Ormat Technologies Q3 2026 Earnings Call Transcript

Ormat Technologies (NYSE:ORA) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Ormat Technologies reported a 10.2% increase in third-quarter revenue and an 11.1% growth in adjusted EBITDA, marking a record for the quarter.

The Energy Storage segment was the main driver of growth, with a 145.2% increase in revenue, while the Electricity segment saw a slight decline due to hurricane impacts at Puna.

The company raised its full-year revenue and adjusted EBITDA guidance, now expecting total revenue of $1.17 billion to $1.2 billion and adjusted EBITDA of $640 million to $650 million.

Ormat continues to advance its Enhanced Geothermal Systems (EGS) projects, including two pilot projects and ongoing negotiations for power purchase agreements.

The company expanded its EGS land position to approximately 170,000 acres, with potential to support 5 to 6 gigawatts of future development.

Ormat has a strategic goal to double its capacity by 2030, aiming for 2 to 2.1 gigawatts in the electricity segment and 1.5 to 1.6 gigawatts in storage.

The Board declared a quarterly dividend of $0.12 per share, reflecting the company’s commitment to returning capital to shareholders.

Full Transcript

OPERATOR

After today’s presentation, there will be an opportunity to ask questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Please note that this event is being recorded. I would now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.

Josh Carroll

Thank you, Operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Levy, Vice President of Investor Relations and ESG Planning & Reporting. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives, and expectations for future operations and are based on management’s current estimates and projections.

Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as described in Ormat Technologies’ Annual Report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC. In addition, during the call the company will present non-GAAP financial measures such as adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management’s reasons for presenting such information are set forth in the press release that was issued last night, as well as in the slides posted on the website. Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP.

Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company’s website at ormat.com under the Presentation link that’s found on the Investor Relations tab. With all that said, I would now like to turn the call over to Ormat CEO Doron Blachar. Doron.

Doron Blachar (Chief Executive Officer)

Thank you, Josh. Good morning everyone, and thank you for joining us today. Let me begin with the key highlights from the third quarter. Starting on Slide 4, Ormat delivered a strong third quarter, building on the momentum we have sustained throughout the first nine months of the year. During the third quarter, revenue increased 10.2% and adjusted EBITDA grew 11.1% compared with the prior-year period, reaching a third quarter record. As a result of this growth and our visibility into the fourth quarter, we are raising the midpoint of our full-year revenue and adjusted EBITDA guidance.

Energy Storage was the main driver of our growth this quarter, supported by new capacity, high asset availability, and favorable merchant pricing in PJM. In our Electricity segment, our 10 megawatt Dominica geothermal plant began commercial operations in July, and generation at Olkaria continued to improve following our resource utilization work. These gains were partially offset by lower generation at our Puna plant due to hurricane-related forced outage.

On the EGS front, we continue to advance two pilot projects with SLB and SAGE while negotiating power purchase agreements for Dixie Valley, our first planned commercial EGS project, and for other potential projects. I will provide more details shortly. Finally, as many of you are aware, we hosted an Investor Day in September where we outlined our growth target for 2030. While it is still early, we believe today’s results reflect solid initial progress towards these goals.

Before I dive deeper into some of our operational highlights, I would like to turn the call over to our CFO, Assi, to cover the financial results for the quarter.

Assi Ginzburg (Chief Financial Officer)

Thank you, Doron. I will begin my review of the financial results on Slide 6. The third quarter revenue was $275 million, marking an increase of 10.2% compared with the prior-year period, led by strong Energy Storage performance. Gross profit increased 20.8% to $77.4 million, and consolidated gross margin expanded by 250 basis points to 28.1%. Net income attributable to the company’s stockholders was $31.9 million, or $0.51 per diluted share, compared with $24.1 million, or $0.39 per diluted share, in the prior-year period.

