Ormat Technologies - Earnings Call - Q2 2025

Executive Summary

• Q2 delivered record revenue and adjusted EBITDA: total revenue $234.0M (+9.9% y/y), GAAP diluted EPS $0.46 (+24.3% y/y), and adjusted EBITDA $134.6M (+6.7% y/y).
• Clear beat versus S&P consensus: revenue $234.0M vs $221.6M*, GAAP EPS $0.46 vs $0.38*, and adjusted EPS $0.48; guidance reiterated for FY2025; segment margins mixed with electricity pressured by curtailments.
• Operational headwinds: planned well-field maintenance at Puna and third‑party curtailments reduced electricity revenue by ~$13M and EBITDA by ~$12M; management expects curtailments to lessen in H2 2025.
• Strategic and funding catalysts: completed Blue Mountain 20MW acquisition; secured ~$300M across tax equity ($139M) and project finance ($161M); announced a 25‑year PPA extension for Heber 1 with SCPPA effective Feb 2026 (post-Q2).
• Policy tailwinds and AI demand: extended PTC/ITC runway (“OBBB”) supports geothermal and storage; rising baseload demand from AI data centers cited as structural support for pricing and growth.

What Went Well and What Went Wrong

What Went Well

• Product segment rebound: revenue +57.6% y/y to $59.6M; gross margin rose to 27.7% from 13.7%, supported by backlog execution and higher-margin contracts.
• Storage momentum: revenue +62.7% y/y to $14.5M, benefited from 2024 CODs and strong PJM merchant pricing; storage gross margin improved to 11.9% from 5.7%.
• Funding and pipeline: ~$300M secured across tax equity and project finance to support development; management: “record second quarter Revenue and Adjusted EBITDA results” and confidence in long-term targets.

What Went Wrong

• Electricity segment pressure: revenue down 3.8% y/y to $159.9M; gross margin compressed to 24.2% (from 33.5%) due to Puna maintenance, Stillwater outage, and U.S. curtailments.
• Consolidated gross margin declined to 24.3% from 28.8% y/y; gross profit down 7.3% y/y to $56.9M.
• External constraints: FEOC rules introduce uncertainty for storage sourcing; management is safe harboring projects and expects minimal impact to geothermal; active evaluation underway for storage projects.

Transcript

Speaker 6

Thank you, Operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, 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 core 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 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.

Speaker 1

Thank you, Josh. Good morning, everyone, and thank you for joining us today. Ormat reported record second-quarter revenue and adjusted EBITDA results, with a 9.9% increase in revenue, a 26.1% rise in net income, and a 6.7% improvement in adjusted EBITDA. This outstanding performance was driven by the full recovery of our product segment revenues and margins, improved performance of our energy storage segment, which continues to benefit from new projects that reach commercial operation in 2024, and higher merchant prices in the PG&E market. During the quarter, we completed the acquisition of the Blue Mountain Geothermal Power Plant and released for construction 50 megawatts of new projects, including 28 megawatts of geothermal and 22 megawatts of solar projects, primarily at our Heber complex. We also continue to advance our geothermal development pipeline, benefiting from accelerated permit approvals due to recent federal permitting reforms.

In July and August, we closed a significant tax equity transaction for the Heber 1 and 2 geothermal power plants and secured project finance debt for our Boyan Power Plant. Combined with the hybrid tax equity transaction we signed for our storage assets and the project finance debt raised for the Dominica project during the quarter, we have secured $300 million of funding to support future development across the portfolio. Overall, we continue to see strong growth potential for geothermal in 2025 and beyond. This is supported by improved permitting timeline due to recent federal permitting reform and an increasing number of BLM land auctions, our expanded exploration efforts, and robust secular demand for baseload renewable, which has translated into elevated PTC pricing and stronger market economics.

