Good morning and welcome to the Ormat Technologies Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead..

Thank you, Operator. Hosting the call today are Doron Blachar, Chief Executive Officer, Assi Ginzburg, Chief Financial Officer, and Smadar Lavi, Vice President of Investor Relations and ESG planning reporting.

Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to the current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Security Litigation Reform Act 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 and uncertainties.

For discussion of such risk and uncertainties, please see risk factors as described in Ormat Technologies Annual Report on Form 10-K and core reports on Form 10-Q that are filed with the SEC.

In addition, during the call, the company will present non-GAAP financial measures such as adjusted EBITDA, reconciliation to the most directly comparable GAAP measures, and management reasons for presenting such information to set forth in the press release that was issued last night, as well as in the slides posted on the website.

Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP.

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

Thank you, Josh, and good morning, everyone. Thank you for joining us today. During the second quarter, Ormat again delivered strong financial results driven by our consistent improvement across all our operating segments and our focus on continued profitable growth.

The second quarter had a 9.3% increase in total revenues and 25% increase in adjusted EBITDA when compared to the second quarter of last year. This improved performance and results were primarily led by the expansion of our capacity generating portfolio and improved operating performance, which has translated into solid return.

Within our electricity segment, we continue to drive consistent growth during the quarter, largely driven by the addition of the Enel assets that were acquired at the beginning of the year.

We have also benefited from the continued improvement at our Puna facility and from the contribution of a full quarter of performance at our Heber 1 facility, which resumed operations in last year's second quarter.

The performance of our energy storage segment has continued to stabilize and deliver improved results in the period, with the segment exhibiting strong revenue growth versus the prior year, as a result of the contribution from the 83 megawatts of new projects that came online in the last 12 months.

Additionally, we continue to make progress on our goal of transitioning our energy storage business towards a more balanced portfolio through a mix of RA contracts, tolling agreements and merchant projects, with a focus on stability, higher returns and improved margins.

This effort is highlighted by recent 15-year RA agreement with the City of Riverside for our shared storage facility, which we expect will be eligible for approximately 40% ITC benefit.

And the release for construction of Luisa, a new storage facility of 100 megawatts, 200 megawatts RO (ph) in Texas, which we also expect to be eligible for 40% ITC benefit.

With the first half of the year now behind us, our generating capacity portfolio stands at 1420 megawatts, as the demand for renewable energy and zero emission power generation solution continues to increase.

The increased and growing demand we see strengthens our confidence that we are progressing well towards our long-term goals, which directly aligns with the global trend of reducing carbon emission from power production.

Additionally, our growing energy storage segment is showing a strong and improved trajectory, not only for revenue growth but for enhanced returns and earnings contribution. Now, before I provide further updates on our operation and plans, I will turn the call over to Assi to review the financial results for the quarter.

Assi?.

Thank you, Doron. Let me start my review of our financial highlights on Slide 5. Total revenue for the second quarter was $213 million, marking growth of more than 9% year-over-year.

Our consolidated top-line expansion was driven by growth across all of Ormat's operating segments, which serve as a testament to our continued track record of executing profitable growth.

Ormat's second quarter 2024 gross profit was $61.4 million, up 24% versus $49.5 million in the second quarter of 2023, resulting in a consolidated gross margin of 28.8% versus 25.4% last year. The increase was driven by solid margin expansion across all three operating segments.

Net income attributed to the company stockholders was $22.2 million or $0.37 per diluted share in the quarter, compared to $24.2 million or $0.40 per diluted share in the second quarter of the prior year. Adjusted net income attributable to the company stockholder increased by 0.3% to $24.3 million.

Adjusted diluted EPS was $0.40, similar to the second quarter last year. Net income was adjusted to exclude write-offs, mainly related to the decommissioning of OREG 4, a 4 megawatt REG facility, as well as unsuccessful exploration activities.

