ORMAT TECHNOLOGIES, INC. Cautionary Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this quarterly report on Form 10-Q, the words "may", "will", "could", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "projects", "potential", or "contemplate" or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors", and "Notes to Condensed Consolidated Financial Statements", but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report on Form 10-Q completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control. Specific factors that might cause actual results to differ from our expectations include, but are not limited to the following, many of which are, and will be, amplified by the COVID-19 pandemic:
• the impact and potential impact of the COVID-19 outbreak on our growth plans,
financial position and results of operations;
• significant considerations, risks and uncertainties discussed in this
quarterly report;
• geothermal resource risk (such as the heat content, useful life and geological
formation of the reservoir);
• operating risks, including equipment failures and the amounts and timing of
revenues and expenses;
• financial market conditions and the results of financing efforts;
• weather and other natural phenomena including earthquakes, volcanic eruption,
drought and other natural disasters;
• political, legal, regulatory, tax, governmental, administrative and economic
conditions and developments in
we operate and, in particular, possible import tariffs, possible late
payments, the impact of recent and future federal, state and local regulatory
proceedings and changes, including legislative and regulatory initiatives
regarding deregulation and restructuring of the electric utility industry,
public policies and government incentives that support renewable energy and
enhance the economic feasibility of our projects at the federal and state
level in
legislation;
• risks and uncertainty with respect to our internal control over financial
reporting, including the identification of a material weakness which, if not
timely remediated, may adversely affect the accuracy and reliability of our
financial statements;
• the impact of fluctuations in oil and natural gas prices under certain of our
power purchase agreements ("PPAs")
• the competition with other renewable sources or a combination of renewable
sources on the energy price component under future PPAs;
• risks and uncertainties with respect to our ability to implement strategic
goals or initiatives in segments of the clean energy industry or new or
additional geographic focus areas;
• risk and uncertainties associated with our operating storage facilities and
with future development of storage and geothermal projects which operate as
"merchant" facilities without long-term sales agreements, including the
variability of revenues and profitability of such projects;
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• environmental constraints on operations and environmental liabilities arising
out of past or present operations, including the risk that we may not have,
and in the future may be unable to procure, any necessary permits or other
environmental authorizations;
• construction or other project delays or cancellations;
• the enforceability of long-term PPAs for our power plants;
• contract counterparty risk, including late payments, or no payments;
• changes in environmental and other laws and regulations to which our company
is subject, as well as changes in the application of existing laws and
regulations;
• current and future litigation;
• our ability to successfully identify, integrate and complete acquisitions;
• our ability to access the public markets for debt or equity capital quickly;
• competition from other geothermal energy projects and new geothermal energy
projects developed in the future, and from alternative electricity producing
technologies;
• market or business conditions and fluctuations in demand for energy or
capacity in the markets in which we operate, which may affects the market
prices for energy or capacity including those in the market where we operate;
• when, if and to what extent opportunities under our commercial cooperation
agreement with ORIX Corporation may in fact materialize;
• the direct or indirect impact on our Company's business of various forms of
hostilities including the threat or occurrence of war, terrorist incidents or
cyber-attacks or responses to such threatened or actual incidents or attacks,
including the effect on the availability of and premiums on insurance;
• our strategic plan to expand our geographic markets, customer base and product
and service offerings may not be implemented as currently planned or may not
achieve our goals as and when implemented;
• development and construction of solar photovoltaic (Solar PV) and energy
storage projects, if any, may not materialize as planned; and
• the effect of and changes in current and future land use and zoning
regulations, residential, commercial and industrial development and
urbanization in the areas in which we operate.
Investors are cautioned that these forward-looking statements are inherently
uncertain. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may
vary materially from those described herein. Other than as required by law, we
undertake no obligation to update forward-looking statements even though our
situation may change in the future. Given these risks and uncertainties, readers
are cautioned not to place undue reliance on such forward-looking statements.
The following discussion and analysis of our financial condition and results of
operations should be read together with our condensed consolidated financial
statements and related notes included elsewhere in this report and the "Risk
Factors" section of our Annual Report on Form 10-K for the year ended December
31, 2019 (the "2019 Annual Report") and any updates contained herein as well as
those set forth in our reports and other filings made with the Securities and
Exchange Commission (the "SEC").
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Table of Contents General Overview We are a leading vertically integrated company that is primarily engaged in the geothermal, and recovered energy power businesses. We are also expanding into the solar Photovoltaic (PV) and energy storage and management services business.
We design, develop, build, sell, own, and operate clean, environmentally friendly geothermal and recovered energy-based power plants, usually using equipment that we design and manufacture. Our objective is to become a leading global provider of renewable energy and we have adopted a strategic plan to focus on several key initiatives to expand our business.
We currently conduct our business activities in three business segments:
• Electricity Segment. In the Electricity segment, which contributed 74.4% of
our total revenues in the three months ended
build, own and operate geothermal, solar PV and recovered energy-based power
plants in
around the world and sell the electricity they generate. In the three months
ended
from our operations in
• Product Segment. In the Product segment, which contributed 24.7% of our total
revenues in the three months ended
sell equipment for geothermal and recovered energy-based electricity
generation and remote power units and provide services relating to the
engineering, procurement, construction, of geothermal, and recovered
energy-based power plants. In the three months ended March 31, 2020 , wederived 0.8% of our Product segment revenues from our operations in the United
States and 99.2% from the rest of the world.
• Energy Storage and Management Services Segment. In the Energy Storage and
Management Services segment, which contributed 1.0% of our total revenues in
the three months ended
response and energy management related services as well as services relating
to the engineering, procurement, construction, operation and maintenance of
energy storage units through the business of our Viridity Energy Solutions
Inc. ("Viridity"), which we acquired in 2017. In the three months ended March
31, 2020, we derived 100% of our Energy Storage and Management Services
segment revenues from our operations in the United States .
Our operations are conducted in the
COVID 19 Update InMarch 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Governments around the world have ordered companies to limit or suspend non-essential operations and imposed operational and travel restrictions resulting in a decline in global economic activity and an increase in market volatility. The Company has implemented significant measures both to comply with government requirements and to preserve the health and safety of its employees. These measures include working remotely where possible and operating separate shifts in its power plants, manufacturing facilities and other locations while trying to continue operations in close to full capacity in all locations. During the quarter and subsequently, the Company's power plants, manufacturing facility and storage facilities have been operating at close to full capacity and there has been no material impact on our operations as a result of these measures.
In addition, we did not experience any material impact on our results of operations during the first quarter of 2020 and the impact that we have started to experience in the second quarter of 2020 varies among business segments.
• In our electricity segment almost all of our Electricity segment revenue in
the three months ended
and the majority have a fixed energy rate. As a result, despite logistical
and other challenges, we currently expect that the impact of COVID-19 on our
electricity segment to be limited due to the long-term contracted nature and
stability of the Company's revenue streams. Despite that expectation, on April
17, 2020, we received from Kenya Power & Lighting Co. Ltd. ("KPLC") a notice
declaring a force majeure event in
purporting to reduce the Olkaria complex's contracted capacity from 150 MW to
133.9 MW. As a result of force majeure provisions in the Power Purchase
Agreement related to this facility, the notice has an immaterial impact on our
expected revenue. On
declaring a force majeure event in
are currently evaluating the potential impact of this notice on our
consolidated financial statements. In addition, our future growth in the
Electricity segment might be adversely impacted by a lack of funding for
projects and the implications of global and local restrictions on our ability
to procure raw material and ship our products.
