OPC Energy Ltd. ($OPCE)

Hello, and welcome to OPC Energy Ltd. Q1 2026 Investors Meeting. [Operator Instructions] For your convenience, this meeting is being recorded and will be uploaded to the company's website at a later time. With us today are Mr. Giora Almogy, CEO of OPC Energy Ltd.; Mrs. Anna Bernstein, CFO of OPC Energy Ltd. Before I hand over the floor to Giora, I would like to point out that other than historical data that will be presented, some of the information discussed during this call may constitute forward-looking information as defined under the securities law. Such information includes, among other things, forecasts, estimates and assumptions regarding future events, which are subject to risks and uncertainties. The company's actual results may differ materially from those anticipated due to various factors as detailed in the company's official Hebrew reports filed with the relevant authorities. This call does not replace the need to review the company's official Hebrew immediate and periodic reports, which include complete information, including risk factors and forward-looking information in accordance with the securities law. Nothing stated during this call constitute an offer or invitation to purchase or transact in the company's securities nor should it be considered investments advice. I will now turn the call over to Mr. Giora Almogy. Giora, please go ahead.

Good morning, everyone, and thank you for joining us today. We are pleased to present another quarter of strong financial results, reflecting continued execution across our platform and meaningful progress in advancing our strategic projects. During the quarter, we continued to expand and strengthen our development pipeline, advance key growth projects, progress towards FID for the Hadera Expansion in our Ramat Beka project and completed strategic partner buyouts in several natural gas assets in the U.S., further positioning the company to benefit from the strong long-term fundamentals in our markets. We will now walk through the presentation and discuss the key development across our business and our outlook going forward. OPC is a global platform. We operate today in Israel and the U.S., 2 markets that are enjoying strong growth in electricity demand as a result of electrification in the industry and strong penetration of data centers. As an IPP, we believe in a diversified portfolio and the fact that the energy transition is comprised of both natural gas and increasing share of renewable energy. For that reason, we have continued to develop both our renewable portfolio, but also a significant natural gas portfolio. I'm very happy that last year, we were able to execute and start the construction of a 1.4 gigawatt combined cycle project in Texas, and we still continue to develop a pipeline of roughly 7.4 gigawatts of natural gas projects in the PJM market. On top of that, as I mentioned, we are also continuing to develop our renewable energy portfolio and continue to focus both on wind, storage and solar, both in Israel and in the States. Our experienced management teams in U.S. and Israel are in a perfect position in order to execute this growth strategy, which encompasses roughly $10 billion of capital projects, both in Israel and in the U.S. I'm happy to report that we finished the quarter with strong results with a 10% year-over-year increase in the EBITDA to $124 million and an increase in the net income of 18% to $33 million. I'm also happy that we earned the confidence of our investors and reached a record high of $12 billion market cap. OPC is experiencing a rapid growth, and we've reached 5.3 gigawatts of operating and under construction projects in 2025. This year, we are intending to start construction of 2 more projects in Israel, bringing our total capacity to 6.8 gigawatts. On top of that, we have 2 significant projects that we should start construction in '27, '28. That will bring us to 8.9 gigawatts of operating and under construction projects. On top of this, we have 2 gigawatts of safe harbor renewable projects in the U.S. that we believe should reach operation by 2030, bringing the total capacity of the company to approximately 10 gigawatts of operating and under construction by 2030. You can see also that our EBITDA is following this trend, and we have demonstrated a 24% CAGR over the last 5 years in our EBITDA growth. Bringing down our capacity to the geographies and to the stages, we have 3.8 gigawatts of operating projects 6 of projects under construction. And as I mentioned, 1.5 gigawatts of advanced development projects, which we should start construction actually in the next few weeks. On top of that, we are continuing to develop our pipeline. We have a position of 2 gigawatts of safe harbor renewable projects in the States and a very significant early development pipeline, including the 7.4 gigawatts of low-carbon natural gas in PJM. On top of that, we are also adding storage. Some of our projects which are under -- or should start construction this year in Israel carry a very significant component of storage. Also in the U.S., the safe harbor projects include storage, and that is something that will definitely be one of our growth engines in the coming few years. Next, the company's strategy for the coming years is focused on growth in 4 main pillars. First, in the U.S., in the PJM and ERCOT market, we have a CapEx plan of $6 billion. Last year, we started construction of Basin Ranch, a $2 billion project that should reach commercial operation in 