Before I turn the call over to Assi, I would like to highlight the recently signed One Big Beautiful bill that for us is indeed very beautiful. The legislation has extended the PTC and ITC runway for both our geothermal and energy storage segments, positioning us uniquely within the renewable energy sector. Assi will provide further details on the new policy and our efforts to maximize its benefit in his remarks. With that said, I will now turn the call over to Assi to discuss our financial results. Assi?

Speaker 4

Thank you, Doron. Let me start my review of our financial highlights on slide six. Total revenue for the second quarter was $234 million, a 9.9% increase compared to last year's second quarter. This top-line expansion was driven by the recovery of our product segment and the improved performance of our energy storage segment, partially offset by a slight reduction in the electricity segment. Gross profit for the second quarter was $56.9 million, down 7.3% from $61.4 million in the second quarter of 2024, resulting in a consolidated gross margin of 24.3% versus 28.8% last year. The decline was largely due to a temporary electricity segment gross margin compression that I will discuss shortly. Net income attributable to the company stockholders was $28 million, or $0.46 per diluted share, up compared to $22.2 million, or $0.37 per diluted share in the second quarter of prior year.

Adjusted net income attributable to the company stockholders was $29.1 million, or $0.48 per diluted share, reflecting an increase of 19.8% and 20%, respectively. This performance highlights the strength and resilience of our portfolio and business model. As we continue to grow our earnings, despite the temporary reduction in our electricity segment profitability, adjusted EBITDA for the second quarter was $134.6 million, a 6.7% increase compared to last year. This strong year-over-year growth was driven by the higher revenue and better margins in the product segment, contribution from new assets and higher merchant pricing in the energy storage segment, a legal settlement with the battery supplier, and better performance of the Dixie Valley and Bawi Power Plants. The increase was partially offset by an approximate $12 million reduction in EBITDA due to energy curtailment in the U.S. and previously reported well-field work at the Puna Power Plant.

Slide seven breaks down the revenue performance at the segment level. Electricity segment revenues for the second quarter decreased by 3.8% to $159.9 million, primarily due to ongoing maintenance work at the Puna Power Plant and continued energy curtailment in the U.S., which reduced revenues versus the same period last year by approximately $13 million. At our Puna Power Plant, we finished the plant well-field maintenance and resumed normal operation in July, and we continue to monitor well performance. We anticipate the U.S. curtailment resulting from third-party T-line maintenance will significantly lessen in the second half of the year. Product segment revenues increased by 57.6% to $59.6 million during the second quarter, driven by our strong backlog and the timing of progress made in manufacturing and construction.

Energy storage segment revenue increased by 62.7% to $14.5 million in the second quarter, mainly due to the commencement of commercial operation of our new energy storage facilities in 2024 and strong merchant prices in the PG&E market. Also on slide seven, the gross margin for the electricity segment was 24.2% in the second quarter, down from 33.5% last year. Excluding these temporary disclosed events, the margin would have been approximately 30%. In the product segment, gross margin was 27.7%, up from 13.7% last year, driven by improved profitability on our contracts. We now anticipate that gross margin for the year in our product segment will increase to a range of 21% to 23%. The energy storage segment reported a gross margin of 11.9%, up from 5.7% in the second quarter of 2024.

This improvement was driven by higher merchant prices in the PG&E market, where hot weather along the East Coast contributed to elevated merchant pricing. With strong performance throughout the first half of the year and robust PG&E prices in the month of July, we now anticipate full-year gross profit for the storage segment to reach up to 20%. Slide eight and nine show the results of the first half of 2025, highlighted by 6.1% and 6.5% increase in total revenue and adjusted EBITDA, respectively, with significant increase in both energy storage and product segment. Moving to slide ten, I would like to discuss further the recent spending budget bill that was passed in the U.S. on July 4th. As Doron mentioned, the bill extends the PTC and ITC runway for our geothermal and energy storage segments.