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Table of Contents
• Our product segment revenues are generated from sales of products and services
pursuant to contracts that are not terminable. However, recognition of revenue
under these contracts is impacted by delays in the progress of the third-party
projects into which our products and services are incorporated. We had a
product backlog of
for the period between
million as of
resulted in part from the impact of COVID-19 and the unwillingness of
potential customers to enter into commitments at this time. We currently
expect to recognize our backlog fully in the following 18 months.
Nevertheless, we expect that product revenues will be adversely impacted for
the reasons set out above, restrictions on travel and because our customers
differing their decision to purchase have impacted our sales and marketing
efforts.
• Our energy storage and management services segment generate revenues mainly
from the sale of the electricity ancillary services back to the energy markets
based on the prevailing market price for the electricity or for the energy or
ancillary services. There has been a decline in ancillary services prices
that was driven primarily by mild winter weather and low natural gas prices
but might also have impacted by COVID 19. This decline, in turn, impacted
our energy storage facilities' revenues.
Given uncertainties regarding future global economic activity and the potential
future impact of COVID-19, we have undertaken a number of steps optimizing our
global supply chain as well as enhancing the Company's liquidity position. In
the first quarter of 2020, we took prompt steps to manage our expenses including responsible cost cutting measures and significantly reduced hiring. Additional actions taken included delaying 2019 bonus payments to our management members and certain other managers fromApril 2019 toSeptember 2020 and delaying 50% of bonus payments to all other eligible employees. In addition, in order to support our capital expenditure and growth plans, inApril 2020 , we raised an additional$64 million through the sale of bonds and borrowed$50 million pursuant to a loan agreement with an existing lender. Despite our effort to provide insight into the performance of our business and the trends effective it, as of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. We may become subject to any of the following impacts:
• limitations on the ability of our suppliers to obtain raw materials that are
required for the manufacturing of the products we sell or to meet delivery
requirements and commitments;
• limitation on our ability to sign new contracts for our product segment due to
operational and travel restrictions and availability of our customers;
• limitations on the ability of our customers to pay us on a timely basis;
• lack or limited availability of capital or postponement of capital allocation
to future growth;
• additional declarations of COVID-19 as force majeure by our customers and
suppliers;
• a reduction in the demand for electricity and for our products;
• change in regulations, taxes and levies that may affects our operation and
cost structure.
Other Recent Developments
The most significant developments in our company and business since
• As of
required for the construction and operation of the substation were received.
HELCO continues with its efforts to complete the upgrade of the transmission
network and is waiting for PUC approval. On the field side, the Company
completed drilling of two production wells, one of which was blocked
immediately after its flow test while the other is ready to be connected to
the power plant and is expected to enable partial production by the beginning
of the fourth quarter. The Company continues its field recovery work, which
includes redrilling and cleanouts of existing wells and drilling of new wells
and expect gradual increase of production to 29 MW by the end of the year,
assuming all permits are received, the transmission network upgrade is
complete and field recovery is successfully achieved.
• In
Battery Energy Storage System ("BESS") facility, providing required ancillary
services and energy optimization to the wholesale markets managed by the
the
of fast responding capacity to the
subsidiary
the lithium-Ion-based BESS, using batteries from a tier 1 supplier.
• In
portfolio of energy storage assets in
amended in April and include purchase agreement to acquire the
battery storage facility. The
with South California Edison. Under the terms of the purchase agreements, we
will pay
contingent upon specific conditions related to the project as well as other
customary closing conditions. Closing is is expected during the third quarter
of 2020. The Company is currently evaluating the accounting impact of this
transaction on its 2020 consolidated financial statements.
• In
Officer, effective
Company, its employees and its shareholders. It is intended that
will become a member of
Chief Executive Officer and will continue to be employed by the Company
through
If
be appointed to serve as the chairman of the board.
has appointed
Officer, to succeed
Executive Officer on July 1, 2020 upon Mr. Angel's retirement.
Mr. Blachar will has been succeeded in his role as Chief Financial Officer by
Assaf Ginzburg , effective May 10, 2020 . Mr. Blachar is currently serving as
President of the Company until assuming his role as Chief Executive Officer on
July 1, 2020 .
• In
("SVCE") and
MBCP will each purchase 7 MW (for a total of 14 MW) of power generated by the
expected 30 MW Casa Diablo-IV ("CD4") geothermal project located in Mammoth
Lakes,
years and have a fixed MWh price, which includes energy, capacity,
environmental attributes, and all other ancillary benefits. The remaining 16
MW of generating capacity will be sold under an additional PPA with Southern
power plant is expected to be on-line at the end of 2021, and will be the
first geothermal power plant built within the California Independent System
Operator ("CAISO") balancing authority in the last 30 years and will be the
first in
Aggregator.
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Table of Contents Trends and Uncertainties Different trends, factors and uncertainties may impact our operations and financial condition, including many that we do not or cannot foresee. However, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by trends, factors and uncertainties discussed in our 2019 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation" in addition to the information set forth in this report. These trends, factors and uncertainties are from time to time also subject to market cycles. • As COVID-19 threatens demand, oil prices have declined below the$30 per
barrel mark and could have consequences on the global transition to renewable
energy and on governmental support for renewable . We believe that the direct
impact of declining oil prices on us is not material.
Revenues
For the three months ended March 31, 2020 , 98.8% of our Electricity segment
revenues were from PPAs with fixed energy rates, which are not affected by
fluctuations in energy commodity prices. We have variable price PPAs in
California and Hawaii , which provide for payments based on the local utilities'
avoided cost, which is the incremental cost that the power purchaser avoids by
not having to generate such electrical energy itself or purchase it from others,
as follows:
• the energy rates under the PPAs in
in the
between 30 megawatts (MW) and 40 MW, change primarily based on fluctuations in
natural gas prices; and
• the prices paid for the electricity pursuant to the 25 MW PPA for the Puna
Complex in
oil as well as other commodities. We recently signed a new PPA related to Puna
with fixed prices that will govern a future plant.
To comply with obligations under their respective PPAs, certain of our project
subsidiaries are structured as special purpose, bankruptcy remote entities and
their assets and liabilities are ring-fenced. Such assets are not generally
available to pay our debt, other than debt at the respective project subsidiary
level. However, these project subsidiaries are allowed to pay dividends and make
distributions of cash flows generated by their assets to us, subject in some
cases to restrictions in debt instruments, as described below.
Electricity segment revenues are also subject to seasonal variations and are
affected by higher-than-average ambient temperatures, as described below under
"Seasonality".
Revenues attributable to our Product segment are based on the sale of equipment,
engineering procurement and construction ("EPC") contracts and the provision of
various services to our customers. Product segment revenues may vary from period
to period because of the timing of our receipt of purchase orders and the
progress of our equipment manufacturing and execution of the relevant project.
Revenues attributable to our Energy Storage and Management Services segment are
derived primarily from Battery Storage as a Service ("BSAAS") systems, demand
response and energy management services and may fluctuate from period to period.
Pricing of such services and products are dependent on market supply and demand
trends, market volatility, the need and price for ancillary services and other
factors that may change over time.
