Ormat Technologies - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue was $249.7M, a strong beat vs S&P Global consensus $234.3M (+$15.5M, +6.6%); GAAP diluted EPS was $0.39 vs consensus $0.383 (modest beat), while adjusted diluted EPS was $0.41.
• Strength came from Product (+66.6% YoY revenue) and Energy Storage (+108.1% YoY) as storage margins rose to 39.4% on seasonal Bottleneck contributions and higher PJM merchant prices; Electricity grew 1.5% but margins compressed to 25.4% given Stillwater enhancement work, Imperial Valley grid storm impact, curtailments and lower Puna rates.
• Guidance raised: total revenues to $960–$980M and adjusted EBITDA to $575–$593M; segment mix revised (Electricity lowered to $700–$705M; Product raised to $190–$200M; Storage raised to $70–$75M).
• Strategic catalysts: hyperscaler PPAs in final negotiations (target magnitude ~250 MW) expected to be signed in coming months, and EGS partnerships (SLB pilot at Desert Peak; Sage collaboration) to expand geothermal addressable market and serve AI/data center loads.

What Went Well and What Went Wrong

What Went Well

• Product segment revenue surged 66.6% YoY to $62.2M with margin expansion to 21.7% on improved contract profitability; backlog rose to ~$295M, supported by a new ~$86M contract.
  Quote: “Our product segment backlog stands at $295 million…primarily driven by a large contract we signed”.
• Energy Storage revenue doubled (+108% YoY to $20.4M) and gross margin improved to 39.4% driven by Bottleneck’s seasonal revenue profile and stronger PJM prices; Lower Rio 60MW/120MWh reached COD.
  Quote: “The energy storage segment reported gross margin of 39.4%...seasonally high margins at the Bottleneck storage facility and higher merchant prices in the PGM region”.
• Raised FY2025 revenue and adjusted EBITDA guidance on segment strength; declared $0.12 dividend payable Dec 1, 2025.

What Went Wrong

• Electricity gross margin fell to 25.4% (vs 30.2% last year) due to a $5.5M temporary generation reduction (Stillwater enhancements; Imperial Valley storm grid failure; curtailment) and ~$3.2M lower Puna energy rates.
• Net benefit from sale of tax credits declined YoY in Q3 ($14.4M vs $19.8M), and reduced benefits from prior-year battery supplier settlement tempered adjusted EBITDA growth (+0.6% YoY to $138.4M).
• FEOC-related uncertainty persists in storage supply chains, requiring safe harboring and procurement flexibility; storage market still aligning to new rules.

Transcript

Operator (participant)

Good morning and welcome to the Ormat Technologies' Third Quarter 2025 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during that time, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one. Please note that this event is being recorded. I will now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.

Josh Carroll (VP)

Thank you, Anthony. I was in the call today with Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning and 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, future results, or trends. Actual future results may differ materially from those projected as a result of certain risk factors 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 reasons for presenting such information are set forth in the press release that is 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 is 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 (CEO)

Thank you, Josh. Good morning, everyone, and thank you for joining us today. Let me start with quarter highlights on slide four. Ormat delivered another quarter of strong results demonstrating continued advancement and successful execution of our strategic growth initiatives. These achievements are reflected in a 17.9% increase in revenue, a 13.3% increase in operating income, and a 9.3% growth in net income attributable to the company's stockholders. Our strong results were primarily driven by sustained improvements in both our energy storage and product segments, which contributed to higher revenues and enhanced profitability. These strong results enabled us to increase our revenues and adjusted EBITDA guidance for 2025. During the quarter, Ormat achieved several significant strategic milestones, including securing a 25-year extension for our 52 MW Heber PPA with SCPPA and obtaining two geothermal exploration licenses in Indonesia, totaling 40 MW.

These long-term PPAs in Indonesia were executed in partnership with PLN, the country's national utility provider, reinforcing our strategic presence in the region. Within our storage segment, we successfully commissioned the Lower Rio energy storage facility in Texas on schedule, and in our product segment, we expanded our backlog to $295 million through the addition of new supply agreements. Our legacy at Ormat is that of an innovative technology company, and as part of our strategy, we are always exploring additional ways to utilize our capabilities, knowledge, and technology for new avenues to capture growth. To that end, we have achieved significant progress in advancing our enhanced geothermal system strategy, demonstrating our commitment to innovation and sustainable growth. We entered into a partnership with SLB to develop an EGS solution, and in addition, we signed a collaboration agreement with Sage to develop another EGS solution based on different technologies.

I will elaborate on this later. Before I provide some additional updates on our business, I would now like to turn the call over to Assi to discuss our financial results. Assi?