We now have the ability to receive full tax credit for geothermal and energy storage projects starting construction by December 31, 2033. After 2033, the credit phased down to 75% for the projects starting construction by 2034, 50% by 2035, and then 0% thereafter. As for solar and PV projects, projects starting within 12 months of the bill's enactment can receive full credit if placed in service within four years. Otherwise, they must be in service by December 31, 2027. Regarding the Foreign Entity of Concern, or FEOC, provision of the bill, a broader scope includes specified foreign entity and foreign influence entity. The law aims to limit content from FEOCs used in energy-related projects starting construction after December 31, 2025.

While we are currently assessing the impact of the FEOC rules on our growth, we expect minimal to no impact on our geothermal business since we manufacture all of our product segments with minimal FEOC content. However, at this time, the entire energy storage industry is still heavily dependent on battery sources from China, and we are actively evaluating all project development options while continuing to safe harbor additional projects. Ultimately, we will pursue the most economically viable option to advance our current storage pipeline and maintain flexibility in our procurement to stay on track with our expansion goals. Moving to slide 11, we recorded $16.3 million in income related to tax benefits in the second quarter, compared to $15.8 million last year. In the second quarter and first half of 2025, we recorded ITC benefits of $10.3 million and $24.2 million, respectively, in the income tax line.

These benefits are related to two storage facilities that are expected to become operational in 2025. Recently, we entered into two tax equity transactions that secured $139 million of cash tax benefits. In July, we received $77 million from our Hebrew tax equity PTC transaction. Of the remaining $62 million in ITC process related to our Lower Rio and Arrow Lake storage facility, we received $5 million in the second quarter, with the rest expected in the second half of the year. We expect Ormat tax rates will be positively impacted by the ITC benefits in 2025, with an annual tax benefit rate between 5% and 15%, excluding changes in law or one-time events. Slide 12 details our use of cash flow over the last 12 months, illustrating Ormat's ability to generate strong cash flows for reinvestment and strategic growth, while servicing debt obligations and returning capital to shareholders.

Cash and cash equivalents and restricted cash and cash equivalents as of June 30, 2025, were approximately $206 million, similar to the end of 2024. Our total debt as of June 30, 2025, was approximately $2.7 billion net of deferred financing costs, with a cost of debt at 4.95%. The majority of our debt liabilities are fixed interest rates, providing stability and protection from market fluctuations. Moving to slide 13, our net debt as of June 30, 2025, was approximately $2.5 billion, equivalent to 4.4 times net debt to EBITDA. During the second quarter and early third quarter, we secured $300 million in funding. This includes $139 million of tax equity partnerships and $161 million from project financing loans at attractive rates. These funds will support our new Boyan Power Plant in Guadalupe and our new project in Dominica.

As shown on the slide, our total available liquidity is $551 million. Our total expected capital expenditure for the second half of 2025 is $295 million. We detail CapEx presented in slide 33 of the appendix. We plan to invest approximately $200 million in the electricity segment for construction, exploration, drilling, and maintenance in the last two quarters of 2025. In addition, we plan to invest $85 million in the construction of our storage assets. On August 6, 2025, our Board of Directors declared, approved, and authorized the payment of a quarterly dividend of $0.12 per share, payable on September 3, 2025, to shareholders of record as of August 20, 2025. The company expects to pay a quarterly dividend of $0.12 per share in each of the next two quarters. That concludes my financial overview.

I would like now to turn the call over to Doron to discuss some of our recent developments.

Speaker 1

Thank you, Assi. Turning to slide 15 for a look at our electricity segment operating portfolio. Portfolio growth during the quarter was supported by the addition of the Blue Mountain Geothermal Power Plant. Moving to slide 16, the Blue Mountain acquisition has immediately enhanced our generating capacity and offers significant revenue growth potential through planned upgrades, which are already underway, and the possible addition of a solar facility. We are very excited about the opportunities that this addition presents, and we look forward to continuing our strong partnership with NV Energy to deliver reliable, clean energy to the people of Nevada. During the quarter, we also expanded our management team to support the growth of our electricity segment and our EGS initiatives. This expansion included the hiring of Aron Willis as Executive Vice President, Electricity Segment, and Daniel Mork as Senior Vice President, Resource, Drilling, and EGS.