The year-over-year increase of 32.2% was mainly driven by higher Energy Storage revenue and gross profit. Adjusted net income attributable to the company’s stockholders in the third quarter of 2026 increased 39.8% to $34.8 million, or $0.56 per diluted share, compared with $24.9 million, or $0.41 per diluted share, in the third quarter of 2025. Adjusted EBITDA increased 11.1% to a third quarter record of $153.8 million. Slide 7 provides additional details on our segment performance. Electricity segment revenue in the third quarter declined 2.1% to $163.7 million. The decline was driven by temporarily lower generation at Puna following a hurricane-related forced outage, which had a $5.1 million revenue impact in the quarter. In the fourth quarter, we plan to clean out wells at Puna. While this work will temporarily reduce revenue, we expect it to support higher generation in 2027.

The Puna impact was partially offset by $2.2 million in revenue from our new Dominica plant and $1.9 million from higher generation at Olkaria following improved resource utilization. Segment gross margin was 22.2% compared with 25.4% in the prior-year period. Excluding the Puna impact, Electricity gross margin would have been approximately 24.5%. In the fourth quarter, we expect Electricity gross margin to be slightly above last year’s level, as improved operation at the remainder of our plants should more than offset the temporary impact of the Puna well cleanouts.

Product segment revenue was $61.5 million, down 1.2%, mainly reflecting the timing of manufacturing and construction progress. Gross margin was 16.5%, an improvement from the second quarter, compared with 21.7% in the prior-year period. We continue to expect full-year Product segment gross margin of approximately 18%. Energy Storage segment revenue increased 145.2% to $49.9 million. High asset availability enabled us to capture strong merchant pricing in PJM, while capacity additions over the past 12 months contributed incremental revenue. The segment generated a gross margin of 62.1%, reflecting our strategy of optimizing the mix of contracted and merchant revenues. We expect Energy Storage segment gross margin for the full year to be approximately 50% to 55%.

Slides 8 and 9 summarize our nine-month results. Revenue increased 31.4% to $937.8 million, driven mainly by strong growth in the Product and Energy Storage segments. Adjusted EBITDA increased 16.4% to $492.6 million, while adjusted diluted EPS increased 50% to $2. Turning to Slide 10, during the first nine months of 2026 we collected approximately $69.3 million of proceeds from tax credit monetization transactions. For the full year, we now expect approximately $90 million in proceeds, including approximately $68 million related to ITCs and approximately $22 million related to PTC transfers. During the third quarter we recorded $10.6 million of ITC benefits. For the full year, we expect to record $59.9 million in ITC benefits, which should result in an effective income tax benefit rate of approximately 5.15 percent in the fourth quarter, excluding changes in law and any other one-time items.

Slide 11 presents the change in our cash position during the first nine months of the year. Cash and cash equivalents and restricted cash totaled approximately $512 million as of September 30, 2026, compared with approximately $281 million at year-end 2025. The increase reflected the proceeds from our convertible notes offering and recent financing activity, cash generated from operations, and tax credit monetization, partially offset by capital expenditures, debt repayments, acquisitions, and investments.

As of September 30, 2026, total debt was approximately $3.3 billion, excluding deferred financing costs. As shown on Slide 34, the weighted average interest rate on our debt was approximately 3.9%. Turning to Slide 12, total liquidity was approximately $977 million as of September 30, 2026. Net debt was approximately $2.8 billion, equivalent to 4.3 times net debt to adjusted EBITDA. Net debt represented approximately 50% of total capitalization. We expect capital expenditures for the remainder of 2026 to be approximately $287 million. Of the total, approximately $157 million is allocated to the Electricity segment for construction, exploration, drilling, and maintenance; approximately $90 million for the Storage segment asset construction; approximately $18 million to the SLB pilot and other EGS activities; and approximately $22 million to the Product segment and business development. Our detailed capital expenditure plan is on Slide 35 of the appendix. Our liquidity and access to capital provide us with the flexibility to fund our development pipeline while continuing to service our debt and return capital to shareholders.