Assi Ginzburg (CFO)

Thank you, Doron. Let me start my review of our financial highlights on slide six. Total revenue for the third quarter was $249.7 million, a 17.9% increase compared to last year's third quarter. The top-line expansion was driven by growth across all three operating segments. Notably, our growth continued to reflect the strong result from both our energy storage and product segments. Gross profit for the third quarter was $64 million. Up 8.8%. From $58.9 million in the third quarter of 2024. Resulting in a consolidated gross margin of 25.6% versus 27.8% last year. The increase in gross margin was a result of improvement in our storage and product segment, partially offset by lower performance of our electricity segments. Net income attributable to the company's stockholders was $24.1 million, or $0.39 per diluted share.

Compared to $22.1 million, or $0.36 per diluted share in the third quarter of the prior year. Adjusted net income attributable to the company's stockholders was $24.9 million, or $0.41 per diluted share, compared to $26.3 million, or $0.42 per diluted share in the third quarter prior year. Adjusted EBITDA for the third quarter was $138.4 million. A 0.6% increase compared to last year. This year-over-year growth was driven mostly by higher revenue and better margins in the product segment. As well as contribution from new assets in the energy storage segment. These contributions were offset by lower income attributable to sales of tax benefits and reduced benefits from a legal settlement with a battery supplier in our storage segment, which were both exceptionally high during the third quarter of 2024. Slide seven breaks down the revenue performance at the segment level.

Electricity segment revenue for the third quarter increased by 1.5% to $167.1 million. Primarily due to the recent acquisition of Blue Mountain and the improved performance at our Dixie Valley facility. This expansion to our operating portfolio helped to more than offset a $3.2 million reduction at our Puna complex in Hawaii due to lower energy rates. Product segment revenues increased by 66.6% to $62.2 million during the third quarter. Driven by our strong backlog and the timing of progress made in manufacturing and construction. Energy storage segment revenues increased by 108% to $20.4 million in the third quarter, primarily driven by the successful commissioning of the Bottleneck and Montague facilities in late 2024. And the COD of our 60 MW, 120 MWh Lower Rio facility this quarter.

I would like to add that the Bottleneck storage facility, in line with its contract, contributed approximately 45% of its annual revenue during the third quarter, which generally significantly increased storage revenue and profits in the third quarter compared to the rest of the year. Also on slide seven, the gross margin for the electricity segment was 25.4% in the third quarter, down from 30.2% last year. The gross margin in the third quarter of 2025 was negatively impacted by $5.5 million due to temporary lower generation at Stillwater from ongoing enhancement work. Reduced output at our Imperial Valley assets following a third-party grid failure caused by a September storm. And to a lesser extent, curtailment in the U.S. In addition, lower energy prices at our Puna complex in Hawaii reduced gross margin by approximately $3.2 million.

In the product segment, gross margin was 21.7%, up 250 basis points from 19.2% last year, with this margin expansion driven by improved profitability on our contracts. We continue to anticipate that gross margin for this year in our product segment will remain in the range of 21%-23%. The energy storage segment reported gross margin of 39.4%, up meaningfully compared to 20.2% gross margin in the third quarter of 2024. This improvement was mainly driven by seasonally high margins at the Bottleneck storage facility and higher merchant prices in the PGM region year-over-year. We believe that full-year gross profit for the storage segment is likely to increase to above 25%.

Slides eight and nine show the results of the last nine months of 2025, highlighted by a 10% increase in total revenue and 11.6% and 4.5% increase in net income and adjusted EBITDA, respectively, with significant increases in both energy storage and product segments. Moving to slide ten. As discussed in the second quarter call on July 4th, the U.S. budget bill extended the PTC and ITC runway for our geothermal and energy storage segment. Regarding the [Foreign Entities of Concern], or FEOC, provision of the bill, the broader scope includes specified foreign entity and foreign influence entity. 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 goal. Moving to slide 11. We recorded $14.4 million in income related to tax benefits in the third quarter, compared to $19.8 million last year. In the third quarter and nine months of 2025, we recorded ITC benefits of $9.5 million and $33.8 million, respectively, in the income tax line. These benefits are related to two storage facilities that commence operation or expect to commence commercial operation by the end of 2025. Recently, we entered two tax equity transactions, and as of today, we collected approximately $109 million under these contracts. The balance of $32.4 million will be collected by the year-end. In addition, we sold transferable PTC and ITC and received mostly in October $25.5 million.

We now expect total cash from tax credits this year will exceed our initial expectation of $160 million and will now reach approximately $167 million. We expect Ormat tax rate will be positively impacted by ITC benefits in 2025, with an annual benefit rate between 5%-15%, excluding changes in law or one-time events. Slide 12 details our cash flow over the last 12 months, illustrating Ormat's ability to generate strong cash flow that allows us to fund 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 September 30, 2025, were approximately $206 million, similar to the end of 2024. Our total debt as of September 30, 2025, was approximately $2.7 billion, net of deferred financing costs, with a cost of debt at 4.8%.