Second quarter adjusted EBITDA was $126.1 million, increase of 25% in the second quarter compared to the $100.9 million generated in the prior year period. The strong year-over-year increase in adjusted EBITDA was driven by higher revenues and improved gross margin across all three business segments, which in turn drove higher operating income.

Our improved gross profit in the quarter was driven mainly by the new acquired portfolio assets in early 2024, the improved operation at our Puna power plant and the contribution from the Heber complex repowering. On slide 6, we break down the revenue performance at the segment level. Electricity segment revenues increased by 7% to $166.2 million.

Second quarter revenue growth was driven by the factors that I previously mentioned. This revenue growth was partially offset by weaker performance at Dixie Valley, due to an unplanned outage, which Doron will touch on later in the call. In the product segment, revenues mark a substantial increase, growing by 13.1% to $37.8 million.

The growth in our product segment was supported by a stronger backlog and the timing of revenue recognition the current product segment backlog stands at approximately $165 million as of August 5, 2024, and includes the EPC of the Dominica BOT project with a state-owned utility.

Energy storage segment revenue increased by 48.1% to $8.9 million in the second quarter. This strong growth was driven by 83 megawatts that came online in the past 12 months, including the 20 megawatt, 20-megawatt hour East Flemington project that started operation in the first quarter of this year.

And the addition of the Pomona 2 tolling agreement; energy storage revenues also benefited from improved pricing, mainly at PGM. Moving to Slide 7. Gross margin for the electricity segment was 33.5% in the second quarter, up from 29.6% from the previous year.

The margin expansion was driven primarily by the improved year-over-year generation performance at Puna and the Heber complex, as well as the reduction in our power plant O&M cost. In the product segment, gross margin was 13.7% in the second quarter up from 10.4% in the second quarter of 2023.

Margins increased due to improved profitability on our contract. Within the energy storage segment, gross margin during the second quarter was 5.7% compared to 1.9% in the prior year. Energy storage gross margin benefited from higher profitability from our Pomona 2 new tolling agreement and improved merchant prices at PGM.

Breaking down adjusted EBITDA at the segment level on Slide 8. The electricity segment generated 91% of Ormat's total consolidated adjusted EBITDA in the second quarter. The product segment contributed 5% and the energy storage segment accounted for 4% of total adjusted EBITDA.

Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slides in the back of the presentation. Moving to slide 9. In the second quarter, we recorded $15.8 million in income related to tax benefits, compared to $15 million last year.

The increase is primarily related to the North Valley tax equity transaction entered into in October 2023 and to higher transferable PTC by other tax equity transactions.

Also in the second quarter, we recorded a $6.2 million ITC benefit in the income tax line related to the two storage facilities, East Flemington that came online in the first quarter of the year, and Bottleneck that is expected to come online towards the end of the third quarter this year.

We anticipate that we will receive up to $125 million in cash proceeds related to the PTC and ITC benefits in 2024.

This proceeds will effectively reduce our capital need, expanding our ability to not only fund our growth but to do so with strength profitability across our base of generating assets and ultimately lowering the capital intensity of our growth efforts. Looking at slide 10.

Our net debt as of June 30, 2024, was approximately $2.2 billion, equivalent to 4.2 times net debt to adjusted EBITDA. Cash and cash equivalent and restricted cash and cash equivalent as of June 30, 2024, was approximately $164 million compared to $288 million at the end of 2022.

Slide 10 breaks down our use of cash for the six months, illustrating Ormat's ability to reinvest in the business, service our debt obligation while also consistently returning capital to our shareholders, all while growing our business. Our total debt as of June 30, 2024, was approximately $2.4 billion.

Net of deferred financing cost is presented on Slide 29 in the appendix, which outlined the payment schedule. The average cost of our debt for the company stands at 4.63%.

We reiterate that the majority of our debt liabilities are at fixed interest rates which we believe will help maintain Ormat's competitive edge in the current elevated and volatile global interest rate environment. Moving to slide 11. We have approximately $654 million of total available liquidity.