On November 4, 2026, our Board of Directors declared a quarterly dividend of $0.12 per diluted share, payable on December 2, 2026, to shareholders of record as of November 18, 2026. I will now turn the call back to Doron to discuss our recent operating and strategic development.

Doron Blachar (Chief Executive Officer)

Thank you, Assi. Turning to Slide 14, our total operating portfolio now stands at approximately 1.85 gigawatts. On Slide 15, our electricity portfolio stands at approximately 1,358 megawatts globally, with 13 megawatts added during the quarter. We currently have 204 megawatts of electricity projects under construction and development through the end of 2028, including 89 megawatts of geothermal capacity and 115 megawatts of solar capacity. All of these projects are supported by long-term PPAs with attractive pricing, providing strong visibility for future growth.

Slide 16 details the electricity segment third-quarter drivers as mentioned earlier. Moving to Slide 17, recontracting remains one of our key priorities. We’re actively negotiating blend-and-extend agreements with several utility customers, engaging well ahead of contract expiration to extend terms and capture a meaningful share of today’s higher geothermal pricing without significant incremental capital. With market pricing for new geothermal PPAs still above $100 per megawatt-hour, we see recontracting as a multi-year opportunity.

We expect it to be a primary driver of electricity gross margin recovery towards our 2030 target of 40%. Turning to Slide 18, our product segment backlog stood at approximately $183 million as of November 4th, 2026. The backlog remains geographically diversified, with the majority associated with projects in Asia and New Zealand. Moving to Slide 19, the increase in energy storage revenue includes $19.6 million of higher revenue from existing PJM assets and approximately $9.3 million from newly commissioned facilities. The operating portfolio now stands at 495 megawatts, or 1,358 megawatt-hours.

While we continue to benefit from strong merchant pricing in our storage portfolio, our long-term strategy does not depend on today’s high electricity prices to drive long-term performance. Our future U.S. storage projects are expected to come online under full tolling agreements, providing strong, stable long-term revenues and reducing the portfolio’s reliance on PJM. Slide 21 outlines our long-term portfolio growth target. We remain on track to achieve our 2028 portfolio target of 2.6 to 2.8 gigawatts. Looking further out to our recently released 2030 targets, we expect to approximately double our year-end 2025 capacity by year-end 2030, with our electricity segment reaching 2 to 2.1 gigawatts and storage reaching 1.5 to 1.6 gigawatts. This growth is supported by projects already under construction or in advanced development, many with interconnections, permitting, and contracting in place.

As a reminder, these targets do not include any contribution from EGS. Slides 22 and 23 provide details on our geothermal and solar development pipeline. Construction and development continues across our U.S. and international portfolio, including the Puna expansion and Lone Mountain projects. Turning to Slides 24 and 25, we have seven energy storage projects under construction and development with total capacity of 497 megawatts, or 1,888 megawatt-hours. This includes the 100 megawatt, 400 megawatt-hour Denali energy storage facility in California, which we decided to move forward with in August.

Upon completion, expected by the end of 2028, the project is anticipated to provide energy storage services under a 20-year tolling agreement with Clean Power Alliance. Our broader U.S. energy storage pipeline now totals approximately 3 gigawatts, or approximately 11.6 gigawatt-hours across 31 named prospects. Turning to EGS on Slide 26, as we outlined during our Investor Day, our EGS approach leverages the full range of capabilities that we have developed over the past six decades. As a leading geothermal developer, owner, operator, and technology provider, we believe EGS has a credible path to commercial viability, but that path must be demonstrated side by side. The question that matters is not whether initial flow can be achieved; it is whether a project can sustain temperature, flow, water balance, and well integrity over many years with seismicity safely managed at the cost the PPA supports.