Aron will oversee the operations of the electricity segment, ensuring alignment with the company's strategic goals and financial targets. Aron will also be responsible for optimizing plant performance and expanding profitability, ensuring compliance with safety and environmental regulations, and driving continuous improvement initiatives to foster future profitable growth. Daniel will lead our resource drilling and EGS teams, focusing on implementing sophisticated processes and innovative technologies to further enhance our operations. His work will include creating efficiencies, shortening development time, developing Ormat's ongoing drilling and exploration global roadmap, and expediting well-field and EGS development. We are thrilled to welcome both Aron and Daniel to the team, where their valuable background and experience will help drive the next phase of growth for our leading geothermal operations. Turning now to slide 17, our product segment backlog stands at $263 million, representing a 59% increase compared to the second quarter of 2024.

This growth was primarily driven by significant contracts signed at the end of 2024. As highlighted in Assi's presentation, the contribution of the product segment this quarter was significant, with higher revenues and notable improvements in margins. Moving to slide 18, our energy storage segment demonstrated robust year-over-year growth, with total revenues increasing by 62.7%. As previously mentioned, we anticipate that this strong performance in our energy storage business will continue throughout the remainder of 2025, driven by the benefits of recently commissioned storage facilities. On slide 20, we are on track to achieve our portfolio capacity target of between 2.6 gigawatts to 2.8 gigawatts by the end of 2028. This confidence is driven by strong momentum in geothermal development and our intensified exploration efforts.

In parallel, we are making progress in the storage segment, having successfully secured both batteries and safe-harbored battery supply for additional projects, further reinforcing our path towards meeting our capacity growth targets. While safe-harbored battery supply is not required for geothermal projects, the extended construction start deadline, now set for 2033, has allowed us to make significant progress on the storage fund, as shown on slide 21. In 2024, four projects were successfully safe harbored, followed by two more in 2025, with additional projects expected to be safe harbored later this year. These actions ensure ITC eligibility with no FEOC limitation for our entire storage portfolio through 2028, and in some cases, even beyond, under current regulations. This milestone strengthens our confidence in meeting our growth targets. Importantly, despite the recent changes in tariffs, we do not anticipate a material impact on our financial performance due to the import tariffs.

Turning to slide 22 and 23, which display our geothermal and hybrid solar PV projects currently underway, we anticipate adding 148 megawatts to our generating capacity from these projects by the end of 2026. In addition, we have released for construction 25 megawatt geothermal and 22 megawatt solar PV new capacity to our Heber complex in California and a 3.5 megawatt addition to the Blue Mountain Geothermal Power Plant in Nevada. Moving to slide 24 and 25, we currently have six projects under development in our energy storage segment, which are expected to add 385 megawatts or 1.3 gigawatt-hour to our portfolio. Please turn to slide 26 for a discussion of our 2025 guidance. We maintain our guidance and expect revenue to increase by 9% year-over-year at the midpoint, ranging between $935 million and $975 million.

Electricity segment revenues are projected to be between $710 million and $725 million, product segment revenues between $172 million and $187 million, and energy storage revenues between $53 million and $63 million. Adjusted EBITDA is expected to increase by approximately 5% at the midpoint, ranging between $563 million and $593 million, with annual adjusted EBITDA attributable to minority interest at approximately $21 million. I will conclude our prepared remarks on slide 27. This is an exciting and pivotal time for Ormat Technologies, fueled by supportive policies in both geothermal and energy storage and the growing demand for carbon-free baseload power, particularly to support AI data centers and the broader electrification trends that are significantly increasing electricity consumption. These developments, along with our financial results, not only validate our strategy but also strengthen our confidence in our team's ability to achieve both our near-term operating capacity milestones and long-term financial objectives.