After the quarter ended, we issued $45.5 million under the 2022, 2.5% convertible bond to refinance debt. Please note that the bond itself cannot be converted to equity. If the convert is in the money, we will pay additional interest only. We will be able to make the additional payment in either cash or shares based on our decision.

Our total expected capital expenditure for the remainder of 2024 is approximately $292 million as detailed in Slide 30 in the appendix. We plan to invest approximately $138 million in the electricity segment for construction, exploration, drilling and maintenance CapEx.

We also plan to spend $140 million for the construction of our storage assets in the remaining of 2024. Ormat’s balance sheet and capital resource position as well for the continued execution of our growth plan and an [executive] (ph) capital deployment.

As we continue to progress with executing on our growth plans, we are consistently increasing our cash generation, which combined with the expected cash from utilizing the tax benefit, will fund our CapEx. We continue to maintain excellent liquidity and have ample access to additional capital as needed.

On August 6, our board of directors declared, approved and authorized payment of quarterly dividend of $0.12 share payable on September 3, 2024, to shareholders of record as of August 20, 2024. We expect to maintain this dividend level for the next quarter as well. That concludes my financial overview.

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

Thank you, Assi. Turning to slide 13 for a look at our electricity segment operating portfolio. Portfolio growth during the quarter was positively supported by the recently completed COD for Beowawe Repowering. Actual generation in the quarter increased due to the positive contribution of our recently acquired Enel assets and Heber 1.

Our Puna facility showed continued improvement during the second quarter, running at approximately 31 megawatts. Turning to slide 14 for an update on our operating footprint. At our Olkaria power plant in Kenya, we achieved a significant milestone by successfully conducting capacity tests that reached approximately 148 megawatts.

This achievement will resulted in higher capacity revenues during the quarter. These higher capacity revenues were offset by force curtailment which reduced our revenues and generation out.

On Olkaria, I would also update that the tax preliminary investigation we reported in the first quarter 10-Q was closed and the initial demand for $79 million was reduced to zero.

Our recently acquired Enel assets have continued to positively impact our results, with the asset generating revenue and EBITDA of $8.6 million and $6.1 million, respectively.

As discussed on our first quarter earnings call, we have started the enhancement of the three acquired geothermal assets that we expect will translate into expanded returns through improved performance.

We are also evaluating options to build a new up to 35-megawatt power plant Cove Fort in Utah by the end of 2027, which was initially planned to be completed in 2029 at lower capacity.

And as we noted previously, we experienced an unplanned outage during the second quarter at our Dixie Valley facility, resulting in lower electricity generation which negatively impacted revenues and EBITDA by approximately $4.5 million.

The plant has resumed partial operation and we expect to resume full operation in the fourth quarter after a 30-day shutdown in October. On an annual basis, we anticipate the impact from Dixie Valley will result in a reduction of $9.6 million in revenues and $8.2 million in EBITDA. This reduction was taken into account in our revised guidance.

Turning to slide 15. Our product segment backlog stands at $165 million, which is up 38% when compared to the second quarter of 2023 and 27% compared to Q1 2024. This increase is mainly related to the inclusion of the EPC of the Dominica BOT project that we expect will be online by the end of 2025.

We continue to remain encouraged by the growing demand for geothermal, which should allow us to maintain a strong backlog. Moving to slide 16. The storage segment continues to show signs of solid incremental growth on a sequential basis, which is highlighted by the strong second quarter and first half growth that the segment delivered.

The results during the quarter were largely supported by the new projects launched in 2023 and the East Flemington facility that came online during the first quarter. Moving to slide 18. As we announced at our recent Investor Day, we are now targeting our portfolio capacity to reach between 2.6 gigawatts to 2.8 gigawatts by year end 2028.

As such targets suggest, we currently expect we will see an annual growth rate between 15% to 17%, with the majority of this growth focused in the US.