That is exactly what our pilots are designed to answer. We continue to advance two subsurface pilots through our alliance with SLB and our collaboration with Sage Geosystems, with drilling planned for late ’26 to early ’27. In parallel, we are building commercial and operational foundations at Dixie Valley, an existing Ormat site. We have the land, water rights, and an executed interconnection agreement for the first Omega 100 unit, and we have filed interconnection for the rest of the project. We are negotiating a PPA structure to reflect the risk profile of a new technology, with commitments that scale as the technology matures. We continue to secure land and file for interconnection across Nevada, Utah, and New Mexico.

In September, the Department of Energy selected Ormat alongside SLB and the University of Utah for up to $35 million in funding to advance EGS at Dixie Valley and hydrothermal development at Cove Fort, Utah. Moving to Slide 27, since our Investor Day in September, we have significantly expanded our EGS land position. We added approximately 16,000 acres of new BLM leases through Nevada’s October lease sale and identified additional acres with EGS potential within our existing portfolio. As a result, our EGS land position has grown from approximately 70,000 acres to approximately 170,000 acres in the last two months. We estimate it could support 5 to 6 gigawatts of future EGS development, up from the 3 to 4 gigawatts we outlined at our Investor Day.

Longer term, we are targeting 1 GW of operating EGS projects between 2033 and 2035, subject to the pilot results, project economics, and final investment decision. Our experience as an owner-operator, our land, water, and interconnection positions, and our manufacturing capabilities give us a strong foundation to pursue this opportunity with discipline. Please turn to Slide 28 for our updated 2026 guidance. Based on our strong performance in the first nine months and continued business momentum, we are raising the midpoint of our full-year revenue and adjusted EBITDA guidance. We now expect total revenue of $1.17 billion to $1.2 billion, representing growth of approximately 19.7% at the midpoint compared with 2025. By segment, we expect electricity revenue of $700 million to $710 million, reflecting the Puna impact in the third and fourth quarters, product revenue of $310 million to $320 million, and energy storage revenue of $160 million to $170 million.

We now expect adjusted EBITDA of $640 million to $650 million, representing growth of approximately 10.8% at the midpoint compared with 2025. Approximately $13 million of adjusted EBITDA is expected to be attributable to minority interest. Let me close on Slide 29. The third quarter showed the strength of our diversified model. We delivered double-digit revenue growth, expanded the gross margin, and raised the midpoint of our full-year guidance. As we look ahead, we remain focused on executing the plan we outlined at our recent Investor Day, doubling our year-end 2025 capacity, reaching annual revenues and adjusted EBITDA of more than $1.5 billion and $1 billion run rates, respectively, by the end of 2030, excluding any contribution from EGS.

With growing demand for reliable power and our expanding portfolio of contracted geothermal and storage projects, we believe Ormat is well positioned to execute its strategy and deliver sustainable long-term growth for our shareholders. With that, I will conclude our prepared remarks. Operator, we are now ready to take questions.

OPERATOR

We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Noah K with Oppenheimer.

Your line is open. Please go ahead.

Noah Kaye (Analyst)

Hey, good morning all, and thanks for taking the questions. I would like to start with electricity. You know, I think, Assi, you mentioned in the prepared remarks what gross margin would have been in 3Q ex the Puna factor, and then you mentioned that we should see some slight year-over-year expansion in 4Q. My question is just broadly on how expansionary trends start to play out as we lap some of these items and see some of the benefits of blend-and-extend, because I think last year there was a one-time headwind, if I remember correctly, of about $5 million related to some discrete costs that I presume didn’t recur.

When do you, in your view, expect the segment to start seeing some real expansion on an underlying basis, and what would drive that? Thank you.

Doron Blachar (Chief Executive Officer)

Hi, Noah. So I will start, and Assi can follow. We see the electricity segment gross margins increase over time, and as we said on our Investor Day, we’re looking to reach 40% at the end of 2030. The increase is expected to come from ongoing enhancements that we are doing, from blend-and-extend that we are doing on contracts, and from new power plants coming online. So there is a variety of things that we are doing in order to increase the gross margin, and we have a detailed plan that, as time passes, we will share with you and show you in the future guidance that we give to the market.