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The following table sets forth a breakdown of our revenues for the periods
indicated:
Revenue (Dollars in thousands) Increase (decrease)
Three Months Ended Three Months Ended
March 31, March 31,
2020 2019 2020
Revenues:
Electricity $ 142,856 $ 142,908 $ (52 ) 0.0 %
Product 47,411 52,128 (4,717 ) -9.0
Energy storage and management services 1,846 4,002 (2,156 ) -53.9
Total $ 192,113 $ 199,038 $ (6,925 ) -3.5 %
% of Revenues for Period
Indicated
Three Months Ended
March 31,
2020 2019
Revenues:
Electricity 74.4 % 71.8 %
Product 24.7 26.2
Energy storage and
management services 1.0 2.0
Total 100.0 % 100.0 %
The following table sets forth the geographic breakdown of the revenues attributable to our Electricity, Product and Energy Storage and Management Services segments for the periods indicated:
Revenue (Dollars in thousands) Increase (decrease)
Three Months Ended Three Months Ended
March 31, March 31,
2020 2019 2020
Electricity Segment:
United States $ 91,692 $ 91,528 $ 164 0.2 %
Foreign 51,164 51,380 (216 ) -0.4
Total $ 142,856 $ 142,908 $ (52 ) 0.0 %
Product Segment:
United States $ 398 $ 11,243 $ (10,845 ) -96.5 %
Foreign 47,013 40,885 6,128 15.0
Total $ 47,411 $ 52,128 $ (4,717 ) -9.0 %
Energy Storage and
Management Services Segment:
United States $ 1,845 $ 4,002 $ (2,157 ) -53.9 %
Total $ 1,845 $ 4,002 $ (2,157 ) -53.9 %
% of Revenues for Period Indicated
Three Months Ended
March 31,
2020 2019
Electricity Segment:
United States 64.2 % 64.0 % Foreign 35.8 36.0 Total 100.0 % 100.0 %
Product Segment:
United States 0.8 % 22 %
Foreign 99.2 78
Total 100.0 % 100.0 %
Energy Storage and Management Services Segment:
United States 100.0 % 100.0 %
Total 100.0 % 100.0 %
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The contribution of our domestic and foreign operations within our Electricity segment and Product segment to combined pre-tax income differ in a number of ways. In the three months endedMarch 31, 2020 and 2019, 51% and 46% of our revenues were derived from international operations, respectively, and our international operations were more profitable than ourU.S. operations. A substantial portion of international revenues came fromKenya andTurkey and, to a lesser extent, fromGuadeloupe ,Guatemala andHonduras and other countries. Our operations inKenya contributed disproportionately to gross profit and net income. Electricity Segment. Our Electricity segment domestic revenues were approximately 64% of our total Electricity segment for both the three months endedMarch 31, 2020 and 2019, respectively. However, domestic operations in our Electricity segment have higher costs of revenues and expenses than the foreign operations in our Electricity segment. Our foreign power plants are located in lower-cost regions, likeKenya ,Guatemala ,Honduras andGuadeloupe , which favorably impact payroll, well-field and maintenance expenses among other items. They are also newer than most of our domestic power plants and therefore tend to have lower maintenance costs and higher availability factors than our domestic power plants. Product Segment. Our Product segment foreign revenues were approximately 99% and 78% of our total Product segment revenues for the three months endedMarch 31, 2020 and 2019, respectively. Our Product segment foreign activity also benefits from lower costs of revenues and expenses than Product segment domestic activity such as labor and transportation costs. Accordingly, our Product segment foreign activity contributes more than our Product segment domestic activity to our pre-tax income from operations. In the three months endedMarch 31, 2020 , the international operations in all of our segments accounted for 45% of our total gross profit, 69% of our net income and 42% of our EBITDA. Seasonality Electricity generation from some of our geothermal power plants is subject to seasonal variations; in the winter, our power plants produce more energy primarily attributable to the lower ambient temperature, which has a favorable impact on the energy component of our Electricity segment revenues and the prices under many of our contracts are fixed throughout the year with no time-of-use impact. The prices paid for electricity under the PPAs for theHeber 2 power plant in theHeber Complex , theMammoth Complex and theNorth Brawley power plant inCalifornia , theRaft River power plant inIdaho and theNeal Hot Springs power plant inOregon , are higher in the months of June through September. The higher payments payable under these PPAs in the summer months partially offset the negative impact on our revenues from lower generation in the summer attributable to a higher ambient temperature. As a result, we expect the revenues in the winter months to be higher than the revenues in the summer months.
Breakdown of Cost of Revenues
The principal cost of revenues attributable to our three segments are discussed in our 2019 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation".
Critical Accounting Estimates and Assumptions
A comprehensive discussion of our critical accounting estimates and assumptions is included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in our 2019 Annual Report. New Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements.
30
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Table of Contents Results of Operations
Our historical operating results in dollars and as a percentage of total
revenues are presented below. A comparison of the different years described
below may be of limited utility due to (i) our recent construction or
disposition of power plants and enhancement of acquired power plants; (ii)
fluctuation in revenues from our Product segment; and (iii) the impact of the
lava eruption on our Puna plant in
Three Months Ended
March 31,
2020 2019
(Dollars in thousands, except per
share data)
Statements of Operations Historical Data:
Revenues:
Electricity $ 142,856 $ 142,908
Product 47,411 52,128
Energy storage and management services 1,846 4,002
Total Revenues 192,113 199,038
Cost of revenues:
Electricity 71,368 77,543
Product 36,978 42,106
Energy storage and management services 1,949 5,210
Total cost of revenues 110,295 124,859
Gross profit
Electricity 71,488 65,365
Product 10,433 10,022
Energy storage and management services (103 ) (1,208 )
Total gross profit 81,818 74,179
Operating expenses:
Research and development expenses 1,619 900
Selling and marketing expenses 4,794 3,865
General and administrative expenses 14,348 15,689
Operating income 61,057 53,725
Other income (expense):
Interest income 402 293
Interest expense, net (17,273 ) (21,223 )Derivatives and foreign currency transaction gains (losses)
393 472
Income attributable to sale of tax benefits 4,132 7,764
Other non-operating income (expense), net 78 91
Income from operations before income tax and equity in earnings (losses) of investees
48,789 41,122
Income tax (provision) benefit (18,148 ) (14,039 )
Equity in earnings (losses) of investees, net (735 ) 1,047
Net income 29,906 28,130
Net income attributable to noncontrolling interest (3,873 ) (2,184 )
Net income attributable to the Company's stockholders
$ 25,946 Earnings per share attributable to the Company's stockholders: Basic: Net income$ 0.51 $ 0.51 Diluted: Net income$ 0.51 $ 0.51 Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders: Basic 51,036 50,709 Diluted$ 51,526 $ 51,012 31
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Three Months Ended March 31,
2020 2019
Statements of Operations Data:
Revenues:
Electricity 74.4 % 71.8 %
Product 24.7 26.2
Energy storage and management services 1.0 2.0
Total Revenues 100.0 100.0
Cost of revenues:
Electricity 50.0 54.3
Product 78.0 80.8
Energy storage and management services 105.6 130.2
Total cost of revenues 57.4 62.7
Gross profit
Electricity 50.0 45.7
Product 22.0 19.2
Energy storage and management services (5.6 ) (30.2 )
Total gross profit 42.6 37.3
Operating expenses:
Research and development expenses 0.8 0.5
Selling and marketing expenses 2.5 1.9
General and administrative expenses 7.5 7.9
Operating income 31.8 27.0
Other income (expense):
Interest income 0.2 0.1
Interest expense, net (9.0 ) (10.7 )Derivatives and foreign currency transaction gains (losses)
0.2 0.2
Income attributable to sale of tax benefits 2.2 3.9
Other non-operating income (expense), net 0.0 0.0
Income from operations before income tax and equity in earnings (losses) of investees
25.4 20.7
Income tax (provision) benefit (9.4 ) (7.1 )
Equity in earnings (losses) of investees, net (0.4 ) 0.5
Net income 15.6 14.1
Net income attributable to noncontrolling interest (2.0 ) (1.1 )
Net income attributable to the Company's stockholders 13.6 % 13.0 %
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Comparison of the Three Months EndedMarch 31, 2020 and the Three Months EndedMarch 31, 2019 Three Months Ended March 31, 2020 2019 Change (Dollars in millions) Electricity segment revenues$ 142.9 $ 142.9 - % Product segment revenues 47.4 52.1 (9.0 ) Energy Storage and Management Services segment revenues 1.8 4.0 (53.9 ) Total revenues$ 192.1 $ 199.0 (3.5 )% Total Revenues Total revenues for the three months endedMarch 31, 2020 were$192.1 million , compared to$199.0 million for the three months endedMarch 31, 2019 , which represented a 3.5% decrease from the prior year period. This decrease was attributable to a$4.7 million , or 9.0% decrease in our Product segment revenues compared to the corresponding period in 2019, and a$2.8 million , or 53.9% decrease in Energy Storage and Management Services segment revenues as compared to the corresponding period in 2019, all as discussed below. Electricity segment revenues remained flat. Electricity Segment
Revenues attributable to our Electricity segment for the three months ended
Power generation in our power plants decreased by 2.7% from 1,689,843 MWh in the three months endedMarch 31, 2019 to 1,645,415 MWh in the three months endedMarch 31, 2020 due to the lower generation at some of our power plants. However, revenues remained unchanged because of different energy rates under our portfolio contracts. Product Segment Revenues attributable to our Product segment for the three months endedMarch 31, 2020 were$47.4 million , compared to$52.1 million for the three months endedMarch 31, 2019 , which represented a 9.0% decrease. The decrease in our Product segment revenues was mainly due to projects inTurkey andU.S. , which were completed in 2019, which accounted for$44.7 in Product segment revenues in the three months endedMarch 31, 2019 . The decrease was partially offset by other projects inTurkey ,New Zealand andChile , which were started in 2019, and provided$40.0 million in revenue recognized during the three months endedMarch 31, 2020 .
