Ormat Technologies: A Renewable Energy Leader Navigating Challenges

Ormat Technologies is a leading vertically integrated company primarily engaged in the geothermal energy power business. The company has operations across three key segments: Electricity, Product, and Energy Storage.

In the Electricity segment, Ormat develops, builds, owns and operates geothermal, solar PV and recovered energy-based power plants, primarily in the United States and other countries. The Product segment designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation. The Energy Storage segment owns and operates grid-connected battery energy storage systems that provide capacity, energy and ancillary services to the electric grid.

Ormat has faced a variety of challenges and uncertainties that have impacted its operations and financial performance. Some of the key issues include:

Geopolitical Risks: Ormat’s operations in certain countries, such as Israel, may be adversely affected by ongoing military conflicts and political instability in the region. The company must navigate these geopolitical risks to maintain its global footprint.

Regulatory and Policy Changes: Ormat’s financial performance could be impacted by changes in laws and regulations governing its operations, including the potential loss of Qualifying Facility status for its domestic power plants or changes to government incentives like the Investment Tax Credit.

Supply Chain and Tariff Impacts: Recent U.S. tariff actions and retaliatory measures from other countries have created uncertainty around trade policies. This could slow the growth of Ormat’s Energy Storage segment, which relies on imported batteries from China, and increase costs for raw materials and equipment needed for its Electricity segment projects in the U.S.

Financing and Debt Obligations: As a capital-intensive business, Ormat relies on debt financing and project-level financing to fund its growth. The company must manage its debt obligations and maintain compliance with restrictive covenants to ensure financial flexibility.

Operational Risks: Ormat faces risks related to the performance of its power plants, including the potential for force majeure events, equipment failures, and the availability of transmission systems it does not control.

Competitive Landscape: Ormat competes with electric utilities, other power producers, and developers in the renewable energy space, which could impact its ability to secure new power purchase agreements (PPAs) and supply contracts.

Despite these challenges, Ormat has continued to execute on its strategic plan to expand its renewable energy portfolio and diversify its business. Some key recent developments include:

• Acquisition of the 20MW Blue Mountain geothermal power plant in Nevada, with plans to upgrade and expand the facility.
• Winning a tender for two 300MW/1200MWh energy storage projects in Israel, in a ⁵⁰⁄₅₀ joint venture with Allied Infrastructure.
• Successful commercial operation of the 35MW Ijen geothermal power plant in Indonesia, Ormat’s share of which is 17MW.
• Signing a new 10-year PPA with Calpine Energy Solutions for the Mammoth 2 geothermal power plant in California.

Ormat’s revenues are primarily generated through long-term PPAs with fixed energy rates, which provide stability and predictability. However, the company’s Electricity segment revenues are subject to seasonal variations, with higher generation and revenues in the winter months due to lower ambient temperatures.

Geographically, Ormat’s foreign operations, particularly in Kenya, Guatemala, Honduras, and Guadeloupe, have historically generated higher gross margins and net income compared to its domestic U.S. operations. This is due to the lower-cost regions and newer power plants in these international markets.

In the first quarter of 2025, Ormat reported total revenues of $229.8 million, a 2.5% increase from the same period in 2024. The Electricity segment contributed 78.4% of total revenues, the Product segment contributed 14%, and the Energy Storage segment contributed 7.7%.

Ormat’s cost of revenues increased by 7.9% year-over-year, primarily due to higher costs in the Electricity and Energy Storage segments. Gross profit margin declined from 35.2% in the first quarter of 2024 to 31.7% in the first quarter of 2025, reflecting the increased costs.

Operating expenses, including research and development, selling and marketing, and general and administrative expenses, decreased slightly as a percentage of total revenues, from 11.7% in the first quarter of 2024 to 10.1% in the first quarter of 2025.

Net income attributable to Ormat’s stockholders increased from $38.6 million in the first quarter of 2024 to $40.4 million in the first quarter of 2025, a 4.6% increase. This was driven by higher revenues, partially offset by increased costs and expenses.

Ormat’s liquidity position remains strong, with $112.7 million in cash and cash equivalents and $364.8 million in unused corporate borrowing capacity as of March 31, 2025. The company plans to finance its estimated $419 million in capital expenditures for the remainder of 2025 through a combination of operating cash flows, existing liquidity, and future project financing and refinancing.

One of the key risks Ormat faces is the potential impact of changes in U.S. and foreign government trade policies, including the imposition or increase of tariffs. This could slow the growth of the Energy Storage segment, which relies on imported batteries, and increase costs for raw materials and equipment needed for Electricity segment projects in the U.S. Ormat is working to accelerate imports and mitigate these risks, but the long-term impact remains uncertain.

Another significant risk is the potential loss of Qualifying Facility status for its domestic power plants or changes to government incentives like the Investment Tax Credit. This could adversely affect Ormat’s financial performance and growth plans.

Ormat also faces operational risks, such as the potential for force majeure events, equipment failures, and transmission system availability issues that could impact the performance of its power plants. The company must carefully manage these risks to ensure the reliability and profitability of its operations.

Despite the challenges, Ormat remains a leader in the renewable energy industry, with a diversified portfolio of geothermal, solar, and energy storage assets. The company’s focus on international expansion, technological innovation, and strategic partnerships positions it well to navigate the evolving energy landscape and continue its growth trajectory.

As Ormat executes on its strategic plan, investors and stakeholders will closely monitor the company’s ability to manage the various risks and uncertainties it faces, while capitalizing on the opportunities in the rapidly changing renewable energy market.