Assi Ginzburg (Chief Financial Officer)

Thank you for the question. I’ll start by saying that we should start seeing an increase in margin already in Q4, and we expect to see a jump already in 2027. In general, there are three main items that will impact our profitability going forward. One is the blend-and-extend opportunity that will kick in; every year we will see additional megawatts. Two, Puna—for example, we expect next year to have a brand-new facility towards the second half of the year, so expectedly we should not have the issues that we’ve seen this year with Puna.

And three, as we are adding more assets to our Google and other data centers portfolio, the average price of the PPA of new facilities is expected to be newer. In addition to that, we are looking, and we’re turning every, I would say, corner to make sure that we are running our plants in the most efficient way, and we expect to start seeing improvement already in Q4.

Noah Kaye (Analyst)

Very helpful. Turning to EGS, I would say that to have this kind of expansion of the pipeline in such a short period of time is very positive and encouraging. Maybe just help us understand, when you talk about that pipeline potential, how exactly are you assessing the gigawatts of potential capacity there at a high level? What assumptions are you making about the new land position, and what kind of gives you confidence in the development potential of those new resources?

Doron Blachar (Chief Executive Officer)

So on the EGS, the significant increase is basically when we acquire land, private or through BLM, for our traditional hydrothermal projects, we usually take land that is also surrounding the asset, the hydrothermal system, in order to make sure that we maximize the system. What we’ve seen is that adjacent to hydrothermal systems, many times there’s potential for EGS and that’s what we’ve seen. We’ve analyzed the land position we have across our assets and this is the big jump that you see in the potential that we have.

Obviously there are some locations that have potential for significant megawatts in the hundreds of megawatts and other places have in the tens of megawatts and some are not relevant for EGS at this stage. When we look at the land, we have all the information from the hydrothermal system and through geological analysis and models, you know, we estimate what is the potential we see. Obviously until you drill, actually drill, you don’t have the data to confirm the number.

But this is the range that we give and we expect it to be in that range and we hope it might be even higher than that. But we usually take the more conservative view on the numbers we give to the market.

Noah Kaye (Analyst)

Very helpful. I won’t ask a question on energy storage. I’ll just say well done and good job on the quarter, guys. Thank you.

Doron Blachar (Chief Executive Officer)

Thank you.

OPERATOR

Your next question comes from the line of Justin Claire with Roth Capital Partners. Your line is open. Please go ahead.

Justin Claire (Analyst)

Hey, good morning. Thanks for taking the question here. Wanted to just touch on the PPAs here and the 60 megawatts that you’ve already recontracted at this point. Can you share how those contracts will start and you know how those will layer in over the coming years here? Could we see a meaningful portion of those that have been recontracted kind of kick in in 2027? And then there’s the longer-term opportunities, 2031–34, I think 200 megawatts there.

Just wondering if you give us a little bit more color on the conversations you’re having and how willing customers are to renegotiate and then, you know, how far in advance of those contracts could you re-contract them?

Doron Blachar (Chief Executive Officer)

The contracts that we already blend and extend: one of them started in October. The other one is expected to recontract sometime next year. So these are the ones that we’ve already negotiated. But the discussion basically with the utility, the offtaker, basically starts with the fact, you know, that prices are going up, the demand for electricity is very high, and power plants that end the contract two, three, four years down the road. And there is a joint willingness by us and by the offtaker to extend the relationship.

And then the question comes at what price? And we negotiate the price. With the blend and extend from our perspective, we would like to get the price today. They would like to get the extension, and it’s a negotiation: when it starts and what price do you reach. On slide 17, you can see the potential upside that we have split into years. Obviously, to try today to recontract a PPA that ends in 2034 or 2035 is very hard. As time passes, these PPAs are getting closer and we’re speaking with the utilities.