Energy Storage and Management Services Segment
Revenues attributable to our Energy Storage and Management Services segment for the three months endedMarch 31, 2020 were$1.8 million compared to$4.0 million for the three months endedMarch 31, 2019 . The decrease was mainly driven by revenues from one-time EPC project in the amount of$2.4 million in the three months endedMarch 31, 2019 . The Energy Storage and Management Services segment includes revenues from the delivery of energy storage demand response and energy management services. 33
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Total Cost of Revenues
Three Months Ended March 31,
2020 2019 Change
(Dollars in millions)
Electricity segment cost of revenues $ 71.4 $ 77.5 (8 )%
Product segment cost of revenues 37.0 42.1 (12 )
Energy Storage and Management Services
segment cost of revenues 1.9 5.2 (63 )
Total cost of revenues $ 110.3 $ 124.9 (12 )%
Total cost of revenues for the three months ended March 31, 2020 was $110.3
million , compared to $124.9 million for the three months ended March 31, 2019 ,
which represented an 11.7% decrease. This decrease was attributable to a
decrease of $6.2 million , or 8.0%, in cost of revenues from our Electricity
segment, a decrease of $5.1 million , or 12.2%, in cost of revenues from our
Product segment and a decrease of $3.3 million , or 62.6%, in cost of revenues
from our Energy Storage and Management Services segment generated by our
Viridity business, all as discussed below. As a percentage of total revenues,
our total cost of revenues for the three months ended March 31, 2020 decreased
to 57.4% from 62.7% for the three months ended March 31, 2019 .
Electricity Segment
Total cost of revenues attributable to our Electricity segment for the three
months ended March 31, 2020 was $71.4 million , compared to $77.5 million for the
three months ended March 31, 2019 . This decrease was primarily attributable to a
decrease in cost of revenues at our Puna power plant that was shut down
immediately following the Kilauea volcanic eruption on May 3, 2018 , as the cost
of revenues at our Puna power plant for the three months ended March 31,
2020 includes business interruption recovery of $2.5 million , compared to $1.3
million in the three months ended March 31, 2019 and a decrease in lease expense
of $1.3m due to the termination of the lease transaction. The decrease was also
due to lower operational costs in some of our power plants in the three months
ended March 31, 2020 compared to the three months ended March 31, 2019 . As a
percentage of total Electricity revenues, our total cost of revenues
attributable to our Electricity segment for the three months ended March 31,
2020 was 50.0%, compared to 54.3% for the three months ended March 31, 2019 .
This decrease was primarily attributable to the increase in gross profit
relating to the Puna power plant in Hawaii , and lower operational costs in some
of our power plants, all as discussed above. The cost of revenues attributable
to our international power plants was 24.3% of our Electricity segment cost of
revenues.
Product Segment
Total cost of revenues attributable to our Product segment for the three months
ended March 31, 2020 was $37.0 million , compared to $42.1 million for the three
months ended March 31, 2019 , which represented a 12.2% decrease. This decrease
was primarily attributable to the decrease in Product segment revenues,
different product scope and different margins in the various sales contracts we
entered into mainly in Turkey , New Zealand and Chile for the Product segment
during these periods. As a percentage of total Product segment revenues, our
total cost of revenues attributable to our Product segment for the three months
ended March 31, 2020 was 78.0%, compared to 80.8% for the three months ended
March 31, 2019 .
Energy Storage and Management Services Segment
Cost of revenues attributable to our Energy Storage and Management Services segment for the three months endedMarch 31, 2020 were$1.9 million compared to$5.2 million for the three months endedMarch 31, 2019 . The decrease was mainly driven by cost of revenues from a one-time EPC project in the amount of$1.9 million in the three months endedMarch 31, 2019 . The Energy Storage and Management Services segment includes cost of revenues related to the delivery of energy storage, demand response and energy management services.
Research and Development Expenses, Net
Research and development expenses for the three months endedMarch 31, 2020 were$1.6 million , compared to$0.9 million for the three months endedMarch 31, 2019 . The increase is mainly due to new development projects that took place during the first quarter of 2020. 34
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Selling and Marketing Expenses
Selling and marketing expenses for the three months endedMarch 31, 2020 were$4.8 million compared to$3.9 million for the three months endedMarch 31, 2019 . The increase was primarily due to an increase in sales commissions due to different product mix and increase in marketing activities. Selling and marketing expenses for the three months endedMarch 31, 2020 constituted 2.5% of total revenues for such period, compared to 1.9% for the three months endedMarch 31, 2019 .
General and Administrative Expenses
General and administrative expenses for the three months endedMarch 31, 2020 were$14.3 million compared to$15.7 million for the three months endedMarch 31, 2019 . The decrease was primarily attributable to business interruption recovery of$2.4 million relating to the Puna power plant, and a decrease in professional fees, partially offset by$1.1 million in costs associated with one of our legal claims. General and administrative expenses for the three months endedMarch 31, 2020 constituted 7.5% of total revenues for such period, compared to 7.9% for the three months endedMarch 31, 2019 . Operating Income Operating income for the three months endedMarch 31, 2020 was$61.1 million , compared to$53.7 million for the three months endedMarch 31, 2019 , which represented a 13.6% increase. The increase in operating income was primarily attributable to the increase in our Electricity segment gross margin, and a decrease in General and administrative expenses, as discussed above. Operating income attributable to our Electricity segment for the three months endedMarch 31, 2020 was$58.6 million , compared to$51.6 million for the three months endedMarch 31, 2019 . Operating income attributable to our Product segment for the three months endedMarch 31, 2020 was$3.9 million , compared to$4.3 million for the three months endedMarch 31, 2019 . Operating loss attributable to our Energy Storage and Management Services segment for the three months endedMarch 31, 2020 was$1.4 million compared to$2.1 million for the three months endedMarch 31, 2019 . Interest Expense, Net
Interest expense, net for the three months ended
Derivatives and Foreign Currency Transaction Gains (Losses)
Derivatives and foreign currency transaction gains for the three months endedMarch 31, 2020 were$0.4 million , compared to$0.5 million for the three months endedMarch 31, 2019 . Derivatives and foreign currency transaction gains for the three months endedMarch 31, 2020 and 2019, respectively, were primarily attributable to gains from foreign currency forward contracts which were not accounted for as hedge transactions.