As we look ahead to the second half of the year and beyond, we expect to finalize contracts to support data center and hyperscalers with improved economics and to continue the development and construction of future projects as planned. We are prioritizing innovation and exploration, the best ways to develop and integrate EGS technology into operations and future growth. As we have previously communicated, we are actively pursuing strategic partnerships to develop new EGS projects and provide advanced solutions to potential EGS customers in our product segment. We believe the new management structure will allow for a greater focus on EGS and greenfield development. Our commitment to delivering reliable and sustainable energy solutions remains strong, and we are leveraging our unique capabilities to drive meaningful growth and create long-term value for our shareholders. This concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please.

Speaker 5

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile that Q&A roster. Your first question comes from the line of Noah K with Oppenheimer. Please go ahead.

Thank you. A lot of good things going on. I think one place to start would be around the geothermal development environment. You called out a number of expedited permitting advancements for several projects. I think that was publicized by BLM, perhaps mid-quarter, if I remember correctly. Can you talk about the opportunity for additional permitting fast track, what you're anticipating over the next couple of years, and what this might actually mean for speeding up the development timetable?

Speaker 1

Yes, hi Noah. It's Doron. Thank you. The changes in the administration and the tailwind and support that we are getting is very impressive and pushes us forward. We have today multiple projects that have advanced the exploration to get into a position where we can start full-size drilling and plan to release new projects in the next couple of years. I'm in Ormat now for over 12 years, and this is a situation that we haven't had in the past. We're actually drilling, getting a lot of responses from the BLM much faster than in the past. We see quite a few of greenfield projects in the U.S. that we will be able to release for construction in the next couple of years. You can also take as an example Dogwood, the expansion of Heber that we just released.

We started permitting of these projects, I don't know, four, five, six years ago. Only now we're able, with the push that we see today, to get the permitting and to move it forward.

Very good. Thank you. I just want to make sure I've got this right on the storage side. I think you mentioned safe harboring all of your projects expected to come online through 2028. You also mentioned, I think, an active evaluation around FEOC implications for sourcing. Can you just sort of help us clarify those two points? Have you effectively safe harbored the battery supply already and eliminated any FEOC concerns for those projects coming on through 2028, or is that an ongoing process? Thank you.

Thanks. I will split it basically into three parts. All the projects that are in construction that will come online are obviously safe harbored. The batteries are in the U.S. in construction, and that relates to all the projects that were released before 2024. At the beginning of 2025, even before any of the new regulations came out, we safe harbored additional a couple of projects. Over the last few months and ongoing, we are safe harboring additional projects in 2025, and all of them should come online by the end of 2028 or 2029 based on the current regulation. I would say we've safe harbored in 2024 about 700 megawatt-hour, in 2025 already 600 megawatt-hour, and we are in the process of safe harboring another 1.6 gigawatt-hour of projects in 2025.

Thank you very much. I'll turn it over.

Thank you, Noah.

Speaker 5

Your next question comes from the line of Justin Clare with ROTH Capital Partners. Please go ahead.

All right, sure, taking the questions. I guess first I just wanted to follow up on the progress you're making on enhanced geothermal. I was wondering if you could just provide a little bit more detail on the progress that you've made to date and speak to the potential opportunity. Would you say it's more likely to first enable you to increase production at existing wells or existing plants, or are you looking at drilling in new locations? It would be great to get an update there.

Speaker 1

Thanks, Justin. On EGS, I would first start, we've just appointed a Senior Vice President, Daniel Mork, to lead our resource drilling at EGS. He comes from EVO, has a lot of experience and knowledge in EGS and this area. We're working on multiple approaches on EGS. Since there is no 100% proven technology today, we will be focusing on a few technologies in parallel. I believe that the first stage, as you said, we will try to utilize EGS in some of our existing facilities that have interconnection, that have permitting, that already have a power plant operating and have the ability to generate more.