The majority of our debt liabilities are at fixed interest rates, providing stability and protection for market fluctuation. Moving to slide 13, our net debt as of September 30, 2025, was approximately $2.5 billion, equivalent to 4.4x net debt to EBITDA. During the third quarter, we secured $254 million in funding. This includes $104 million from tax equity partnerships and transferable tax credits, and $150 million from project finance loan at attractive rates. As shown on the slide, our total available liquidity is $667 million. We expect our total capital expenditure for the remaining of the year to be $140 million, with our detailed CapEx presented in slide 33 in the appendix. We plan to invest approximately $100 million in the electricity segment for construction, exploration, drilling, and maintenance in the fourth quarter of 2025. Additionally, we plan to invest $34 million in the construction of our storage assets.

On November 3rd 2025, our Board of Directors declared, approved, and authorized a payment of quarterly dividend of $0.12 per share payable on December 1st 2025, to shareholders of record as of November 17th 2025. Before I turn the call over to Doron, I would like to note that depending on the average share price in Q4, we expect diluted share count will increase by approximately 800,000 shares due to the potential dilutive effect from our convertible senior notes. That concludes my financial overview. I would like now to turn the call over to Doron to discuss some of our recent developments.

Doron Blachar (CEO)

Thank you, Assi. Moving to slide 16. The Blue Mountain power plant that we acquired back in June has contributed to our results and we're continuing to make great progress in planned upgrades that will enhance the facility's generation and revenue growth potential.

Our Dixie Valley facility exhibited improved performance during the quarter following an unplanned outage that took place during the prior year. Turning now to our international activities. In August, we were chosen to develop two greenfield projects, [Songa and Atadei], for the local government in Indonesia, further expanding our footprint in the region. Notably, Ormat is the first company chosen under this competitive bid process. We are planning to commence drilling at one of these sites by the end of 2026, and contingent on successful results, expect the projects to be fully operational by 2030. With respect to our Topp 2 projects in New Zealand that are currently in commissioning stage, we recently received a formal notice from the customer that they have decided to exercise their option to purchase the facility, and once the project is complete, we will be delivering the facility to the customer.

As a result, revenue from the sale of this project will now fall under the product segment. Once it is finalized and closed next year, the Topp 2 facilities will be removed from our pipeline. Turning now to slide 17. Our product segment backlog stands at $295 million, representing a 79% increase compared to the third quarter of 2024. This growth was primarily driven by a large contract we signed, which has added approximately $86 million to the backlog. Moving to slide 18, our energy storage segment produced another strong quarter of year-over-year growth, with total revenues increasing by 108%. 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 targets of between 2.6 GW-2.8 GW 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 harbor for additional projects, further reinforcing our path towards meeting our capacity growth targets. Turning to slide 21 and 22, which display our geothermal and hybrid solar PV projects currently underway, we anticipate adding 98 MW of generating capacity from these projects by the end of 2026. Moving to slides 23 and 24. We currently have five projects under development in our energy storage segment, which are expected to add 325 MW or 1,180 MWh to our portfolio. Turning to slide 25.

Last week, Ormat and SLB announced a partnership aimed to accelerate the development and commercialization of EGS projects. Together with SLB, we intend to streamline project deployment from concept to power generation by combining Ormat's expertise and market-leading capabilities in power plant design, development, and operations with SLB's well-established strengths in subsurface reservoir engineering and construction. Together, we intend to jointly develop a pilot at an Ormat facility with the goal of scaling EGS solutions to enable widespread EGS adoption. If the pilot proves successful, Ormat expects to expand its development pipeline in alignment with our commitment to delivering reliable, sustainable, and efficient energy solutions to meet the demands of AI data centers and the broader transition to renewable energy. In addition to the SLB agreement during the third quarter, we announced a strategic commercial agreement with Sage Geosystems, a pioneer in next-generation geothermal and energy storage technology.

As part of the agreement, once closed, Sage will pilot its advanced pressure geothermal technology to extract geothermal heat energy from hot, dry rock at one of our existing power plants. The goal of this collaboration is to significantly reduce the time and costs needed to bring EGS to market. Following a successful completion of the pilot project, Ormat will gain the right to develop, build, own, and operate geothermal power plants leveraging Sage's proprietary pressure geothermal technology. We also intend to advance long and short-duration energy storage projects utilizing Sage's cutting-edge pressure geothermal storage solution. We will provide additional updates on these agreements as the pilot program progresses. Our partnership with SLB, coupled with our agreement with Sage, has created a significant step forward for the geothermal industry.