While we see plenty of promising opportunities internationally, the US has become a much larger focus for our growth efforts given the rapidly increasing opportunities in the region for both our electricity and storage segment.

As I noted at the beginning of the call, our consistently strong performance over the last few quarters has positioned us well in our efforts to achieve our long-term capacity target and translate that strategic growth into return.

Due to our increased focus on the US market, we increased our business development efforts to secure long-term agreements for the electricity segment, both with traditional utilities and with tech companies.

At our Heber 1 facility, we re-contracted the project with the same parties and are awaiting final approvals for a PPA that carries a price level as discussed in our Investor Day.

In addition, we are discussing portfolio PPA with utilities in Nevada, California and Oregon, and with one of the tech companies, driven by the increased demand for renewable energy as a result of AI energy needs. All the PPAs are negotiated at the price ranges similar to what we presented at our recent Investor Day.

Turning now to slides 19 and 20, which displays our geothermal and hybrid solar PV projects that we currently have underway. We are currently on track to complete the Ijen project in Indonesia by the end of 2024. Zunil in Guatemala is planned to be completed in 2025.

Additionally, in our solar PV portfolio, we anticipate that we will complete our CODs for the Beowawe solar project by the end of this year. Moving now to slide 21 and 22 to discuss the third layer of our growth plan, our energy storage segment.

At our Bottleneck facility in California, we are currently wrapping up the commissioning stage and we now anticipate that the 80 megawatt, 320-megawatt hour storage facility will begin operating by the end of the third quarter of this year.

In total, we currently have seven different storage projects under development that we expect to achieve COD by the end of 2026, which would add a total of 435 megawatt, 1240 megawatt hour storage portfolio. As discussed during our Investor Day, our strategy calls for a balanced split between tolling agreements and merchant market pricing.

Before I move on to discuss our guidance, I’d like to mention the recent positive development in the permitting front. A few weeks ago, the US Senate introduced the Energy Permitting Reform Act, which seeks to ease the environmental review for solar, wind and geothermal projects in ways the oil and gas industry has long enjoyed.

This is an exciting development for Ormat. If this bill is passed, it will serve as a positive advancement in our strategic growth plan as it should accelerate the timeline for the necessary permitting to advance our geothermal exploration and solar projects.

In turn, this development will put us in an even stronger position to reach and exceed our long-term operating capacity goals. Please turn to Slide 23 for a discussion of our 2024 guidance.

We narrowed and increased the midpoint of our expected total revenue and we expect it to range between $875 million and $910 million, with electricity segment revenues between $710 million and $720 million, product segment revenues between $130 million and $145 million, and energy storage revenue between $35 million and $45 million.

As a result of increased profitability in all of our segments, we increased our expected adjusted EBITDA midpoint and expect the range to be between $520 million and $550 million. We expect annual adjusted EBITDA attributable to minority interest to be approximately $20 million. I will end our prepared remarks on slide 24.

To summarize, we are proud of what we have been able to accomplish during the first half of the year as we continue to execute against our long term growth targets, while also delivering strong financial results.

Encouragingly, these results have been driven by our premium geothermal and energy storage solutions, our strong business development track record, and our ability to drive improved project returns through higher PPA pricing and tolling agreements.

Furthermore, with favorable PTC and ITC benefits and the cash flow from our operations, we have the unique ability to reach self-funding of our future growth through cash flow generation as Ormat continues to progress along its growth trajectory.

As we look ahead, we continue to see strong industry tailwinds for both geothermal and energy storage that will help drive increased profitability for Ormat as the demand for electricity continues to grow with the rise of data centers.

With all this combined, we believe that we are on the right path forward to drive significant stakeholders value in 2024 and beyond. This concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We'll take our first question from Noah Kaye at Oppenheimer..

Thanks for taking the questions. First on storage. Just wanted to put a finer point on the expected timing for Bottleneck to come online. I think you mentioned that would be this quarter.