In the long term, once EGS is successful, I see this as just expanding significantly the potential growth that we see in Ormat, both on the development part and also on the product side, because once EGS will be a common technology and a proven technology, the demand for geothermal products and EPC projects should increase significantly. We do hope, and I do hope, that the technology will be successful and EGS will be proven a viable solution in the next couple of years. If it does happen, it opens a totally new area for Ormat to grow, and it will have a significant impact once successful.

Got it. Okay. I guess curious, just following up on that, what kind of demand you might be seeing on the product side from others that are pursuing enhanced geothermal techniques? Also, are you evolving your products in order for them to be potentially more adaptable to an enhanced geothermal well? Yeah, great.

At the end of the day, the main attribute to EGS is the subsurface impact, drilling, getting the heat up. Once you get the heat up, it will operate similarly to other geothermal projects. Ormat is the largest developer and the large seller of binary technology. We need to remember that we are not Chinese. I believe it will give us a significant benefit versus any other Chinese company that are competing in this area to build geothermal projects.

Okay. Got it. Thank you.

Speaker 5

Your next question comes from the line of Julianne Dumoulin-Smith with Jefferies. Please go ahead.

Hey, good morning. This is Hannah Velasquez on for Julianne. Congrats on the quarter and thanks for the update. I wanted to first start out with a follow-up on the safe harbor around the batteries. It sounds like you haven't yet safe harbored fully the 2028-2029 projects. I'm just wondering if the pause or hesitation there is to wait and see what happens with Treasury in terms of guidance. Is there any concern that guidance ruling might limit your ability to safe harbor any FEOC-exposed batteries?

Speaker 1

Hannah, good morning, and thank you for joining the call. This is Assi. For the best of what we know today, the August 18 announcement on FEOC should be focused on wind and solar. Therefore, we don't think there should be a problem with us to safe harbor more projects between now and year-end because we need to have the project start by December 31. This is just part of the evaluation of what project we believe will have interconnection by 2028 and 2029, and that's where we are doing those safe harbors. The good news is that at least we know that by the end of 2033, we do have confirmation that the ITC benefits will continue. I also think that even if there will be no Chinese equipment allowed to use after that, there will be a U.S. manufacturer or non-FEOC manufacturer batteries.

I think it's going that way. Overall, you can see these are big numbers that we are safe harboring, and we're just part of the work to decide what to safe harbor first.

Got it. Thank you. As a second question, could we get an update on the 250 megawatts under negotiation regarding data center opportunity? I know you've said this in past quarters, but I wanted to see if there was anything incremental to touch on there, and if any of these potential projects, the 250 megawatts, is contingent on you moving forward with pursuing EGS. Thank you.

Hi, Hannah. Thank you. I'll start with the end. All the PPA that we are negotiating today are on the existing technology. They are not connected to EGS. This is based on our existing technology. The way that we are approaching it basically is to see that we cover any potential greenfield that we will develop, as well as any recontracting that we will have. Negotiations on the PPA are ongoing, moving forward. Unfortunately, I still don't have the ability to tell you that we signed, but we are finalizing the terms with them, and I hope that we'll be able to announce PPA that we signed in the next few months.

Thank you.

Speaker 5

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

Hi. Good day, guys. Thanks for taking my question. Could you just talk a little bit about the certainty in tax credits and how, also, the BLM permitting getting easier, how that has affected your early development strategy, that it hasn't sped it up or slowed it down, or any changes at all on your development approach?

Speaker 1

Hi, Ben. Thank you. Thank you, Ben. The tax equity or the tax benefits that we see with the new beautiful bill is definitely beautiful for us. The geothermal power has a runway till the end of 2033, and then there is a slow, gradual decline of the benefit, but still, it works on start-up construction. Effectively, CODs until 2037, and in some cases until 2043, even we'll enjoy the PTC or ITC benefits that entitled us. We have no, we don't expect to have any limitation on the FEOC on the geothermal part. We're manufacturing in different countries. The percentage that comes from China is minimal. It should not impact this. On the geothermal front, it's very, very clear.