As the global leader in geothermal development, we are proud to drive progress towards a more sustainable future by delivering reliable, efficient, and renewable energy solutions to power the global energy needs. Please turn to slide 26 for a discussion of our 2025 guidance. The great results we saw in the product and storage segments enabled us to update our guidance and increase our revenue and adjusted EBITDA targets for the year. We expect revenue to increase by 10.2% year-over-year at the midpoint, ranging between $960 million-$980 million. Electricity segment revenues are projected to be between $700 million-$705 million. Product segment revenues are expected to range between $190 million-$200 million, and energy storage revenues are now expected to range between $70 million-$75 million.

As a result of improvements in full-year revenue and strong adjusted EBITDA results generated to date, Adjusted EBITDA is now expected to increase by approximately 6.2% at the midpoint, ranging between $575 million-$593 million, with annual adjusted EBITDA attributable to minority interest at approximately $17.5 million. I will now conclude our prepared remarks with reference to slide 27. This is a pivotal and transformative period for Ormat. We are experiencing strong momentum across our business. Fueled by new strategic partnerships and expanding portfolio, robust PPA pricing, supportive regulatory developments, and increasing demand for renewable energy solutions. As the global energy transition gains pace and AI-driven requirements for power and energy infrastructure expand the market for our core competence, we are exceptionally well-positioned to deliver scalable and sustainable energy solutions. We are also proud of the progress that we have made in advancing EGS technology.

This initiative complements our established leadership in geothermal development and positions us to drive future growth. Looking ahead to the fourth quarter and beyond, we remain committed to expanding our industry leadership and advancing innovative, sustainable energy solutions that will allow us to drive growth and long-term value for our shareholders. This concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please.

Operator (participant)

Thank you. At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star one. Your first question is from the line of Noah Kaye with Oppenheimer.

Noah Kaye (Managing Director and Senior Research Analyst)

Well, good morning, Doron and Assi. Thanks for taking the questions. Hope you're well. Sorry, can you hear me? Just making sure.

Operator (participant)

Yes, your line is coming through.

Noah Kaye (Managing Director and Senior Research Analyst)

Okay, thank you. All right, so maybe just start with, it was in the slide decks on page 15, just referencing the 250 MW of PPAs under negotiation with hyperscalers and data centers. Don't believe I heard an update in the prepared remarks. Can you maybe just update on. I'm sorry, I'm getting a lot of feedback here.

Assi Ginzburg (CFO)

Noah? Noah, can you hear us?

Noah Kaye (Managing Director and Senior Research Analyst)

Yes, I'm sorry. Can you hear me coming through?

Assi Ginzburg (CFO)

Yes.

Noah Kaye (Managing Director and Senior Research Analyst)

Okay, so. Okay, I'm sorry, I'm getting a lot of feedback, but I was just hoping for an update on the PPA discussions with hyperscalers. Thank you.

Doron Blachar (CEO)

Noah, so. Hopefully you can hear me well. We are. Actually in very final negotiations on. A couple of PPAs with hyperscalers and. In the same. Magnitude that we have been discussing. We hope to be able to finalize them, sign them, and announce them in the next couple of months, hopefully even before that. But we had quite significant development in the negotiations and drafting, and we're very close to finishing them. In the next couple of months.

Noah Kaye (Managing Director and Senior Research Analyst)

Great, we look forward to that. Second question. I think you mentioned Topp 2. Will likely convert over to a products revenue. Since you'll be doing the EPC work there. Just how to think about how that might translate into. Additional products backlog and the revenue opportunity associated with that.

Doron Blachar (CEO)

Yes, I would say it's an EPC project, roughly $100 million. In that range. So they have exercised the option. We need to. close the transaction that will probably occur in Q1 of 2026. And at that point. Once the transaction closes, accounting-wise, it's the time we can actually account it as part of the product segment.

Noah Kaye (Managing Director and Senior Research Analyst)

Very helpful, thanks. And then you mentioned a couple of these key collaborations on EGS. I was hoping you could give us a little bit more color on. Some of the pilots that are associated with that. Can you give us a little bit more detail on the scope of the pilot, what steps exactly you'll kind of be taking here in the early days to. Kind of assess commercial viability and what you'll be looking for to go ahead with a larger project?

Doron Blachar (CEO)

Sure, so. These are two different transactions. So with SLB, we've started a joint venture and we've chosen the site. The pilot for the SLB will be next to our facility in Desert Peak in Nevada. Actually, it's the same location that 20 years ago Ormat started an EGS project there. So, the pilot starts with SLB.