Just give us a sense of where you are at in the process, any kind of puts and takes towards getting this to final completion? And then it seems like just better merchant prices and some of the better pricing under Pomona, is helping offset any delay in contribution from Bottleneck in the full year guide.

Is that the right way to think about it?.

Hi, Noah. Thank you. So, regarding Bottleneck, we’re in the final stages of commissioning the facility. Following that, we have some commission tests with FCE and Kaiser and the offtaker. So we expect the project to come online by the end of September.

We did expect it to come a few weeks earlier, so we do have a delay, but that's obviously included in our numbers that we've issued..

Right.

And as far as the potential offset in terms of just better economics from the rest of the portfolio, is that the right way to think about it, because obviously Bottleneck is a pretty substantial project?.

Yes, yes, definitely. We've seen better pricing, I believe, across all of our fleet, more in PGM, but also Texas has better pricing and California also had not bad pricing. So we had the larger fleet today, so we can cover up for this few weeks delay..

Very helpful. And then you talked at Investor Day and gave some specific numbers on, you know, where pricing has trended on the geothermal side. And it's very encouraging. As we look at the developments, the portfolio development that you've got listed on slide 19, all of these have PPAs, I guess.

You know, can you help us think through where there may be upside to the current portfolio with respect to either re-contracting or additional capacity that can be contracted out more favorably? How should we dimension that?.

I would say that, as you know, we did sign two portfolio PPAs with CC Power and with NV Energy. I would say that all the contracts that are going to be re-contracted with these two PPAs will have better pricing than what they are today.

The pricing, the PPA that we are negotiating today, relates to the following period after 2028, and over that we said that pricing in the area of 100-plus minus depends on the specific location. So on these projects that you do -- you see here on the list, most of them will come online before the end.

Look, in the PPA the one thing that is very interesting is cohort that we acquired from earlier this year. We released the three expansions, and we are also looking at [Topp 2] (ph). We originally forecasted it to be in 2029, at around 20 megawatts to 25 megawatts. Today, we believe it can be in 2027, and maybe even at a higher capacity.

We're finalizing it, but it might be up to 35 megawatts, and we are now negotiating with Salt River Power, a PPA for this expansion..

All right. That's very encouraging. I'll turn it over. Thank you..

Thank you..

We'll move next to Justin Clare at Roth Capital..

Hi, good morning. So, wanted to start off on your Olkaria project in Kenya. So it sounds like you had a successful capacity test up to 148 megawatts here. I was wondering where that plant is operating on average.

And then what the potential is to kind of move that capacity upward toward the 148 megawatts or potentially up to the 150 megawatts where your PPA is.

You know, could we see that by the end of the year? Or, how do you see the average stable capacity trending ahead here?.

As we discussed in Q4 and also in Q1, we were able to have a very successful drilling campaigns in Kenya. And right now, the plant can generate 148 megawatts and that's the capacity that we are charging our customer. We don't see a reason why this number will come down. We should stay at that amount in the foreseeable future.

We also have a plan in the next few months to recalibrate and the way the wells are flowing into the facility in order to make sure we can keep it at a very high capacity. I will say, though that we are experiencing curtailment in Kenya year-to-date, including July. We probably lost $7 million to $8 million as a result of the curtailment.

So the plant is running at lower capacity, but it's available to run close to capacity, which is 150 megawatts. I don't think there is a big difference between 148 megawatts and 150 megawatts. But this is where we are today. So we may get to 150 megawatts. But, you know, we are very satisfied with the successful outcome of the drilling campaign.

You asked about Kenya. I will just add that we continue to see positive cash flow payments from KPLC on one hand. And in addition, as Doron mentioned we did had $80 million, almost a tax investigation claim that we got from the KRA during late Q1, early Q2, and that was fully resolved with zero settlement. So we basically resolved all of it.

I would say, in general, most of the issues in Kenya are behind us. Now, we are trying to work with KPLC to try and reduce the impact of the curtailment..

