2 Loan
Interest Rate (1,575 ) (1,286 ) 1,646 1,324 DAC 1 Senior Secured Notes
Migdal Loan and the
Additional Migdal Loan and
the Second Addendum Migdal
Interest Rate. (4,013 ) (3,135 ) 4,160 3,214 Loan
Interest Rate (1,004 ) (920 ) 1,069 965 San Emidio Loan
Interest Rate (766 ) (539 ) 794 550 DOE Loan
Interest Rate (60 ) (88 ) 60 89 Idaho Holdings Loan
Interest Rate (2,286 ) (2,035 ) 2,386 2,100 Platanares DFC Loan
Interest Rate (461 ) (389 ) 475 397 DEG 3 Loan
Interest Rate (158 ) (121 ) 161 123 Plumstriker Loan
Interest Rate (93 ) (81 ) 94 82 Other long-term loans
In July 2019 , the United Kingdom's Financial Conduct Authority (the "FCA"),
which regulates LIBOR (London Interbank Offered Rate), announced that it intends
to phase out LIBOR. LIBOR is still in use and being published until its phaseout
in June 2023 in order to allow a transition period mainly for contracts that
already exist using LIBOR. Additionally, the FCA has stated that no new
contracts using U.S. dollar LIBOR should be entered into after December 31,
2021 . The U.S. Federal Reserve , in conjunction with the Alternative Reference
Rates Committee, a steering committee comprised of large U.S. financial
institutions, is considering replacing U.S. dollar LIBOR with a new index
calculated by short-term repurchase agreements, backed by Treasury securities
("SOFR"). SOFR is observed and backward-looking, which stands in contrast with
LIBOR under the current methodology, which is an estimated forward-looking rate
and relies, to some degree, on the expert judgment of submitting panel members.
Given that SOFR is a secured rate backed by government securities, it would not
take into account bank credit risk (as is the case with LIBOR). Therefore, the
SOFR rate, if adopted, would likely be lower than LIBOR rates and is less likely
to correlate with the funding costs of financial institutions.
We have evaluated the impact of the transition from LIBOR, and currently believe that the transition will not have a material impact on our consolidated financial statements.
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Table of Contents Effect of Inflation We are seeing an increase in overall operating and other costs as the result of higher inflation rates, in particular inthe United States . In addition, we are experiencing an increase in raw material cost and supply chain delays, which may put pressure on our operating margins in the Product segment and increase our cost to build our own power plants and energy storage assets. To address the possibility of rising inflation, some of our contracts include certain provisions that mitigate inflation risk. In connection with the Electricity segment, none of ourU.S. PPAs, including the SCPPA Portfolio PPA, are directly linked to the Consumer Price Index ("CPI"). Inflation may directly impact an expense we incur for the operation of our projects, thereby increasing our overall operating costs and reducing our profit and gross margin. The negative impact of inflation would be partially offset by price adjustments built into some of our PPAs that could be triggered upon such occurrences. In addition to theHeber 2 and part of the Puna rates that are impacted by higher commodity prices, the energy payments pursuant to our PPAs for some of our power plants such as the Brady power plant, the Steamboat 2 and 3 power plants and theMcGinness Complex increase every year through the end of the relevant terms of such agreements, although such increases are not directly linked to the CPI or any other inflationary index. Lease payments are generally fixed, while royalty payments are generally calculated as a percentage of revenues and therefore are not significantly impacted by inflation. In our Product segment, inflation may directly impact fixed and variable costs incurred in the construction of third party power plants, thereby lowering our profit margins at the Product segment. We are more likely to be able to offset long term, all or part of this inflationary impact through our project pricing. With respect to power plants that we build for our own electricity production, inflationary pricing may impact our operating costs which may be partially offset in the pricing of the new long-term PPAs that we negotiate. Interest rate increases for both short-term and long-term debt have increased sharply. Although our outstanding debt mostly bears fixed interest rates, as we refinance it, or borrow additional amounts, we may incur additional interest expense versus expiring loans.
Contractual Obligations and Commercial Commitments
We have various contractual obligations, which are recorded as liabilities in our consolidated condensed financial statements. Other items are not recognized as liabilities in our consolidated condensed financial statements but are required to be disclosed. There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our 2021 Annual Report. Concentration of Credit Risk Our credit risk is currently concentrated with the following major customers:Sierra Pacific Power Company andNevada Power Company (subsidiaries of NV Energy), SCPPA and KPLC. If any of these electric utilities fail to make payments under its PPAs with us, such failure would have a material adverse impact on our financial condition. Also, as we implement our multi-year strategic plan we may be exposed, by expanding our customer base, to different credit profile customers than our current customers. The Company's revenues from its primary customers as a percentage of total revenues are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021Sierra Pacific Power Company andNevada Power Company 14.0 % 15.8 % 17.1 % 18.7 %Southern California Public Power Authority ("SCPPA") 18.7 % 21.3 % 21.4 % 23.9 % Kenya Power and Lighting Co. Ltd. ("KPLC") 15.2 % 16.1 % 14.9 % 16.3 % We have historically been able to collect on substantially all of our receivable balances. As ofSeptember 30, 2022 , the amount overdue from KPLC inKenya was$20.6 million of which$2.7 million was paid inOctober 2022 . InHonduras , as ofSeptember 30, 2022 , the total amount overdue from Empresa Nacional de Energía Eléctrica ("ENEE") was$15.6 million of which none was paid to-date. In addition, due to continuing restrictive measures related to the COVID-19 pandemic inHonduras , the Company may experience further delays in collection. The Company believes it will be able to collect all past due amounts inHonduras . 61
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Government Grants and Tax Benefits
A comprehensive discussion on government grants and tax benefits is included in our 2021 Annual Report. There has been some change to the comprehensive discussion as noted below.
OnAugust 16, 2022 , the President ofthe United States signed into law the Inflation Reduction Act of 2022 (the "Act"), which is effective for taxable years beginning afterDecember 31, 2022 . The Act includes several tax incentives to promote climate change mitigation and clean energy, electric vehicles, battery and energy storage manufacture or purchase. Some of these measures may materially affect our consolidated financial statements, and we are in the process of evaluating the Act and identifying potential effects of the Act as more guidance is issued. Furthermore, the Act introduces the following: (i) a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than$1 billion over a three-year period; and (ii) an excise tax of 1% of the fair market value of any stock which is repurchased, reduced by any stock issued during the taxable year. The Act also includes significant tax incentives for energy and climate initiatives related to Production Tax Credits ("PTC") and Investment Tax Credits ("ITC"), including extending ITC to energy storage projects for assets placed in service afterDecember 31, 2022 and the ability to transfer or sell PTCs to other taxpayers. There is no immediate impact of the Act to the three or nine months endedSeptember 30, 2022 . The Company cannot reasonably estimate the potential impact that the Act's tax incentives will have to its results of operations in future periods. The excise tax on stock repurchases and the new corporate alternative minimum tax are not expected to have a material impact on the Company's results of operations. 62
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