Looking into the right technology and developing the right technology for an EGS project. Once they are complete, or actually in parallel to that. We will be looking for permitting and all the business development-related issues that we'll be working on. Once these two are aligned, we will drill the pilot wells. We expect that will happen towards the second half or the end of 2026. And then we will run the pilot, and we will utilize our Desert Peak site. And by that, save a lot of time or the need to build a facility to generate electricity. So this is on the SLB part. On the Sage, so the Sage pilot is the pilot that they are managing. We are discussing with them what is the right location for an EGS project next to one of our facilities. Similar again to save time.

But on this case, be the permitting and everything is done by Sage, not by us. We're just allowing them to utilize one of our facilities, which we haven't finalized with them yet which one.

Noah Kaye (Managing Director and Senior Research Analyst)

Very helpful. Lots more to ask, but I will defer to my colleagues. Thank you.

Doron Blachar (CEO)

Thank you, Noah.

Operator (participant)

Thank you, Noah. Your next question is from the line of Justin Clare with ROTH Capital.

Justin Clare (Managing Director and Senior Research Analyst)

Hi, yeah, thanks for the time. So wanted to start out with the electricity segment. Wondering if you could just discuss within the electricity segment how you anticipate the gross margins trending in Q4. There was a number of different factors that affected the margins in Q3. Wondering if those are being resolved or if they could affect Q4.

And then just looking into 2026, it'd be great if you could just talk about the puts and takes you see for the electricity segment in regard to kind of operational issues that impacted 2025 and the curtailments and how you see things evolving for that segment next year.

Doron Blachar (CEO)

So I will start maybe with the 2026. What we've seen. We are not aware today of any material curtailments that are planned by NV Energy or from California near the control substation. So the big impact that we had this year is not something that we expect to see next year. But this is usually up to the utilities and the operators, not us. This is regarding 2026. Regarding Q4 of 2026, I can tell you that we had some curtailment in October by NV Energy, which wasn't a planned one. It was an unplanned curtailment that they've done.

Q4 is usually much stronger than Q3 and Q2. So we do expect a higher gross margin in Q4 versus Q3.

Justin Clare (Managing Director and Senior Research Analyst)

Got it. And then I guess just some of the factors that affected Q3, the Stillwater enhancement, the Imperial Valley grid failure, have those been resolved at this point, or could there be an effect in Q4? Wondering, for Q4, could we see directionally an improvement versus the year-ago period, or could those factors result in a year-over-year decline?

Doron Blachar (CEO)

The storm in the Imperial Valley impacted IID. They had, I think, a few hundred poles that fell down, and it took them a while to bring them up. So this event is over and behind us. The Stillwater upgrade continued into October. So it will have some impact, but not as big of an impact as in Q3.

Assi Ginzburg (CFO)

And then I would just add to it.

From a seasonal perspective, Q4 is usually one of the strongest quarters for the year. And we expect this to be probably the strongest for 2025. We see lessening in the curtailment, which is very positive. If you look at 2024, our margin was 36%. We are running in general this year 200-300 basis points below that. So that's the expectation for Q4. So overall, again, it should be much improved versus what we saw this quarter. It should be probably the highest for the year, but slightly below 2024. Because there is, as Doron mentioned, some curtailment in Q4 on one end. And also, Stillwater is still not at its full capacity.

Justin Clare (Managing Director and Senior Research Analyst)

Got it. Okay. That's really helpful. And then just one more on PPAs. It seems like PPAs are continuing to trend higher. You mentioned pricing above $100 a megawatt hour.

Wondering if you're seeing pricing at $105 or $110, or if you could provide any more granularity on the pricing that you're seeing. And then just related to that. It sounds like off-takers may be looking to recontract earlier in order to lock in pricing before potential future increases in PPAs. Are you seeing any of that? Could you look to recontract assets earlier than what you typically would be expecting?

Doron Blachar (CEO)

So it's very hard to comment on the PPA price if it's $105 or $110. It's in a similar vicinity. And both of them are good numbers depending on the specific location and the off-taker. We are looking for recontracting today our 2029 and 2030 projects coming off contract. It's important. We would like to recontract them to get the stability and the ability to focus and for longer term.

Also, when you recontract a project, it doesn't come up with a lot of CapEx. There's some CapEx associated with the enhancement, but it doesn't come with the full CapEx. So in today's environment and PPA pricing, it is very attractive.

Justin Clare (Managing Director and Senior Research Analyst)

Okay. Thanks very much.

Operator (participant)

Your next question is from the line of Mark Strouse with JPMorgan.

Mark Strouse (Executive Director and Equity Research Analyst)

Yes. Thanks for taking our questions. Just a follow-up to Noah's earlier question. I know it's early, but can you talk about how it's kind of a reasonable expectation of how long these pilots on the EGS side might last? And I appreciate kind of the longer-term opportunity here, but just specific to your 2028 targets, do you think that there's potential upside to that from these EGS deals, or is it a bit more longer-dated? Thank you.