2029. We are promoting Shay. I will talk about this later in the presentation, an advanced project that we should start construction in '27, '28, and that represents an investment of $4 billion. So overall, we expect to start construction of roughly $6 billion of new thermal generation in the U.S. As I said, we are also continuing to develop our renewable pipeline in the U.S. and in Israel. In the U.S., we have Safe Harbor, roughly 2 gigawatts of projects, and we are promoting them to start construction and bring these projects into operation by 2030. Also in the U.S., we are pursuing a strategy of buyout of partners. I'm very happy that this year, we were able to reach full consolidation of 3 projects, and we will continue to pursue this strategy as we move along. In Israel, after several years of development, we're facing now 3 very large projects, which represent a $4 billion capital plan, 2 of which I will describe later today, represent $3 billion, and we should start construction actually in the next few weeks. And the following project in '27 is the Intel project representing another $1 billion of capital investment. So overall, we're looking at $10 billion capital investment in thermal on top of that renewable and partner consolidation. Putting our development projects on a time line, I'm very happy that last -- late last year, we were able to reach financial closing and we started construction of Basin Ranch, Ramat Beka and Hadera expansion are 2 projects that actually are starting -- reaching commercial -- financial investment decision and financial closing actually in June of this year in several weeks. And by '27, '28, we should start construction of our 2 large thermal projects, Intel and Shay. And as I mentioned, the Safe Harbor projects in the U.S. and also renewal projects in Israel, which are really increase our capacity incrementally as we grow over the years. We had another very busy quarter. And in this quarter, we were able -- I think the major things which are going to be important for us as we go forward. One, as I mentioned, we were able to reach full consolidation of 3 projects, Basin Ranch, Shore in Maryland. We also -- we were able to bring the 2 projects in Israel to a situation where we are expected to start construction in the next few weeks. And the reliability backstop procurement is a very important regulatory decision, which I will touch upon, but it's definitely something which is very attractive for us and represent a growth opportunity in the next coming years. Israeli market is a market that has seen historical growth of roughly 2.8% a year over the last 2 decades. We're seeing this also this growth -- this significant growth is actually accelerating. And currently, the market -- the forecast is to reach 3.5% CAGR over the next decade. Actually, the government, I'll talk about this later, is reassessing these numbers as data centers are starting to -- large data centers are starting to be developed in Israel. So definitely, we see very significant growth in terms of the load in Israel on the one hand. Another growth opportunity for us in Israel is today, the retail market is open. However, only 9% of overall households have switched supplier. So as we grow our capacity and we sell our energy to end users, we see that as a very important growth engine to be able to sell to the retail to households through our retail operations. Israel is in a very fortunate situation where it has actually energy independence. We have abundant sun, which today is supplying roughly 16% of the overall energy mix, and that's targeted to reach 30% by 2030 and increase above even beyond that by 2040. On top of that, there are very significant gas reserves in the country. So the way that we see the growth of the power generation to support the growth in demand is through increase in renewable generation capacity. That's forecasted to increase to roughly 10 gigawatts over the next few years and beyond that after 2030. Alongside, of course, as we -- as the penetration of renewables is increasing about 16%, almost all energy projects, all renewable energy projects are coming with significant storage. So that is also a very significant growth engine. And beyond the projects which are -- the thermal projects, which are under construction, including Saba that we will talk about by -- it will be in operation by 2030. There's an additional growth of roughly 8 gigawatts expected by 2040. And OPC is also developing sites to be able to capture this growth opportunity. Israel is located in -- is very well situated to be a regional hub for data centers. And we're seeing data centers -- actually, the growth of data centers in Israel is accelerating rapidly. Only recently, the government has adopted a resolution to promote and to fast track the zoning and the permitting of data centers as they grow. For OPC, this is a dual opportunity. One, its growth in terms of our sales. We've recently announced a PPA with one of the leading Israeli data center developers for a PPA of 460 megawatts to supply his data center development. On top of that, as the growth of mega data centers is coming to Israel, the government has published a map of areas where data centers above 200 megawatts should be constructed. Some of our the OPC sites are located in these areas. And we believe that co-locating is a very interesting opportunity for us. OPC has very strong experience in co-locating within industrial facilities. We have today an operating plant within the Hadera paper mill. We