On the energy storage, we know that all the cells and batteries are manufactured in China, and the market will need to adjust to the new regulations, either by increasing prices and basically having power plants without benefits of the ITC or developing manufacturing capabilities outside of China that will allow us to get the benefits of the ITC. Again, on the energy storage, it's until 2033, start of construction.

Could you just talk about how any of these changes or what you've seen in power prices have been either positive or negative towards your 2028 targets you laid out? There has been a lot that's happened recently. If you're net positive or net negative, if you could walk through that.

The 2028 targets that we set a couple of years ago are totally valid. We still see them. Actually, the fact that permitting is faster and easier makes them more achievable. The extension of the ITCs and PTCs helps them in the same way. It didn't change the playground until 2028. The PPA pricing and the extensive demand that we see for renewable energy basically supports totally these targets.

Thank you.

Speaker 5

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

Hi. You were talking before about enhanced geothermal, but I'm kind of a little bit more curious, more specific around exploration. You talked about your exploration program and some talks on the BLM. I was wondering if you could talk about how much capital you're putting aside for exploration. What does that look like for, say, 2026? Curious, are you drilling any wells yet, or are you still in the kind of geologics or reservoir analysis phase?

Speaker 1

Thanks, David. On the exploration, it's a great place to be and a great question. We've been doing core wells, between 10 to 12 core wells, starting in 2023 and 2024, 2025, and drilling full-size wells. Actually, we are today drilling full-size exploration wells in two sites in the U.S., actively drilling. We're looking into next year, and I expect next year to be drilling on top of the core well program, drilling between two to three full-size exploration drillings in parallel. All in all, the move that we've done brings us much closer to many more greenfields that we'll be able to develop. CapEx-wise, we have in the exploration part, on an annual basis, somewhere between $125 million to $150 million of drilling exploration wells.

It obviously can move up and down a bit, but the way that we see today is that we would be drilling two or three different locations in parallel in the U.S. on exploration.

Great. Thank you. On your product segment, I was just wondering about the growth and kind of how you're projecting that going forward. We saw some of the backlog decreased a bit this quarter. I was just kind of curious how that should impact or not impact growth going forward. Can you just kind of provide maybe some longer-term views in terms of how much that business can grow?

Yeah. Backlog, you know, has many times a tendency to go down and up because we do sign large contracts. Obviously, once you sign it, it would go up, and then, you know, once you start recognizing revenue, it starts to go down. We do expect to see some ups and downs in the backlog. I think that's especially relevant when most of the projects that we signed today are EPC contracts, not supply projects, meaning a much larger project. Today, we see New Zealand, which is a big part of the backlog today, continue being a significant part of the backlog, even in the coming years. We know about potential projects that are expected to be released next year and the year after that in New Zealand. The other country that is very important for us on the product side is Indonesia.

They've just issued a few tenders, and we see multiple tenders coming over the next couple of years in Indonesia. Both places prefer projects that are EPC, not supply, meaning relatively large order at the beginning that is spread over a period of around two years and a bit and sometimes a bit more. We do see a very nice future for the product segment, and I would say that once we add that to our exploration efforts and the greenfield that we plan to develop, that will add on to the product segment, not in direct revenue, but definitely in workload and potential.

Appreciate the comment. Thank you.

Thank you.

Speaker 5

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

Hey, good morning. I was wanting to go back to the accelerated permit approvals that you've been talking about. Maybe could you just remind us or give us a refresher on the improvements that have been made? How long did it take before, how long is it taking now? Help us understand how this all translates into being able to release that 25 megawatts at Hebrew.