Justin Claire (Analyst)

Got it. Okay, maybe then just shifting over to storage here. Wondering if you could just share how merchant pricing has been trending into Q4 here. Have you seen any normalization at this point? And then just curious on the expectations for Q4 in your guidance. Are you assuming normal merchant conditions? And then just looking into 2027, you know, what potential do you see for this year’s outperformance to extend into next year, given what you’re seeing in terms of market conditions?

Assi Ginzburg (Chief Financial Officer)

When we look into Q4 of this year, what we do see is that October was much more stable or normal months, with not very high merchant pricing. In November–December, we don’t know yet. You know, it’s coming and we’ll see how it falls. And I think ’26 was a very, very high year for merchant prices in PJM. When we look into ’27, we hope the prices will be the same, but it’s very hard to forecast. So high prices, you know, ’26 prices are more than double the ’25 prices. ’27 we expect to be a bit lower than the ’26 numbers. But it’s merchant; you know, it depends on climate, depends on prices, and we will see as time passes.

Justin Claire (Analyst)

Got it. Okay, thanks very much.

OPERATOR

Your next question comes from the line of Derek Podhazer with Piper Sandler. Your line is open. Please, please go ahead.

Derek Podhazer (Analyst)

Hey, good morning everyone. Wanted to ask about just some of the new details around your EGS buildout. With the lease acreage purchases, you now have land that could be up to 5 to 6 gigawatts, up from the 3 to 4 gigawatts we heard during the investor day? I think there’s some concern as far as interconnection delays and what those gigawatts can look like. Can you talk about what your expectations are for behind-the-meter with these EGS projects and when you think these should be, you know, coming online?

Just some more thoughts around how we should balance interconnection delays, but also the appeal of deploying behind-the-meter projects with EGS.

Doron Blachar (Chief Executive Officer)

Sure. So thank you. So I say, one, we gave on our investor day our 2030 targets excluding EGS. That basically doubles the megawatts that we have today. And these are projects that most of them have permitting, interconnection, land, and others. When we look on the EGS front, we expect the first phase of the Dixie Valley EGS project to come online between ’29 to ’30. And for this first phase we have interconnection, we have water and land, and we are basically looking at the pilots that we are developing to get the right technology to develop it. Interconnection for additional EGS projects down the road after the pilot, basically 2030 and onwards, these are interconnection requests that we are filing today.

We already filed in ’26, we will be continuing to file in ’27 and onwards. We expect that by the time that the project will be ready we will have the relevant interconnection to develop them. We said on the investor day that we’re looking for one gigawatt between 2033 to 2035. We assume this will not be behind the meter; we’ll have interconnection by that time. On behind-the-meter discussion, we have discussions on behind the meter. None of them have moved to a very advanced stage, and taking the risk of behind the meter, it’s not a risk that we will be taking. Obviously it’s the data center risk that we will be taking, and I think that it can maybe compensate for a period of time waiting for the interconnection and actually having a data center earlier.

But at this stage we don’t see somebody, you know, going all in on a behind-the-meter one-gigawatt project.

Derek Podhazer (Analyst)

Great. Okay, now I appreciate all that color. Moving over to energy storage. I know a couple of months ago there was a bulk power executive order out by the administration, included the battery energy storage systems. Just wanted to get your thoughts and color on how this could potentially impact your energy storage segment just given the supply chain out of China. Just some thoughts around that would be helpful. Thanks.

Assi Ginzburg (Chief Financial Officer)

We follow very closely the regulation that continues to come up. We obviously meet all the requirements. We buy batteries from China if we can and if it is allowed based on the regulation. We buy from Tesla, we buy from others. We feel very comfortable with the guidance we gave to the market on getting to about 1.5 to 1.6 gigawatts of energy storage projects by end of 2030, taking into account all of these limitations.

Derek Podhazer (Analyst)

Great, thanks.