are building the facility in the desination plant. We are developing the Intel facility within the Intel site in Israel. And we have vast experience in co-locating. So we believe that the opportunity to build and develop data centers together with power plants in a colocation is something which is very interesting for OPC. So we're seeing -- actually, we're experiencing rapid growth in Israel and are expected to more than double our operating under construction capacity in the next few weeks. We have 2 very large projects One is Hera combined cycle. This is a project we've been promoting since 2017, and we should reach financial closing next month. It's a project of 150-megawatt combined cycle. We've secured GE equipment, and we should reach a financial closing next month. The commercial structure of this project is to -- a mix a combination of a 25-year capacity payment guaranteed by the system operator for the full capacity of the plant on top of energy sales to the S&P market. The combination of -- since the energy market in Israel is basically long-term gas contracts and renewable energy, it's a very stable market and the combination of the capacity payments on top of the energy payments over the next 25 years is going to create a significant cash flow increase and a stable cash flow for the company from 2030 when the project is starting to reach commercial operation. The other very important capital project for us in Israel is Rmadeka. It's actually our first renewable project in Israel. It's a 550-mawatt PV project with 3.8 gigawatt hours of storage. We are now working on adding -- increasing the size. So we are expecting to reach even 600 megawatts and 4.2 gigawatt hours of storage. This is the largest project -- renewable project in Israel and one of the largest in the world. It represents a total investment of roughly $1.4 billion. We've been able to secure the panels. We started the construction of the GIS, and we are intending to pay the final payment for the land administration, the land authority and to start -- reach a financial investment decision by next month. The way that this commercialization of this project is that you receive basically capacity credits, and that benefits us in the sense that we are basically expanding our sales to end users that could be residential end users, data centers that are interested in green renewable energy. So the commercialization of this project will be through long-term PPAs where we receive capacity credits from the system operator and we buy the remaining energy from the S&P market. So U.S. is also, of course, experiencing rapid energy demand growth. It's happening from the fact that there's reshoring of manufacturing. Of course, the main driver is data centers. I have to say that we even see it in the quarterly results. And definitely, as we see the forward energy markets, the demand is actually here. If these are not forecast, you can see that actually there is a pickup in demand over the last few years, and that demand is forecasted to significantly increase as the deployment of data centers accelerates. -- in the 2 competitive markets where we are operating in our thermal development. We're talking about estimates of roughly 100 gigawatts of additional demand between PJM and ERCOT by the end of -- by 2030. Of course, that drives a huge increase or requires a huge increase in energy -- in power generation, as you can see in the next slide. In the next slide, you can see that as the energy demand is growing on the one hand, actually additions of dispatchable generation are coming down. You can see roughly 11 gigawatts of retirements in 2026 of planned retirements of dispatchable, that's coal and old natural gas. And you can see on the table on the right that in order to fulfill these energy requirements, renewable energy is, of course, forecasted to increase rapidly, but that is not enough. in order to supply the demand of the increasing growth, there will have to be a significant amount of new natural gas dispatchable, reliable resources to support this very important growth in the energy demand. A great example of this imbalance of the growing demand and supply, which is not catching up is demonstrated through the PJM capacity auctions. Until June 2025, capacity prices in the PJM were roughly $50 a megawatt day. In the following auction, the price only jumped to $270 a megawatt day. And in the following 2 auctions, it hit an imposed cap by the PJM of $325 a megawatt day. Not only did it hit the imposed cap, but in the recent auction, the capacity actually didn't clear. So the market was -- had a shortfall of roughly 7 gigawatts, which triggered the reliability backstop procurement process, which is a great opportunity for CPM. PJM is in order to address the shortage of power in the -- specifically in PJM area in order to enable the development of data centers in the PJM area. Basically, the PJM is pursuing several policies in order to promote new dispatchable generation in the system. One is the capacity market reform. Basically, the reliability backstop procurement. We're talking about -- this still is not final. It should be submitted to the FERC by June, and we expect that to be later this year to be final. But PJM is looking to procure up to 15 gigawatts of new reliable thermal generation through an auction, which could secure capacity payments for up to 15 years. That's one portion of the development, which is important to secure the project. Another very important bottleneck is the