Income Attributable to Sale of Tax Benefits
Income attributable to the sale of tax benefits for the three months endedMarch 31, 2020 was$4.1 million , compared to$7.8 million for the three months endedMarch 31, 2019 . Tax equity is a form of financing used for renewable energy projects. This income primarily represents the value of PTCs and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. Income Taxes Income tax provision for the three months endedMarch 31, 2020 was$18.1 million compared to income tax provision of$14.0 million for the three months endedMarch 31, 2019 . Our effective tax rate for the three months endedMarch 31, 2020 and 2019, was 37.2% and 34.1%, respectively. Our aggregate effective tax rate for the three months endedMarch 31, 2020 differs from the 21%U.S. federal statutory tax rate due to: (i) the impact of global intangible low tax income ("GILTI"); (ii) mix of business in various countries with higher and lower statutory tax rates than the federal tax rate. (iii) the increase in the valuation allowance on the deferred tax assets related to PTCs; and (iv) withholding taxes on future distributions partially offset by the forecasted generation of PTCs.
See Note 11 to our condensed consolidated financial statements for discussion regarding incremental accounting adjustments related to the Tax Act.
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Equity in Earnings (losses) of Investees, Net
Equity in losses of investees, net for the three months endedMarch 31, 2020 was$0.7 million , compared to equity in earnings of investees, net of$1.0 million for the three months endedMarch 31, 2019 . Equity in earnings of investees, net is derived from our 12.75% share in the earnings or losses in theSarulla Consortium (Sarulla). The decrease was mainly attributable to a decrease in gross margin due to well-field issues in the NIL power plant which resulted in lower generation. Sarulla is currently developing a remediation plan with a target to increase generation in the near-term back to previous levels. We are following the remediation plans in Sarulla as well as the accounting impact and its implication on our financial statements and our investment in Sarulla. Net Income Net income for the three months endedMarch 31, 2020 was$29.9 million , compared to$28.1 million for the three months endedMarch 31, 2019 , which represents an increase of$1.8 million . This increase in net income was primarily attributable to an increase of$7.3 million in operating income and a decrease of$4.0 million in interest expense, net partially offset by an increase in income tax provision of$4.1 million , and a decrease in income attributable to sale of tax benefits of 3.6 million, as discussed above.
Net Income Attributable to the Company's Stockholders
Net income attributable to the Company's stockholders for the three months endedMarch 31, 2020 was$26.0 million , compared to net income attributable to the Company's stockholders of$25.9 million for the three months endedMarch 31, 2019 , which represents an increase of$0.1 million . This increase was attributable to the increase in net income of$1.8 million , and offset partially by an increase of$1.7 million in net income attributable to noncontrolling interest mainly due to the business interruption recovery of the Puna power plant inHawaii , all as discussed above.
Liquidity and Capital Resources
Our principal sources of liquidity have been derived from cash flows from operations, proceeds from third party debt such as borrowings under our credit facilities, offerings and issuances of debt securities, project financing, tax monetization transactions, short term borrowing under our lines of credit, and proceeds from the sale of equity interests in one or more of our projects. We have utilized this cash to develop and construct power plants, fund our acquisitions, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs. As ofMarch 31, 2020 , we had access to (i)$231.1 million in cash and cash equivalents, of which 144.9 million is held by our foreign subsidiaries; and (ii)$87.0 million of unused corporate borrowing capacity under existing lines of credit with different commercial banks.
Our estimated capital needs for the remainder of 2020 include
As of
We expect to finance these requirements with: (i) the sources of liquidity described above; (ii) positive cash flows from our operations; and (iii) future project financings and re-financings (including construction loans and tax equity). Management believes that, based on the current stage of implementation of our strategic plan, the sources of liquidity and capital resources described above will address our anticipated liquidity, capital expenditures, and other investment requirements. As ofMarch 31, 2020 , we have revised our assertion to no longer indefinitely reinvest foreign funds held by our foreign subsidiaries, with the exception of a certain balance held inIsrael , and have accrued the incremental foreign withholding taxes. Accordingly, during the three months endedMarch 31, 2020 , we included a foreign income tax expense of$1.8 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries. 36
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Table of Contents Third-Party Debt Our third-party debt consists of (i) non-recourse and limited-recourse project finance debt or acquisition financing debt that we or our subsidiaries have obtained for the purpose of developing and constructing, refinancing or acquiring our various projects and (ii) full-recourse debt incurred by us or our subsidiaries for general corporate purposes.
Non-Recourse and Limited-Recourse Third-Party Debt
Loan Issued Outstanding Interest Maturity Related
Amount Amount as of Rate Date Projects Location
($M) March 31,
2020
151.7 $ 92.0 4.67 % 2032 McGinness Hills U.S.
OFC 2 Senior Secured phase 1 and
Notes - Series A Tuscarora
OFC 2 Senior Secured 140.0 106.5 4.61 % 2032 McGinness Hills U.S.
Notes - Series B phase 2
Olkaria III 85.0 50.7 6.34 % 2030 Olkaria III Kenya
Financing Agreement Complex
with OPIC - Tranche
1
Olkaria III 180.0 108.5 6.29 % 2030 Olkaria III Kenya
Financing Agreement Complex
with OPIC - Tranche
2
Olkaria III 45.0 28.9 6.12 % 2030 Olkaria III Kenya
Financing Agreement Complex
with OPIC - Tranche
3
Amatitlan 42.0 25.4 LIBOR+4.35 % 2027 Amatitlan Guatemala
Financing(1)
Don A. Campbell 92.5 76.6 4.03 % 2033 Don A. Campbell U.S. Senior Secured Notes Complex Prudential Capital 17.8 5.80 % 2023 Neal Hot Springs U.S. Group Idaho Loan(2) 20.0 and Raft River U.S. Department of 96.8 43.4 2.60 % 2035 Neal Hot Springs U.S. Energy Loan(3) Prudential Capital 30.7 27.0 6.75 % 2037 San Emidio U.S. Group Nevada Loan Platanares Loan with 114.7 102.4 7.02 % 2032 Platanares Honduras OPIC Viridity - 23.5 21.3 LIBOR+3.5 % 2026 Plumsted+Striker U.S. Plumstriker Géothermie 8.9 7.9 1.52 % 2026 Géothermie Guadeloupe Bouillante(4) Bouillante Géothermie 8.9 8.8 1.93 % 2026 Géothermie Guadeloupe Bouillante(4) Bouillante Total 1,039.7 717.2 (1) LIBO Rate cannot be lower than 1.25%. Margin of 4.35% as long as the
Company's guaranty of the loan is outstanding (current situation) or 4.75%
otherwise.
(2) Secured by equity interest.
(3) Secured by the assets.