OPERATOR

Your next question comes from the line of Julian Dumoulin Smith with Jefferies, your line is open. Please go ahead.

Doron Blachar (Chief Executive Officer)

We talked in the investor day and before that. PPA pricing today are well above $100 per megawatt-hour. We don’t see any trend of reducing this pricing. On the contrary, we see opportunity potentially to increase these prices and that’s why we’re looking for the blend and extend. And I think that increase in prices actually pushes the offtaker to actually come early and do a blend and extend earlier rather than later, managing the risk of increased PPA pricing.

And as I said on slide 17, you can see the potential upside that we have today on the blend and extend. Assi, do you want to add something?

Assi Ginzburg (Chief Financial Officer)

No, no, no, no.

Doron Blachar (Chief Executive Officer)

And on EGS PPA pricing, this is a much more complicated discussion than traditional one, the hydrothermal. Due to the fact that technology is not fully proven yet, we’re working on the pilots to prove the technology and obviously even once the technology will be proven, the question of scalability and long-term operations. We are trying to negotiate a bit of a different PPA that has a balance between the return that we can get from the project versus the PPA price.

I think in today’s pricing and technology, $100 PPA for an EGS project is not high enough in order for it to be economic. Maybe over time when the cost to develop EGS projects will continue to go down, it will become economical. But today we believe we need higher pricing than that. And these are the discussions we have on the Dixie Valley EGS projects as well as other projects.

OPERATOR

Your next question comes from the line of David Anderson with Barclays. Your line is open. Please, please go ahead.

David Anderson (Analyst)

Hi, good morning. Just so in relation to the two pilot projects that are going on with SAGE and SLB. So presumably both are going to be starting to effectively test the concept to make sure it works. But beyond that the key will clearly be the economics around commercialization. Can you talk about how you see some of those economics kind of lining up today versus commercial geothermal and whether or not they’re superior as of now and what are some of the metrics that you’re looking at?

Can you talk perhaps on the capex to megawatt? Is there like a target that you’re trying to get to, a hurdle that you need to see in order to move ahead with commerciality on these two projects?

Doron Blachar (Chief Executive Officer)

Yes, we have our targets for the long term on the EGS, and as we presented on Investor Day, it’s between five and a half to six and a half million dollars per megawatt. And these are the long-term targets that we have. I can tell you that internally we have lower targets, but at this stage these are the targets that we feel comfortable with — the five and a half to six and a half. I believe the first project will be higher than that. It takes time to have all the lessons learned and reduce cost.

But from the pilot, I think the pilot needs to demonstrate on one hand the technological feasibility of the EGS, and on the other hand it needs to give us comfort on how the cost will go down to the levels I mentioned on the above surface. You know we are the largest ORC supplier in the world by far. We are working on the Omega 100 and building the right supply chain to get the above-surface cost to around one and a half to two million dollars per megawatt.

And on the subsurface we need to see the pilots, see the technology that we — with SLB — will develop, or SAGE will develop, and see how we are able to reduce this to economical pricing. Now, as I said before, we need higher PPAs for the initial, for the first project with EGS to make them economical. Ormat is a developer and an owner of power plants. We are not going to license any technology to anybody else. We don’t own the SAGE technology as a starting point. We have license to their technology. With SLB, it’s a joint development on the 5 to 6 gigawatts. If the technology does well as we expect and economically, we will develop them. I don’t know to tell you timing-wise because we need first to see the pilot. Then we have the project Dixie Valley EGS that we expect the first phase to start end of ’29 and beginning of 2030.

And after that we will develop. We’re not licensing or selling the land to anybody else.

OPERATOR

Your next question comes from the line of Ben Kallo with Baird. Your line is open. Please go ahead.

Ben Kallo (Analyst)

Hey, thank you, guys. Good day. I know it’s very soon after the U.S. elections, but is there anything — I know there’s very good policy support for geothermal and batteries — but anything that you think that the industry, either energy storage or geothermal, will be looking for? And then I have a follow-up.