transmission system. Today, the most advanced interconnection queue is the transition cycle 2. In transition cycle 2, there are 8 gigawatts only of thermal projects, which are basically a situation that should be in a position to sign an interconnection agreement by the end of this year or first quarter of next year. Out of the 8 gigawatts, our -- she project, which I will describe later, is 2 gigawatts. So 25% of the total interconnection queue, which is relevant for -- to start construction in the next -- or say, beginning of '27, is through SA. On top of that, the PJM has now also started a new cycle transition new cycle 1. And you can see now all players coming in. There's roughly 220 gigawatts of projects in the queue, some renewables, some are storage. We also have storage projects here, renewable projects and also some of our earlier-stage pipeline is part of this new cycle 1. The final part of this promotion of the PJM of the energy dominance program is DOE a potential DOE loan. The DOE is now updating the availability of criteria to support natural gas projects to include CCGTs. And that is, of course, a very important -- could very much improve the project economics for our SA project. Moving to our -- she project. We have been developing -- she a 2.1 gigawatt combined cycle for the last 3 or 4 years. We own 70%, 30% is owned by GE. The project is located in West Virginia. And we estimate the total project cost to be roughly in today's market to be roughly $4 billion. In terms of our project development, we should be in a position to have our permits in place and the interconnection subject to the interconnection queue as I described before, in early 2027, we have already secured a slot reservation agreement for the main equipment. So we should be in a position to be able to commercialize this project through '27 or '28. The main drivers for commercialization of these projects, one is the capacity payments -- as I described, the backstop auction could be a very -- we are very well positioned to participate in this auction. And we can guarantee up to 15 years of capacity payments through the backstop auction, which, of course, is a very important part of our revenues. Another part of the revenues is the energy component. This project is located in West Virginia, an area of abundant natural gas, and we are now in negotiations and promoting a gas netback, which is basically a hedge on the energy price is something very similar to what we've done in Basin Rand project, and this could be up to 10 years of securing the energy payments. The final portion is the finance. Of course, the ability to go to project finance this project. But if we are able to secure the DOE loan, that will, of course, create a very attractive, stable, long amortization schedule with beneficial interest rates and with higher leverage ratio. So we're pursuing and developing these projects as the backstop option will be issued. We believe we are very well positioned to take part in that auction on top of the energy and the slow amortization of the project. We believe this could create a very significant opportunity and increase our cash flow from 2021 when this project should be in operation. As I mentioned, this -- our low gas -- low carbon development portfolio is dynamic. A year ago, we had a base inventory in this project. It's now under construction. I mentioned She. Hopefully, -- she will reach or final investment decision in '27 or '28. And we are also promoting additional projects. We have -- in total, we have -- our net position is 7.4 gigawatts of combined cycle and peaking projects in the PJM area. And we are continuing to develop them. And as the demand in the market, we do not see in the next few years how the demand will be settled by the existing projects. So we definitely believe that there is a long-term opportunity also for these early-stage projects. Our approach as an IPP is to try and to fully consolidate our projects and enjoy better scale, move from project finance to corporate finance and have synergies. I'm very happy that this quarter or the beginning of this year, we were able to reach full ownership in 3 of our projects in Basin Ranch under construction and Shore in Maryland. We continue to hold a position in Fairview, Valley and Atlantic, 3 projects in very strategic locations, and we will continue to pursue our strategy of consolidating these assets as we are able to move forward. Finally, we've been talking a lot about the thermal generation. And actually, this is something which is really in shortage in the U.S. and critical for the development of data centers or actually for securing reliable energy for the system. But as we see energy prices increase, as we see equipment prices for renewables decrease, and we see the appetite of the C&I market to buy or to procure renewable power, we definitely see an opportunity, and we believe that the modern IPP should be a combination of natural gas and renewable energy. And therefore, today, we have a portfolio of roughly 800 megawatts of operating or under construction renewable projects. We have safe harbored roughly 2 gigawatts of projects. And as we are continuing to develop also earlier-stage pipeline. We believe both in wind and in solar. We believe a combination of storage. And as these projects develop, we will continue and grow our portfolio in our operating and under construction projects in the renewable sector. I will now hand over to our CFO, Anna Shvartsman, to walk you through our financial results.