Doron Blachar (CEO)

Thank you. 2028 targets, it's a bit aggressive to assume that EGS will have an impact. One of the main challenges with EGS is the water loss. Once you circulate the water, inject water, and then bring it up again hot. This is something that will be verified or learned over time. So if we see the pilot operating in 2027 sometime, I think it's likely that we'll be able to, after a few months, be able to get the input on the viability of this technology. I can tell you that once we are starting the pilot development, we will be looking to sign PPAs, obviously, for a later period based on this technology if it is successful. So this is also something that we, together with SLB, are planning to do.

Mark Strouse (Executive Director and Equity Research Analyst)

Great. Thank you.

Operator (participant)

Your next question is from the line of Julien Dumoulin-Smith with Jefferies.

Hannah Velásquez (Equity Research Senior Associate)

Hey, good morning.

This is Hannah Velásquez on for Julien. So as another follow-up question on the EGS part, can you just give us a sense of the scale of EGS-type projects that you would be looking to target in terms of megawatts?

Doron Blachar (CEO)

Yes. The nice thing about EGS projects is that it is based on the amount of wells that you drill and the water that you use. So the megawatts that can be developed are significant. It can be in the hundreds of megawatts, similar to other companies' PPAs. It's not like today that when we release a project, it's 25 MW, 30 MW, 35 MW. I believe the EGS projects will be in a few hundreds of megawatt. But again, it's very, very early to say before we have the pilot operating.

Hannah Velásquez (Equity Research Senior Associate)

Okay. Thank you. And as a follow-up, can you give us an update?

I know a while back we had talked about an executive order on the permitting side that came out of the Trump administration that was trying to accelerate the permitting process for a geothermal. I think it was down to 28 days or something like that. Have you seen any updates or progress on that front?

Assi Ginzburg (CFO)

In general, we do see getting permits become much less of an issue when it's federal permits. Although over the last few weeks, as we all know, the government is in a shutdown mode, so we don't see a lot happening there. But I can tell you that we were able to get within weeks permits. And you will see in 2026 that will lead, as Doron mentioned on the call last time, to accelerating drilling program. Doron mentioned that we're adding a second rig for the second half of 2025.

We may even add a third rig at one point next year. So that's going to be a different situation for us. And what it gives us is the ability to develop more assets to meet both our 2028 and, of course, our longer-term goals. So very positive. Last few weeks, nothing is being done. It's all on a shutdown mode. We hope it will change shortly.

Hannah Velásquez (Equity Research Senior Associate)

Okay. Thank you.

Assi Ginzburg (CFO)

Thank you, Hannah.

Operator (participant)

Your next question is from the line of Jon Windham with UBS Financial.

Jon Windham (Head of Alternative Energy and Environmental Services Equity Research)

Perfect. Thanks for taking the questions. I'd be really interested if you could just provide some more color about how you're managing risk around the storage business. There's obviously a lot of uncertainty in the market around FEOC, around that, just how the contracts or how your development pipeline. Risk mitigates for potential outcomes. So I'd be very interested to hear your thoughts. Thanks.

Doron Blachar (CEO)

So thank you, Jon. So we saw the storage margins this quarter, and we also increased guidance for the year for the storage. So all in all, our operation between PGM, Texas, and California is working very well. All the projects that we are developing have secured our safe harbor. And a few additional ones that we haven't already released for construction have safe harbor. Apart from that, the FEOC and the entire storage market is still trying to align itself to the new world that the administration has put. And we're looking also on the impact longer term. But at this stage, all the projects and the plans that we have are in line, and we are working on them. And we did safe harbor whatever we could and had a good enough view going forward.

Jon Windham (Head of Alternative Energy and Environmental Services Equity Research)

Great. Thank you.

Operator (participant)

Your next question is from the line of Davis Sunderland with Baird.

Davis Sunderland (Equity Research Associate)

Hey, good morning, guys. Thank you for the time, and hope you're doing well. Most of my questions on EGS have already been answered. So maybe if I could just pivot, Assi, I wonder if you could talk just a little bit more about financing needs for next year, and really maybe even for next year or 2027, just looking at the 200 MW of geothermal and solar, roughly, that you guys plan on bringing online and any needs or any things we should consider for tax partnerships between now and then. Thank you.

Assi Ginzburg (CFO)

So I'll start by saying that if you look at this year. Our expected EBITDA, the middle range, plus the over $160 million, close to $167 million of cash cover basically completely all of our CapEx needs.