Doron Blachar (Chief Executive Officer)

As you say, I say that geothermal has had always bipartisan support. Geothermal started receiving PTCs and grants in 2010 regardless of the president, if it was a Democrat or Republican. You know, all of them extended them, similarly to what Trump did. Democrats will obviously support it more. On the energy storage, the OBDB law that came in to support energy storage, it has some limitation on China, but that’s a limitation that doesn’t relate specifically to Europe, but it relates to the relationship between the U.S. and China on many aspects.

So Democratic regime or Republican regime — in both we see them as supporting our business model.

Ben Kallo (Analyst)

Great, thank you. Just as we look ahead to the Product segment, could you just talk about what you guys see out there in early stages — not necessarily, you know, guidance for next year — but just how you think about that business and the growth rate.

Doron Blachar (Chief Executive Officer)

The Product segment, third-party sales you see on the P&L, relies basically on other developers developing projects. We see projects being developed in Indonesia, in New Zealand, and other locations. We don’t see too many projects being developed over time in the last few months, but we do see some. Usually there’s some kind of a wave when there are more projects; after that, fewer projects; and then again a higher number of projects. We don’t see today that many projects coming online.

Ben Kallo (Analyst)

Okay, thank you very much.

OPERATOR

Your next question comes from the line of Sinaina Ajalan with Bernstein. Your line is open. Please go ahead.

Sinaina Ajalan (Analyst)

Hey, good morning. Good afternoon. I think I’ll stick with EGS for my question. Thank you for all the color that you’ve been providing on the previous questions. Maybe as much as possible without going into names because it’s early, if you can provide some color on who the counterparties are in your PPA negotiations. Are they data centers, are they hyperscalers, are they utilities? Any color would be great. And then I have a follow-up on schedule of the first hundred megawatts, but I’ll wait for that.

Doron Blachar (Chief Executive Officer)

Obviously we cannot come with specific names on our negotiations, but we are negotiating with data center companies, we are negotiating with hyperscalers, and we are negotiating with utilities — all of them. We are negotiating with them on different kinds of PPAs, different durations. But we have the structure of a PPA for a technology that we are developing, basically managing the risk in a way that a public company like Ormat can manage, without taking risk that is not reasonable when you don’t have a confirmation for the technology, the scalability of it.

But we are speaking with all of them.

Sinaina Ajalan (Analyst)

Excellent, thank you. And then maybe if I can just follow up on the schedule — I’m trying to understand if you can provide any color on the first 100 megawatts coming online. What’s the critical path between now and then? And then how much contingency do you have in the project planning? How do we think about when it comes online?

Doron Blachar (Chief Executive Officer)

The timeline that we said is that we’ll have the first phase end of ’29, beginning of 2030. The critical path for this are the pilots, because we do have already the interconnection, we do have the land, and we have the water rights. So effectively we need the technology to develop. And the pilots are due to start end of ’27. And as the pilot operates for a few months, at that time we need to make a decision when we feel comfortable enough with the pilot performance to start drilling the first phase of Dixie Valley.

So it’s really a question of the pilots, because the development part, or the business development part, of the first phase — we have it. We have it because that’s what Ormat has been doing for decades. And we are working now on the development of the other phases of the project and other projects. But for the first phase that you asked, the one critical milestone is the pilot success.

Sinaina Ajalan (Analyst)

Great. Thank you so much. I’ll hand it back.

OPERATOR

There are no further questions at this time. I will now turn the call back to Doron Blachar for closing remarks.

Doron Blachar (Chief Executive Officer)

Thank you. This was another strong quarter for us. We are very focused on our geothermal and storage operating assets, while continuing to develop new assets. In parallel to that, we are developing the new EGS technology and increasing the pipeline for EGS projects. Thank you for joining us today, and thank you for your continued support.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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