Thank you, Giora. Before turning to the financial results and main financial events of the quarter, I would like to draw your attention to the change in the presentation currency of our financial statements into U.S. dollars. According to the translation rules under IFRS, we have restated the comparative figures to enable proper comparability of the financial information over time. Let's now turn to the financial results. We are summarizing a strong first quarter of 2026 with significant growth across all key financial parameters. Our consolidated EBITDA increased by 10% to $124 million year-over-year. We generated substantial free cash flow of $75 million, and our adjusted net income grew by 18% to $33 million. Our Israel segment continues to perform well and demonstrate steady EBITDA year-over-year. As we look towards the remainder of 2026 and into 2027, following the expected COD of the SOC II power plant and return to ordinary course operation capacity in the Summit power plant, we expect additional improvement in our financial performance in Israel. Our U.S. Thermal segment continues to demonstrate EBITDA growth, driven mainly by surge in energy margins and capacity revenue in the PJM and increased ownership stake in the shore power plant, which, as Giora mentioned, is fully owned by CPV as of this quarter and consolidated in our financial statements. During this quarter and up until May, we have performed planned maintenance in the Maryland power plant, which negatively impacted on the operational availability year-over-year. In addition, we are experiencing an operational malfunction in the Fairview power plant, which we expect to be fully recovered by insurance during the following quarters of the year. As demonstrated in the chart on the right-hand side of the slide, we expect strong results in 2026, considering our significant hedging position, approximately 70% at high energy margins and increasing revenue from capacity in our PGM operating assets. Looking at our Renewables segment, our portfolio of operating assets continues growing with the recent COD of the backbone Solar project in December 2025. Later this year, we expect additional growth once the Rhadose Wind project reaches COD. Moving to the bottom line. The increase in consolidated adjusted net income is mostly attributed to the growth in EBITDA. In terms of the accounting net income, during this quarter, we recorded one-off losses in the amount of $19 million, resulting mainly from reclassification of OCI reserves from energy margin hedges into P&L following first-time consolidation of the shore power plant. This one-off loss is effectively a time gap since those reserves will have been reclassified to P&L in the upcoming quarters once the hedging transactions are realized. As Giora mentioned, we were quite busy this quarter on the financing front as well with several accretive refinancings of operating thermal assets in the U.S., taking advantage of strong financial markets to reduce interest rates and improve cash sweeps, increasing available free cash flow at the CPB Group level to facilitate growth of our U.S. platform. The continued confidence of investors in the Israeli capital market in our strategy and execution enabled us to successfully complete an additional capital raise of $257 million in March. Lastly, yesterday, Midu, an affiliate of Moody's in Israel, published its annual credit review of OPC Energy and its publicly traded bonds, affirming the A1 issuer rating and changing the rating outlook from stable to positive, acknowledging the strengthening of our financial profile following significant reinforcement of the equity base alongside continued improvement in the results of the natural gas activity in the U.S. This slide demonstrates our extraordinary track record in accessing the Israeli capital market with above $1 billion equity issuances in the last 2 years. We continue to implement a responsible financial policy while maintaining financial flexibility, strong liquidity and prudent leverage levels. As of the end of the first quarter, we maintain robust financial position with leverage ratio of 2.8x, 50% equity ratio and significant amount of cash on hand, and we are well positioned to support the implementation of our accelerated CapEx plan. I will now turn back to Giora for a short summary. Afterwards, we will open the call for questions.