And the only additional borrowing that we did this year is basically for the acquisition that we made. We haven't finalized our plan yet for CapEx for next year. But also next year, we expect to have at least $70 million of tax equity or ITC that we will get from two projects. In addition to that, next year, towards the end of the year, the Puna plant is expected to come on. And if we close the transaction of the Puna plant already in December, which is unlikely, but it's possible, then this year and next year tax credits will be quite similar, maybe even higher next year. So overall, the start for us is very, very good. It can be as much as $170 million next year.

In addition to that, next year, as we mentioned at the beginning of the call, we expect to sell for around $100 million. A project that we already fully financed in New Zealand. So basically, we will start the year next year with above $250 million of non-proceeds. Together with ongoing EBITDA, that should cover the majority of our CapEx needs. And if we will need slightly more, we can borrow. So at this point, we don't see a need for equity for the company. Of course, the two pilots of the EGS at this point, they are not meaningful for the company, or at least the one that we are spending the money with the SLB. It's not meaningful spend for the company, maybe [$10 million-$20 million] a year for the next year or two.

But once EGS will be something big and we will need to start build instead of 100 MW a year, three times or four times that amount, Ormat will have to look into our capital structure. And I believe that there is plenty of cash available for great projects. So as I mentioned, right now, we will focus with great cash from operation plus tax credit, including a large one-time income next year coming from the sale of the project in New Zealand. So we should be quite covered next year.

Davis Sunderland (Equity Research Associate)

Thank you for that. That's super helpful.

And maybe, I guess, just building on that last question and to your point about EGS and the excitement there, is there any opportunity that you guys see to maybe accelerate this development through M&A or any other actions you guys could take to build more or bigger partnerships in the near term? Thank you again.

Doron Blachar (CEO)

Thank you. We've just started these initiatives. I don't see an M&A transaction in the EGS field that can push it forward. I don't believe there's any targets today for M&A transaction. We believe that developing with SLB and the commercial agreement with Sage, which is a different technology than SLB, actually will allow us to have two paths to reach EGS.

And if either one or both of them are successful, we said the number of megawatt that can be developed that will impact Ormat's own project as well as the product segment are significant.

Davis Sunderland (Equity Research Associate)

Thank you, Doron. Thank you, Assi. I'll pass it on.

Operator (participant)

Your next question is from the line of David Anderson with Barclays.

David Anderson (Managing Director and Senior Equity Analyst)

On the Schlumberger agreement, they're providing the technology. They're doing the permitting and the drilling. If this is successful, does Schlumberger participate in this project in the longer term in terms of CapEx or other means on this? How does that work longer term if this all works out?

Doron Blachar (CEO)

Okay. I cannot answer for Schlumberger themselves. But the way the partnership works is that we're developing together. And after that, we can build projects together or each one can build by themselves projects. Schlumberger is a service company.

That's what they've done all the years. And we're developers. So once the pilot is successful, we will be able to utilize all the technology that was developed in the pilot and build geothermal EGS projects that will be owned by Ormat.

David Anderson (Managing Director and Senior Equity Analyst)

Can you talk about the differences in the technologies that are being applied, what Sage is doing versus what Schlumberger is doing?

Doron Blachar (CEO)

These are two different technologies. These are very proprietary technologies for Sage, and SLB are still developing them. I think over time, as the pilot progresses and technology is developed, we will be able to share more information on how we are developing it and how we see both of them operating over time.

David Anderson (Managing Director and Senior Equity Analyst)

Thank you.

Operator (participant)

Your next question is from Noah Kaye with Oppenheimer.

Noah Kaye (Managing Director and Senior Research Analyst)

Well, thanks for taking the follow-up. Really two ones.

The first one is around the electricity performance, kind of following up on the margin question before. I think maybe another way to get at it is there have been a number of events all year. There were wildfires in California in 1Q. The Puna maintenance in 2Q, and now Imperial Valley in 3Q, and obviously the Nevada curtailment all year. And I guess outside of Puna, these were really kind of exogenous factors, right? So I guess if we add up all of these non-recurring factors, it's possible to kind of quantify the total impact to revenue and EBITDA this year. I think that'll help us re-baseline for next year.

Assi Ginzburg (CFO)

Sure. So when we look at the curtailment, it's probably around $14 million-$15 million this year.

If you add to it some of the Puna impact plus the Ivy storms, you're probably going to be somewhere between $20 million-$25 million. But let's remember, every year there are a few events. So I will say it's probably a $20 million impact for the year. And when you look at our focus for the year, you can see that we reduced our higher-end part of the guidance by exactly those $20 million. That's why we went from [$725 million to $705 million]. So if you want to make it easy on you, this is the high-level impact.