(4) Loan in Euro and issued amount is EUR 8.0 million
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Full-Recourse Third-Party Debt
Loan Issued Outstanding Interest Maturity
Amount Amount as of Rate Date
($M) March 31, 2020
Senior Unsecured Bonds Series 2 67.2 67.2 3.70 % September 2020
Senior Unsecured Bonds Series 3 137.1 137.1 4.45 % September 2022
3 month (2)
Commercial paper (1) 50.0 8.3 LIBOR+0.75 %
Senior unsecured Loan 1 100.0 100.0 4.8 % March 2029
Senior unsecured Loan 2 50.0 50.0 4.60 % March 2029
DEG Loan 2 50.0 42.5 6.28 % June 2028
DEG Loan 3 41.5 37.1 6.04 % June 2028
Total 495.8 442.2
(1) Current interest rate is 2.2%.
(2) Issued for 90 days and extends automatically for additional periods of 90 days each for up to five years unless recalled.
InJuly 2019 , the Company entered into a framework agreement withDiscount Capital Underwriting Ltd. for participation in the issuance of commercial paper under which the Company wants to allow participants to submit proposals for purchasing the Company's commercial paper in accordance with the provisions of the agreement. OnJuly 3, 2019 , the Company completed the issuance of$50 million of such commercial paper bearing interest of 3 months LIBOR plus 0.75%. The commercial paper was issued for a period of 90 days and can be extended for additional such periods for up to 5 years unless they are recalled by the Company or by the investors. As ofMarch 31 . 2020 total amount of$41.8 million were recalled by the investors..
Letters of Credits under the Credit Agreements
Some of our customers require our project subsidiaries to post letters of credit
in order to guarantee their respective performance under relevant contracts. We
are also required to post letters of credit to secure our obligations under
various leases and licenses and may, from time to time, decide to post letters
of credit in lieu of cash deposits in reserve accounts under certain financing
arrangements. In addition, our subsidiary, Ormat Systems, is required from time
to time to post performance letters of credit in favor of our customers with
respect to orders of products.
Issued Issued and Termination
Credit Agreements Amount Outstanding as of Date
($M) March 31, 2020
Union Bank 60.0 60.0 June 2020
HSBC 35.0 26.8 October 2020
September 2020 -
Other Banks 1 305.0 17.5 July 2022
September 2020 -
Other Banks 2 135.0 91.2 July 2022
Other Banks 3 (Non-Committed) 10.1 December 2020
Total 535.0 205.6
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Table of Contents Restrictive covenants Our obligations under the credit agreements, the loan agreements, and the trust instrument governing the bonds described above, are unsecured, but we are subject to a negative pledge in favor of the banks and the other lenders and certain other restrictive covenants. These include, among other things, restraints on: (i) creating any floating charge or any permanent pledge, charge or lien over our assets without obtaining the prior written approval of the lender; (ii) guaranteeing the liabilities of any third party without obtaining the prior written approval of the lender; and (iii) selling, assigning, transferring, conveying or disposing of all or substantially all of our assets, or a change of control in our ownership structure. Some of the credit agreements, the term loan agreements, and the trust instrument contain cross-default provisions with respect to other material indebtedness owed by us to any third party. In some cases, we have agreed to maintain certain financial ratios, which are measured quarterly, such as: (i) equity of at least$600 million and in no event less than 25% of total assets; (ii) 12-month debt, net of cash, cash equivalents, and short-term bank deposits to Adjusted EBITDA ratio not to exceed 6.0; and (iii) dividend distributions not to exceed 35% of net income in any calendar year. As ofMarch 31, 2020 : (i) total equity was$1,533.7 million and the actual equity to total assets ratio was 44.5% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 3.0. During the three months endedMarch 31, 2020 , we distributed interim dividends in an aggregate amount of$5.6 million . The failure to perform or observe any of the covenants set forth in such agreements, subject to various cure periods, would result in the occurrence of an event of default and would enable the lenders to accelerate all amounts due under each such agreement. As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, and believe that the restrictive covenants, financial ratios and other terms of any of our full-recourse bank credit agreements will not materially impact our business plan or operations. Future minimum payments
Future minimum payments under long-term obligations, excluding revolving credit
lines with commercial banks, as of
(Dollars in
thousands)
Year ending December 31 :
2020 $ 125,817
2021 83,273
2022 226,995
2023 103,575
2024 81,085
Thereafter 572,789
Total $ 1,193,534 Liquidity Impact of Uncertain Tax Positions
The Company has a liability associated with unrecognized tax benefits and related interest and penalties in the amount of approximately$14.6 million as ofMarch 31, 2020 . This liability is included in long-term liabilities in our condensed consolidated balance sheet because we generally do not anticipate that settlement of the liability will require payment of cash within the next twelve months. We are not able to reasonably estimate when we will make any cash payments required to settle this liability. Dividends
The following are the dividends declared by us since
Dividend
Amount per
Date Declared Share Record Date Payment Date
May 7, 2018 $ 0.10 May 21, 2018 May 30, 2018
August 7, 2018 $ 0.10 August 21, 2018 August 29, 2018
November 6, 2018 $ 0.10 November 20, 2018 December 4, 2018
February 26, 2019 $ 0.11 March 14, 2019 March 28, 2019
May 6, 2019 $ 0.11 May 20, 2019 May 28, 2019
August 7, 2019 $ 0.11 August 20, 2019 August 27, 2019
November 6, 2019 $ 0.11 November 20, 2019 December 4, 2019
February 25, 2020 $ 0.11 March 12, 2020 March 26, 2020
May 8, 2020 $ 0.11 May 21, 2020 June 2, 2020
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Historical Cash Flows
The following table sets forth the components of our cash flows for the periods
indicated:
Three Months Ended
March 31,
2020 2019
(Dollars in thousands)
Net cash provided by operating activities $ 79,756 $ 77,437
Net cash used in investing activities (80,820 ) (50,944 )
Net cash provided by (used in) financing activities 168,095 (31,039 ) Net change in cash and cash equivalents and restricted cash and cash equivalents
166,666 (5,031 )
For the Three Months Ended
Net cash provided by operating activities for the three months endedMarch 31, 2020 was$79.8 million , compared to$77.4 million for the three months endedMarch 31, 2019 . The net change of$2.3 million was primarily due to: (i) an increase in receivables of$25.0 million in the three months endedMarch 31, 2020 , compared to$1.1 million in the three months endedMarch 31, 2019 , as a result of timing of collection from our customers; and (ii) a net decrease of$4.2 million in costs and estimated earnings in excess of billings. net in our Product segment in the three months endedMarch 31, 2020 , compared to$9.5 million in the three months endedMarch 31, 2019 , as a result of timing in billings to our customers, offset partially by an increase in accounts payable and accrued expenses of$0.4 million in the three months endedMarch 31, 2020 , compared to a decrease of$4.3 million in the three months endedMarch 31, 2019 , mainly due to timing of payments to our suppliers, partially offset by a withholding tax payment of approximately$8 million in the three months endedMarch 31, 2020 compared to$14 million in the three months endedMarch 31, 2019 due to a distribution from OSL. Net cash used in investing activities for the three months endedMarch 31, 2020 was$80.8 million , compared to$50.9 million for the three months endedMarch 31, 2019 . The principal factor that affected our net cash used in investing activities during the three months endedMarch 31, 2020 were capital expenditures of$80.4 million , primarily for our facilities under construction that support our growth plan. The principal factors that affected our net cash used in investing activities during the three months endedMarch 31, 2019 were capital expenditures of$51.3 million , primarily for our facilities under construction. Net cash provided by financing activities for the three months endedMarch 31, 2020 was$168.1 million , compared to$31.0 million net cash used in financing activities for the three months endedMarch 31, 2019 . The principal factors that affected the net cash used in financing activities during the three months endedMarch 31, 2020 were net proceeds of$230.0 million from our revolving credit lines with commercial banks which were withdrawn primarily to secure cash in hand in order to meet our capital needs in light of the uncertainty related to the COVID-19 pandemic, partially offset by :(i) the repayment of commercial paper debt in the amount of$41.7 million ; (ii) the repayment of long-term debt in the amount of$16.4 million ; (iii) a$5.6 million cash dividend payment and (iv)$3.3 million cash paid to a noncontrolling interest. The principal factors that affected our net cash used in financing activities during the three months endedMarch 31, 2019 were: (i) net payment of$98.1 million from our revolving credit lines with commercial banks which were used for capital expenditures, (ii) the repayment of long-term debt in the amount of$15.8 million ; (iii) a$5.6 million cash dividend paid; and (iv)$4.5 million cash paid to noncontrolling interest, partially offset by: (i)$50 million of proceeds from a senior unsecured loan; and (ii)$41.5 million of proceeds from a term loan for our Olkaria 3 complex.