Speaker 1

Good morning, Derek. Thank you for joining the call. Historically, the amount of time it took us to get an environmental permit in Nevada could have been a year and sometimes even longer. I can tell you that in some cases, we have seen that now it's shortened to as short as two months. We got three permits during the quarter within two months, and Ormat is now trying to go and file as much as we can environmental permits in order to expedite additional projects that were not planned to be built over the next few years. I will say, though, that for example, in California, they still need to have a specific environmental that is not the BLM permit, but another permit. Therefore, over there, it's probably going to take some time until we see improvements. As you know, many of our greenfields are in Nevada.

If you think about permitting, it's not just the environmental permit. It's also the knowledge that the project will be approved, the knowledge that there will not be a new endangered species waking up after we have done the exploration work. For us, it gives us also a lot of runway of where we go and choose where to drill. We are much more comfortable in our ability to progress those to the permitting. It's one, accelerating, but second, also gives us confidence that we will get all the permits on time.

Got it. That's helpful. Maybe switching to Blue Mountain, can you remind us how much this is expected to contribute to revenue and EBITDA? I think you said you'll be getting contribution beginning next quarter, third quarter. Once all the planned enhancements and additions are made, where could this run rate step up to as we start thinking about 2026?

Sure. Right now, for the second half of the year, we expect to bring around $4 million of EBITDA for the plant. I will say that when we look at 2027, that number should go up by around 10% to 15% as we're increasing the capacity of the plant by 15%. We're going from 20 to 23.5. That project was already released and under construction. The next phase of growth for this project is that by the end of 2029, the PPA of this plant is over. Therefore, we expect to achieve a much better pricing on the PPA. The PPA of the plant is in the low 70s right now, and as you know, the market is above 100. One more thing to mention, we do believe that Blue Mountain is a great place to do some EGS projects. There is already an active well of EGS on site.

We know that the ground there is quite good, and the plant is running under capacity, which means it will grow significantly. That's definitely a place we will look over the next few months to see where we're aiming some of our EGS efforts.

Great. I'll turn it back. Thank you.

Speaker 5

Your next question comes from the line of Jeff Osborne with TD Cowen. Please go ahead.

Thank you. Just two real quick ones. I was wondering, Assi, if you just could confirm the remediation work on the transmission line. Is that completed or is that still lingering in the third quarter? I know you said that curtailment would be meaningfully down, but I just wasn't sure if it's finished.

Speaker 1

Early in July, actually, in the second week of July, the remediation of the well-paired work and the permits. You're talking about Pool now or you're talking about NV Energy? I think you're talking about the curtailment, right?

I'm talking about curtailment. I think in the transmission line, it's 100 years old in Nevada.

Okay. We had slight, very small curtailment in July, and NV Energy told us that they completed the work for the year. That's why we gave the guidance to much lessen curtailment. As you know, we had a very big impact this quarter from curtailment and also in Q1. We definitely assume, and based on what we were told, that this will lessen in the second half.

Got it. That's helpful. If I heard you right, I think you said there was a legal settlement as it related to a battery supplier. Was that around performance, availability? Can you just flesh out, was the system completed and not working appropriately, or any incremental detail would be helpful?

Yeah. This is already a settlement that we have done a year ago where a battery supplier did not provide us batteries when we demanded them and when we issued the PO because the prices of battery at the time went up significantly, and our contract was at fixed cost. That is why he reimbursed us. This is something that we will see in the financials, I believe, until the end of this year and into Q1 of next year. Every quarter, we should expect to see around $3.1 million of income from that.

Got it. Thank you.

Speaker 5

That concludes our question and answer session. I will now turn the call back over to Doron for closing remarks.

Speaker 1

Thank you. Thank you all. I would like to thank you all for joining us today. This was a very good quarter for Ormat Technologies. We are continuing our exploration, development, and EGS efforts. With the tailwind that we see from the current administration, we see significant growth in the coming years and forward. Thank you all and goodbye.

Speaker 5

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.