Noah Kaye (Managing Director and Senior Research Analyst)

That's perfect. Thanks, Assi. And the second one is really to think about land position and interconnection position. We noticed that NV Energy's interconnection queue, just to pick one utility, for geothermal, increased by roughly 10x over the last couple of months. It does look like there is obviously a lot of project development.

Can you talk about your interconnection position and your ability to bring online the geothermal projects you have in development?

Doron Blachar (CEO)

Our projects and prospects that we have that we are developing today have most of them already interconnection agreements and dates. The others are in various stages of negotiations on finalizing the megawatts and the cost of the interconnection, the date. So when we look at the near to midterm future, we feel confident that. We will have interconnection for the projects that should be coming online in the next few years. Obviously, as you go down to later years, interconnection is something that needs to be worked on. But we are in Nevada and California for many, many years in the geothermal, and we are continuously filing for interconnection. And we have, as I said, for most of our projects going forward, interconnection.

Noah Kaye (Managing Director and Senior Research Analyst)

Thank you.

Assi Ginzburg (CFO)

Thank you, Noah.

Operator (participant)

Thanks. Our final question comes from line of Derek Podhaizer with Piper Sandler.

Derek Podhaizer (Director and Senior Equity Research Analyst)

I just want to ask about product. Maybe just your outlook there on the backlog seems to be growing nicely. You just upped your top-line revenue guidance. Your implied 2028 guidance was, I think, in the $140 million range. You just got it up to [$180 million-$190 million]. Margins are sitting above 20%. Is this just the new run rate we should think about? Maybe just some comments around product and how you see that progressing over the next couple of years, given that you're trending above your 2028 implied guidance.

Assi Ginzburg (CFO)

Our long-term target for margin is anywhere from 17%-20%. This year, we have an exceptional year with our ability to negotiate much better procurement on some of our contracts.

In addition to the fact that some of the projects are being finished right now in New Zealand, we were able to complete the EPC at a much lower cost than anticipated. So I will say from a margin perspective, this year is definitely, I will say, outstanding and probably on the higher end. And when I look forward, probably between, I would say, 17%-20% is making more sense. On the revenue line item, there is no doubt that we continue to stay elevated, and also next year, we expect to stay elevated. Historically, Ormat, at least in the years of COVID and the few years after, we sold around $100 million. I will say right now, we are moving probably to the $200 million level. And next year may be going to be slightly higher, but that's the idea at this point.

We signed a large contract in Asia a few weeks ago, and we are negotiating a few more as we speak. I think that what's more important when you look at the product segment is to show to the world that geothermal is alive and kicking, not just in the U.S. with all the AI, but it's a viable solution in many, many countries and the cheapest option to get electricity. One more thing that will boost our revenues, but that's towards 2028, 2029, and 2030, is the fact that we did win two new PPAs in Indonesia. These are BOT projects with PLN. During a BOT project, we recognize revenue already at the time of the construction in the product segment. So I will say that over the next few years, we should see very nice support.

Coming from the project in Indonesia, from the New Zealand projects, and also what we just signed in Asia. So overall, good timing. As I said, margin this year is exceptionally high. We're not anticipating that to be at this level.

Derek Podhaizer (Director and Senior Equity Research Analyst)

That's helpful. And then just back to the partnership with SLB, maybe look at it from a different angle. We already talked about EGS, but what about on the traditional side of things, your traditional geothermal development? Are you exploring projects with SLB to develop that type of power plants? Just trying to think of the cross synergies that can be utilized with SLB, applying some of their technologies into the traditional space, fully acknowledging that EGS is where the interest is, but just thinking about traditional asset development as well.

Doron Blachar (CEO)

Definitely. Traditional geothermal is the core of what we're doing today. EGS needs to be developed.

So we are looking also with SLB on potential customers that are looking for geothermal energy and have the relevant locations or land that we can develop traditional geothermal. So definitely, it's part of the discussion with them. It's something that both companies can enjoy if we get additional customers for them for the services they provide for drilling and ask for the power plant. So it's definitely existing in the partnership.

Derek Podhaizer (Director and Senior Equity Research Analyst)

Great. Thanks for all the color. Will turn it back.

Operator (participant)

This concludes the question and answer session of today's call. I will now hand the call over to Doron for closing remarks.

Doron Blachar (CEO)

Thank you. So thank you, everyone. This was a strong quarter on our operations with strategic developments in the EGS technology.

Our partnership with SLB and the commercial agreement we signed with Sage will impact our growth in the future and will allow us, together with SLB, to respond to the significant demand we see today in the market by data centers and AI for electricity. We will obviously continuously update you on any progress we have in these pilots and how we plan to see them materializing into real projects. So thank you all.

Operator (participant)

This concludes today's call. Thank you for joining. You may now disconnect your line.