Non-GAAP Measures: EBITDA and Adjusted EBITDA
We calculate EBITDA as net income before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for (i) termination fees, (ii) impairment of long-lived assets, (iii) write-off of unsuccessful exploration activities, (iv) any mark-to-market gains or losses from accounting for derivatives, (v) merger and acquisition transaction costs, (vi) stock-based compensation, (vii) gains or losses from extinguishment of liability, (viii) gains or losses on sales of subsidiaries and property, plant and equipment and (ix) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in theU.S. (U.S. GAAP) and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or as an alternative to net earnings as indicators of our operating performance or any other measures of performance derived in accordance withU.S. GAAP.We use EBITDA and Adjusted EBITDA as a performance metric because it is a metric used by our Board of Directors and senior management in evaluating our financial performance. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. 40
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Net income for the three months ended
Adjusted EBITDA for the three months ended
The following table reconciles net income to EBITDA and Adjusted EBITDA for the
three months ended
Three Months Ended
March 31,
2020 2019
(Dollars in thousands)
Net income $ 29,906 $ 28,130
Adjusted for:
Interest expense, net (including amortization of
deferred financing costs) 16,871 20,930
Income tax provision (benefit) 18,148
14,039
Adjustment to investment in an unconsolidated company: our proportionate share in interest expense, tax and depreciation and amortization in Sarulla 2,677
2,661
Depreciation and amortization 35,288
34,866
EBITDA$ 102,890 $
100,626
Mark-to-market gains or losses from accounting for derivative
(561 ) (1,209 )
Stock-based compensation 1,989 2,360
Merger and acquisition transaction costs 540 - Settlement expenses 1,188 - Adjusted EBITDA 106,046 101,777
In
Capital Expenditures
Our capital expenditures primarily relate to: (i) the development and construction of new power plants, (ii) the enhancement of our existing power plants; and (iii) investment in activities under our strategic plan.
The following is an overview of projects that are fully released for construction.
Steamboat Hills Power Plant (Nevada ). We are planning to replace all of the old power plant equipment with new advanced technology equipment that will eventually increase the capacity by approximately 16 MW and reduce maintenance costs. Construction is near completion and commissioning commenced. Commercial operation is expected 2020Heber Complex (California ). We are currently in the process of repowering theHeber 1 andHeber 2 power plants. We are planning to replace steam turbine and old OEC units with new advanced technology equipment that will add a net capacity of 11 MW. Following these enhancements, we expect the capacity of the complex to reach 92 MW. Permitting, engineering and procurement are ongoing as well as manufacturing and site construction. We expect commercial operation in the second half of 2021. CD 4 Project (California ). We plan to develop a 30 MW project at the Mammoth complex on primarily BLM leases.We signed a Wholesale Distribution Access Tariff Cluster Large Generator Interconnection Agreement with Southern California Edison inDecember 2017 . We signed a 25-year PPA with SCPPA for 16 MW that will be sold to the City of Colton inCalifornia and we recently signed two additional similar PPAs with SVCE and MBCP, each will purchase 7 MW (for a total of 14 MW) of power. We have commenced engineering and procurement. We expect commercial operation at the end of 2021. 41
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Wister Solar (California ). We are developing a 20MW AC solar PV project on the Wister site inCalifornia . We plan to install a solar PV system and sell the electricity under a PPA withSan Diego Gas & Electric .Engineering and procurement are ongoing. Permitting has been delayed due to COVID-19 implications. We expect the project to be completed in the second half of 2021.McGinness Hills expansion (Nevada ). We are expanding theMcGinness Hills complex by 8 MW by adding anOrmat energy converter. Engineering and procurement are ongoing. We expect the project to be completed in 2021, subject to approval of the lender. In addition, we are in the process of upgrading some of the equipment, such as turbines and pipelines at some of our operating power plants including Ormesa inCalifornia and Amatitlan inGuatemala .
The following is an overview of projects that are in initial stages of construction:
Carson Lake Project . We plan to develop between 10 MW to 15MW Carson Lake project onBureau of Land Management (BLM) leases located inChurchill County, Nevada . We signed a Small Generator Interconnection Agreement with NV Energy inDecember 2017 . As ofMarch 31, 2020 , we are planning the drilling activity to begin next year. We have budgeted approximately$424.0 million in capital expenditures for construction of new projects and enhancements to our existing power plants, of which we had invested$146.0 million as ofMarch 31, 2020 . We expect to invest approximately$135.0 million in 2020 and the remaining approximately$143.0 million thereafter. In addition, we estimate approximately$107.0 million in additional capital expenditures in 2020 to be allocated as follows: (i) approximately$41.0 million for the exploration and development of new projects and enhancements of existing power plants that are not yet released for full construction; (ii) approximately$29.0 million for maintenance capital expenditures to our operating power plants including drilling in our Puna power plant; (iii) approximately$24.0 million for the construction and development of storage projects; and (iv) approximately$13.0 million for enhancements to our production facilities.
In the aggregate, we estimate our total capital expenditures for 2020 to be
approximately
Exposure to Market Risks Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans. However, the cost of obtaining financing for our project needs may increase significantly or such financing may be difficult to obtain. We, like other power plant operators, are exposed to electricity price volatility risk. Our exposure to such market risk is currently limited because many of our long-term PPAs (except for the 25 MW PPA for the Puna complex and the between 30 MW and 40 MW PPAs in the aggregate for theHeber 2 power plant in theHeber Complex , and the G2 power plant in the Mammoth complex) have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. Our energy storage projects sell on "merchant" and are exposed to changes in the electricity market prices. The energy payments under the PPAs of theHeber 2 power plant in theHeber Complex and the G2 power plant in the Mammoth complex are determined by reference to the relevant power purchaser's Short Run Avoided Cost ("SRAC"). A decline in the price of natural gas will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from natural gas, or by reducing the price of purchasing its electrical energy needs from natural gas power plants, which in turn will reduce the energy payments that we may charge under the relevant PPA for these power plants. The Puna complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for the Puna complex. 42
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As ofMarch 31, 2020 , 95.8% of our consolidated long-term debt was fixed rate debt and therefore was not subject to interest rate volatility risk. As of such date, 4.2% of our long-term debt was floating rate debt, exposing us to interest rate risk in connection therewith. As ofMarch 31, 2020 ,$46.7 million of our long-term debt remained subject to interest rate risk.