So to summarize this quarter, we are in a very unique position where we are a few weeks away from a significant investments in Israel and 2 projects we have been developing for the last few years in Ramat Beka, presenting an investment of roughly $3 billion. On top of that, there's an accelerated growth of data centers in Israel, which is creating an opportunity for us both in contracting and developing further power plants. In the U.S., after completing the financial closing and starting construction of Basin Ranch late last year, we're now focusing on the accelerated development of She, and we should be in a position to be able to reach a final investment decision for this $4 billion project during the year of '27. As we continue to develop the thermal projects, we believe also that the renewable -- we're also continuing to develop our renewable pipeline in the U.S. and Israel. We believe that the future, as I said, is a combination of thermal and renewables. We have been able to safe harbor roughly 2 gigawatts of projects in the U.S. of wind and solar. We are now also introducing storage to these projects and believe ultimately that the combination of an IPP with thermal and renewable capabilities is the right way forward.

The first question, how does PJM's recent publication regarding the RBP and the expected capacity in the upcoming auction affect the development portfolio and specifically the Shale project? What are the time lines for the project development and the start of construction?

Okay. So first of all, the PJM yesterday issued, I would say, a clarification to the process already started for the reliability backstop auction, basically indicating that not their previous letters or proposals, they would issue -- they will go forward and issue an auction in September of this year. Now first of all, we think this is the right way forward. This is going to be an option -- limited auction of up to 9 gigawatts, if I'm not mistaken. And if the participants -- in order to participate in this auction, of course, you have to be part of the interconnection of the transition cycle which is today has the total pipeline of thermal projects in this cycle is 8 gigawatts and -- she is 2 gigawatts out of these 8. So definitely, they still need to issue the exact process. It's expected to be in September of this year. And we should be -- we think we are very well positioned to participate in this process due to the fact that we are in the interconnection queue. As I said, 2 out of the 8 thermal projects in interconnection queue were 2. We should be in a situation to have interconnection agreement by early 2027. We have -- as I said, we have already signed a slot reservation agreement. So we have equipment secured. So I think we're very well positioned for this auction where we think it's the right way for us from PJM's perspective. And I would say the data are as if it holds as in September will be the auction, we should be in a situation to sign the interconnection agreement early 2027. And basically, once you have the capacity locked, we have the equipment locked, we have the interconnection, then basically, the investment decision should happen in the, I would say, in -- definitely in 2027, I would say mid-2027.

The next question, could you elaborate on the PPA agreement with the data center in Israel? How does the growth of the data center sector in Israel fit into the company's strategy?

I think it's -- again, we signed a PPA of 460 megawatts with a leading data center developer in Israel. And I think the data center growth, which has increased dramatically and is really starting to be very similar to the U.S. in a sense of driving up demand for power. And second thing is driving up the requirement for kind of a local bring your own generation. And that is a great opportunity for us. One, of course, a PPA of 460 megawatts is an anchor customer for us as we grow, as we build our Mateka project that has capacity of roughly 600 megawatts. So it's a very important PPA for us on the one hand. And on the other hand, this increased demand in data centers and the fact that now data centers above 200 megawatts will either need to co-locate in existing sites in certain areas where we have power plants in the south of Israel mostly. And the second is potentially or the other alternative is to bring our own generation, so to co-locate. This is something that we've been looking at and developing in the U.S. It's something that we have, and I said that past experience in Israel, in our existing operations. So overall, this new or this ramp-up in the data center demand in Israel and development is very positive for us, both in terms of the demand for power and resulting in PPAs and also in development opportunities for new greenfield projects that are co-located with data centers.

There are no further questions. If your questions weren't addressed, please reach out to Anna Bernstein, OPC Energy's CFO at [email protected] or Mary Segal of MSR Investor Relations for OPC Energy in the U.S. at [email protected]. This concludes the OPC Energy Ltd. investor meeting. Thank you for your participation, and have a nice day.