Okay, great. That's helpful. And maybe you could just elaborate on the reason that you are seeing the curtailment and what you anticipate ahead here.

Is there, you know, potential for that to be reduced, or where you won't see curtailment going forward?.

We do know that there is some interconnection issues and capacity on the lines. And there are other developers in Kenya that are developing projects. Maybe KPLC have some take-off pays that they’re required to fill before they buy the geothermal. With that being said, our energy price is pretty low. It's [3.5 cents] (ph) per kilowatt.

And we believe that over time it will be very attractive for KPLC to buy this amount, more energy from us. In addition to that we did pick up production very quickly from 110 megawatts, 115 megawatts to 148 megawatts. So maybe they also need to adjust to the change that now the plant is much larger.

So I don't have any direct knowledge of when this thing will be adjusted back, but we are planning to meet with KPLC over the next few months to try and bring the, reduce the curtailment impact..

Okay, got it. And maybe just shifting over to your battery storage business. Was wondering if you could talk about your ability to secure the domestic content adder for your battery projects in 2025 or 2026. It sounds like there are suppliers that are offering different approaches to qualifying for domestic content.

So just wanted to see if that was a possibility, you know, in the coming years..

We are discussing with all battery suppliers. We know that some of them claim that in 2024 they are able to meet the domestic contents. We know that they are looking at ways how to get to domestic content in '25. And obviously, the IRS guidelines are becoming more and more strict as the years pass. So we are looking at it.

Our project is listed on our presentation. Most of them have 40%. We don't see today one of these projects that we released getting a 50%, but future project, every project before we release it, we discuss with the foreign manufacturers and local manufacturers in order to see if we can get local content.

And on top of that, you know, whether or not the higher pricing for the local content is getting basically paid back by the ITC or you basically pay the same and the entire benefit goes to the domestic content or the local manufacturer..

Got it. Okay, appreciate it. Thank you..

Thank you..

We'll move next to Derek Podhaizer at Barclays..

Hey, good morning. Just wanted to ask about the margin outlook for both product and energy storage. I know product you previously guided us to 15%, 20%. We're still below that right now. So maybe can you help us bridge us to where you are today to get into that 15% to 20% range? And then on the energy storage, similar.

I know, Bottleneck seems like it is got pushed out to the end of the third quarter and just thinking about a margin inflection there that you guys previously talked about. So just the overall margin outlook for product and energy storage..

On the product segment, you know, 15% to 20%. This is our target, although this quarter we were 13.7%, which is a bit below this target. We do see on the project that we are working on and signing margins within the range that we guided. And obviously in specific quarter, it might be a bit lower, but this is the target that we have..

On the storage front, when we look at Q4 with the expectation of the operation of Bottleneck, we do expect a double digits, anywhere from 10% to 15% margin. And that not assuming any weather events. Initially, I would say that Bottleneck, a lot of the income is coming in Q3.

And right now, it looks like Q3 will not include the Bottleneck for the most of the quarter. So the margin environment should be closer to what we've seen this quarter..

Okay, got it. That's helpful. And just back on product.

Any primary drivers for margins at that 13.5% range?.

I think that the overall market is very competitive. Some of our projects that we signed have a big portion of construction part, which is part of the EPC that we are doing for mostly in our New Zealand customers. Those projects that we do in New Zealand has a big portion of that construction.

And usually the margin on it is around 10%, which is different than the margin that we are getting by selling a pure equipment. I will say that, Dominica, that is a BOT project, that we are now recording it as a third party project, does carry close to 22% margin. And that should improve margin as we go towards next year..

Got it. Okay, that's helpful. And then I guess just following up on the selling of the pure equipment.

So this is more of a bigger picture question, but could you help frame for us just the dollar per megawatt exposure you have on the product side from that growing unconventional geothermal players or startup communities, whether you want to call it EGS or AGS, just maybe how you think about how you could be a partner with those guys as they look to build and construct power plants using their new designs.