We currently maintain our surplus cash in short-term, interest-bearing bank
deposits, money market securities and commercial paper (with a minimum
investment grade rating of AA by
Our cash equivalents are subject to interest rate risk. Fixed rate securities may have their market value adversely impacted by a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. As a result of these factors, our future investment income may fall short of expectations because of changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value because of changes in interest rates. We are also exposed to foreign currency exchange risk, in particular the fluctuation of theU.S. dollar versus the Israeli shekel and euro. Risks attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary's ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary, or increase such subsidiary's overall expenses. InKenya , the tax asset is recorded in KES similar to the tax liability, however any change in the exchange rate in the KES versus the USD has an impact on our financial results. Risks attributable to fluctuations in foreign currency exchange rates can also arise when the currency denomination of a particular contract is not theU.S. dollar. Substantially all of our PPAs in the international markets are eitherU.S. dollar-denominated or linked to theU.S. dollar except for our operations onGuadeloupe , where we own and operate the Boulliante power plant which sells its power under a Euro-denominated PPA with Électricité deFrance S.A. Our construction contracts from time to time contemplate costs which are incurred in local currencies. The way we often mitigate such risk is to receive part of the proceeds from the contract in the currency in which the expenses are incurred. Currently, we have forward contracts in place to reduce our foreign currency exposure and expect to continue to use currency exchange and other derivative instruments to the extent we deem such instruments to be the appropriate tool for managing such exposure. In the three months endedMarch 31, 2020 , our exchange rate exposure inKenya resulted in an income of approximately$3.1 million . . We performed a sensitivity analysis on the fair values of our long-term debt obligations, and foreign currency exchange forward contracts. The foreign currency exchange forward contracts listed below principally relate to trading activities. The sensitivity analysis involved increasing and decreasing forward rates atMarch 31, 2020 andDecember 31, 2019 by a hypothetical 10% and calculating the resulting change in the fair values. At this time, the development of our strategic plan has not exposed us to any additional market risk. However, as the implementation of the plan progresses, we may be exposed to additional or different market risks. 43
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The results of the sensitivity analysis calculations as of
Assuming a Assuming a
10% Increase in Rates 10% Decrease in Rates
March 31, December 31, March 31, December 31,
Risk 2020 2019 2020 2019 Change in the Fair Value of
(Dollars in thousands)
Foreign currency forward
Foreign Currency (7.911 ) (4,198 ) 9.669 5,131 contracts
Interest Rate (3,575 ) (4,574 ) 3,662 4,723 OFC 2 Senior Secured Notes
Interest Rate (3,831 ) (4,647 ) 3,939 4,812 OPIC Loan
Interest Rate (89 ) (1,797 ) 90 1,822 Senior Unsecured Bonds
Interest Rate (736 ) (905 ) 756 934 DEG 2 Loan
Interest Rate (1,467 ) (1,835 ) 1,509 1,906 DAC 1 Senior Secured Notes
Interest Rate (453 ) (516 ) 467 534 Amatitlan Loan
Migdal Loan and the Additional
Interest Rate. (2,429 ) (3,272 ) 2,475 3,363 Migdal Loan
Interest Rate (1,012 ) (1,141 ) 1,060 1,207 San Emidio Loan
Interest Rate (523 ) (776 ) 532 797 DOE Loan
Interest Rate (217 ) (281 ) 220 286 Idaho Holdings Loan
Interest Rate (2,499 ) (2,978 ) 2,580 3,099 Platanares OPIC Loan
Interest Rate (576 ) (728 ) 589 749 DEG 3 Loan
Interest Rate (295 ) (342 ) 300 350 Plumstriker Loan
Interest Rate (39 ) (295 ) 39 298 Commercial paper
Interest Rate (137 ) (201 ) 139 204 Other long-term loans
In July 2017 , the United Kingdom's Financial Conduct Authority , which regulates
LIBOR (London Interbank Offered Rate), announced that it intends to phase out
LIBOR by the end of 2021. It is unclear whether or not LIBOR will cease to exist
at that time and/or whether new methods of calculating LIBOR will be established
such that it will continue to exist after 2021. The U.S. Federal Reserve , in
conjunction with the Alternative Reference Rates Committee, a steering committee
comprised of large U.S. financial institutions, is considering replacing U.S.
dollar LIBOR with a new SOFR (Secured Overnight Financing Rate) index calculated
by short-term repurchase agreements, backed by Treasury securities.
The Company has evaluated the impact of the transition from LIBOR, and currently
believes that the transition will not have a material impact on its consolidated
financial statements.
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Table of Contents Effect of Inflation
We expect that inflation will not be a significant risk in the near term, given the current global economic conditions, however, that could change in the future. To address rising inflation, some of our contracts include certain provisions that mitigate inflation risk.
In connection with the Electricity segment, none of ourU.S. PPAs, including the SCPPA Portfolio PPA, are directly linked to the Consumer Price Index ("CPI"). Inflation may directly impact an expense we incur for the operation of our projects, thereby increasing our overall operating costs and reducing our profit and gross margin. The negative impact of inflation would be partially offset by price adjustments built into some of our PPAs that could be triggered upon such occurrences. The energy payments pursuant to our PPAs for some of our power plants such as the Brady power plant, the Steamboat 2 and 3 power plants and theMcGinness Complex increase every year through the end of the relevant terms of such agreements, although such increases are not directly linked to the CPI or any other inflationary index. Lease payments are generally fixed, while royalty payments are generally calculated as a percentage of revenues and therefore are not significantly impacted by inflation. In our Product segment, inflation may directly impact fixed and variable costs incurred in the construction of our power plants, thereby increasing our operating costs in the Product segment. We are more likely to be able to offset all or part of this inflationary impact through our project pricing. With respect to power plants that we build for our own electricity production, inflationary pricing may impact our operating costs which may be partially offset in the pricing of the new long-term PPAs that we negotiate.
Concentration of Credit Risk
Our credit risk is currently concentrated with the following major customers:Sierra Pacific Power Company andNevada Power Company (subsidiaries of NV Energy),SCPPA and Kenya Power and Lighting Company (KPLC). If any of these electric utilities fail to make payments under its PPAs with us, such failure would have a material adverse impact on our financial condition. Also, by implementing our multi-year strategic plan we may be exposed, by expanding our customer base, to different credit profile customers than our current customers.
Southern California Public Power Authority ("SCPPA") accounted for 18.7% and 19.4% of the Company's total revenues for the three months endedMarch 31, 2020 and 2019, respectively. Kenya Power and Lighting Co. Ltd. ("KPLC") accounted for 15.4% and 15.3% of the Company's total revenues for the three months endedMarch 31, 2020 and 2019, respectively. We have historically been able to collect on substantially all of our receivable balances. As ofMarch 31, 2020 , the amount overdue from KPLC was$38.6 million of which$8.0 million was paid inApril 2020 . These amounts represent an average of 61 days overdue. We believe we will be able to collect all past due amounts inKenya . This belief is based on the fact that in addition to KPLC's obligations under its power purchase agreement, we hold a support letter from the Government ofKenya that covers certain cases of KPLC non-payment (such as where caused by government actions/political events). InHonduras , we have been able to collect current charges from Empresa Nacional de Energía Eléctrica ("ENEE") starting inMay 2019 . However, due to the restrictive measures related to COVID-19 pandemic which were implemented recently inHonduras , we may experience delays in collection as, due to a local closure, we were unable to timely submit to ENEE the charge relating toMarch 2020 . As ofMarch 31, 2020 , the total amount overdue from ENEE was$20.1 million which relates to the period fromOctober 2018 toApril 2019 , none of which has been paid to date. In view of the ongoing Honduran government support undertaking, we believe we will be able to collect past due amounts inHonduras .
Government Grants and Tax Benefits
A comprehensive discussion on government grants and tax benefits is included in our 2019 Annual Report. There have been no material changes to this section in the three months endedMarch 31, 2020 . 45
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