Just help us frame what kind of an opportunity that could be for you. If you can give it on a dollar per megawatt basis, I would assume it's going to be coming out of the product side..

I would say if the EGS technology will be successful and people will be able to use water fracking and generate hot water or steam, this could be for the product segment, a very big upside, because we will suddenly see many more potential geothermal projects coming online. So we definitely look forward to see it.

I can tell you that internally in Ormat, we're also looking at EGS, since we are also a developer of projects. And if this technology will be successful, and I will tell you that Ormat has a patent on these technologies from 18 years ago already. We will definitely be happy to use the same technology to develop new projects.

So we are looking at these startups that are coming. We see this as a very nice and potential upside. However, it's not something that we believe will be in the short term, hopefully in the midterm, but quite a lot of technologies, challenges that they still need to overcome in order for this technology to be economical and bankable..

All right, great. Appreciate all the color. I'll turn it back..

Thank you..

Next, we'll move to Jon Windham at UBS Financial..

Hi good morning, and thank you for taking the questions. I would be very interested in just getting your high level thoughts about particularly the PJM capacity auction and how you maybe think about future battery storage projects in that region.

I know you mostly been focused on the development in California and Texas, but whether you think PJM is sort of an opportunity moving forward for the storage business? Thanks..

On the PJM capacity market, it was focusing mainly on the generating assets and four hours batteries, not the kind of batteries that we are operating. The actual dollar amount that was there, although it was ten times better than the previous year, the capacity payment is not a very high capacity payment.

Today, we have about 100 megawatts and 100-megawatt hour in PJM. This is basically the size of our projections in PJM. We have one more project that is coming online beginning of next year. So we see this as a very nice market. We enjoyed it last year on the price, and we enjoyed this year on the higher pricing.

And we are looking very closely at this market. We hope that pricing will go up, and the PJM market usually has higher prices in the winter versus Texas that has higher prices in the summer. And that's kind of the balance that we have. So we see this as a nice upside, although not directly impacting our assets..

Appreciate that. Be well..

We'll go next to Ryan Levine at Citi..

Good morning. Good afternoon.

Is there any update to the Reno Nevada data center growth opportunity, and what are the current expectations or outlook for your business there?.

Yes, definitely. There is a potential and upside. We are negotiating, actually exchanging term sheet with one of the data centers that is operating in Nevada that is looking to be to buy from us geothermal energy.

It is bilateral discussion with them, and it is actually competing between them versus NV Energy and other in another utility in California that we are negotiating. At the end of the day, when we look at it, you know, we are fine to sell to the utility and the utility you can sell to the data center as long as we get the right pricing for it.

It's not that we need a direct relationship or contract with the data center, but today we are negotiating with all of them. And once we will move forward with either one of them, we will obviously update the market..

Okay.

And what's the company's current exposure to the Chinese battery suppliers? And has that exposure changed with some of your recent contracting activity with one of your -- one of your counterparties?.

I would say that most of the battery manufacturer, you know, are from China. Even if you go and buy from US battery suppliers, they buy the cell from China. So we are working, you know, with the Chinese battery manufacturers. They are delivering and supplying the batteries. So this is something that we are definitely working on.

We did already order the batteries for most of our projects that are listed on the slide, slide 21. Obviously, not for the last one that we just released, Luisa, which is a new project that we just released, but we have already contract for the other projects..

Okay. And then in terms of your ERCOT battery opportunities, it feels like you added a project this quarter. You know, given the forward curves and the dynamic nature of that market.

Are you seeing an acceleration of opportunity or an increase in opportunity versus previous quarters, or any color you could share around the development opportunities you are seeing in their current market?.

What we are seeing basically is better returns. We see the market pricing a bit higher than what it is. We see PPAs. But today we do see similar to California PPAs or tolling agreement being signed in Texas. And we are also negotiating to some of our projects like in Bird Dog and Lower Rio. And on top of that, we have the 40% IPC.

So actually we see better returns than what we originally anticipated, thanks to the 40% and the PPA that we are negotiating. And once they will be finalized, we will update the market, of course..

Thank you for the time..

We'll go next to Julien Dumoulin Smith at Jefferies..

Hey, good morning team. Thank you guys, appreciate it. Look, I just want to come back at the same vein as some of the last questions. In as much as you think about scaling up the opportunities, you guys obviously rolled forward the outlook from '26, '28 with more megawatts.

But given the commentary across the West, given your commentary about evaluating portfolio agreements, how do you think about scaling your opportunities further and investing in early stage permitting to bring up those total megawatt targets further here? Just thinking about rising and having the ability and land positions to meet the growing demand of the West.

Especially, as you say, you're specifically in conversations on some of portfolio wide arrangements with several utilities. Just thinking about how big that could be in terms of incremental megawatts, not just recontracting existing assets..

So we gave the 28 targets for the growth. And since you are, Julian following us for quite a long time, when we give targets, usually we have a path how to reach them. We definitely, when we see this demand both in geothermal and in energy storage, we are increasing our efforts to develop more projects.

I also mentioned the legislation on permitting that we hope will be finalized next year. So we do believe there's an option for upside on both the geothermal and the storage area. And as we move forward, we will update it, you know, similar to the '26 numbers that we increase them during the term.

And that is hopefully what we will be able to do if all goes well for the '28 numbers as well..

Got it. And then related, how do you think about [ERCOT] (ph) here? I mean, I see further assets being announced there. How do you think about balancing the risks on ancillary pricing? And there's some concerns about saturation out there in that market at a certain point.

Again, obviously, lots of opportunities in the West here, but again, as it stands today, pricing seems quite attractive in Texas, in the here and now..

Yes. So that's an excellent question, Julian. That's why we are negotiating today for both Bird Dog and Lower Rio tolling agreements. And once we'll be able to sign them, we'll have a much better balanced portfolio, be able to release more projects in Texas.

At the end of the day, we are targeting roughly overall the portfolio, about 50%-50% merchant versus contracted. And once we are able to contract projects in Texas, it will allow us on one hand to reduce the risk of pricing going down in Texas.

But on the other hand, we do want merchant projects in Texas because we do see some potential upside on specific days in the year or specific months. So we are trying to balance between the two and that's how we are releasing projects..

All right, fair enough, guys. Thank you very much. Good luck with all the efforts. Thank you..

Thank you..

And we'll take our final question from Jeff Osborne at TD Cowen..

Good morning. Just one question on my side, Assi. I was wondering on the ITC cash benefits, how we should think about that benefit in the third and the four quarter. I think you said [125] (ph) for the year. I assume third quarter is a big number, just with bottleneck coming online. But any thoughts on how we should be modeling that..

From a cash flow perspective? At the fourth quarter, we expect to utilize and sell the ITC of bottleneck, which is equivalent to $35 million, in addition to utilizing the -- to do basically a tax equity transaction for Heber plants, which is around $75 million. So that will be the majority of that.

The remaining dollars are PTC that we plan to sell between September and October. Roughly, we have $25 million of PTCs that are part of the PTC transfer program, and those will be sold between September and October. These are the 2023 PTCs and the 2024 PTCs. You know, under the new law, we can sell them to a third-party.

And right now we're negotiating final steps of that agreement..

Got it.

And just to be clear, the $75 million from Heber is also in 4Q?.

Yes..

Perfect. That's all I have. Thank you..

You're welcome. Thank you, Jeff..

And that concludes our Q&A session. I want to now turn the conference back over to Doron Blachar for closing remarks..

Thank you. Thank you all for joining us today. This was a very good quarter for us, and we are continuing to work and be focused on growth and profitability. I would like to thank you for your support and look forward to speaking with you again next quarter. Thank you..

And this concludes today's conference call. Thank you for your participation. You may now disconnect..