Ormat Technologies, Inc. (ORA) Earnings Call Transcript & Summary

Good morning, and welcome to Ormat Technologies 2022 Investor Day. I'm Smadar Lavi, Vice President, Head of Investor Relations and ESG Planning and Reporting. I really appreciate the effort that all of you did to make here and participate in person. And I thank all the others that are joining us in the webcast and taking the time to be in this event. Today, we will share with you the company's long-term strategy, multiyear growth framework and the financial objectives. Our speakers for today are Doron Blachar, CEO; Assi Ginzburg, CFO; Ofer Benyosef, Executive Vice President in Storage and Business Development; and we have also Paul Thomsen, Vice President of Business Development. We also have here with us, other management members that will be available for the Q&A session. They are sitting here in the front on your right. We have Shlomi Argas, our President and Head of Operation and Products. We have Shimon Hatzir, Executive Vice President of Electricity segment; and we have also Jessica Woelfel, General Counsel and Chief Compliance Officer. Also, we have Mike Pavo, Head of Storage Operations. And again, they will be here available for questions. Now before we begin, I would like you to -- I would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events and forward-looking. We are giving targets, not guidance of megawatt growth, adjusted EBITDA and revenues that use assumptions that may differ from actual results. So please read carefully the disclaimer on Page 2 and 3 in the presentation deck. One more thing before we start, I want to remind you that this event is being webcast live and will be archived on the Investor Relations section of our website. So thank you again, and I hope that you will enjoy the day.

Hi, everyone, and thank you for joining us in person and through the webcast. Today, as Smadar said, we will be discussing and presenting to you Ormat's targets for the next 5 years. We'll be discussing also where we are today and how we are planning to get to these targets. It's going to be a very detailed presentation dealing with all of our segments. And we'll obviously be happy to answer any questions following that. But before I will start with the future, let's start with the present. And this is Ormat today. We are a leading renewable energy provider. We've been working for -- operating for more than 50 years globally. We have been focusing most of these years on geothermal. And over the last few years, we've expanded into additional areas, such as the energy storage, and we will have a detailed presentation later by Ofer on the energy storage market and when -- and where Ormat is in this market. We have 1.1 gigawatts today, and you'll see later the target -- aggressive target that we have for 2026. And our EBITDA is just above $400 million in 2021. So the company is basically built of 3 segments. The electricity segments that account for about 90% of our revenue. This is our main segment. It generates most of our revenue and most of our EBITDA. These are the power plants that we own. We'll see later where they spread globally in 6 different countries, and we are operating them. And the second segment that we have is the Product segment. The Product segment actually has 2 main parts, 2 main roles in Ormat. One is the 7% that is here, basically selling to other developers our products and building power plants as an EPC supplier. But the second one, which is just important, if not more important, is the fact that we are a vertically integrated company. And the Product segment has continuous synergies with the Electricity segment. We build all of our power plants based on our technology. The Product segment is the EPC provider for the Electricity segment. Our ability to increase margins over time is thanks to the interaction between the operations and the Product segment. There is an ongoing discussion. And as you've seen over the last few years, we are enhancing our power plants all the time. And this enhancement comes from the synergies between these 2 segments. So being part of the Product segment is actually focused on the Electricity segment. And later in Assi's presentation, you will see the actual numbers. The Energy Storage is the new segment that we've had for the last few years. It is 5% of our revenue in 2021. It has a very nice EBITDA. And you will see later that this is a market that its growth is exponential. And we plan to grow exponentially in this market. And you'll see later in Ofer's presentation, he will be showing you the market and what Ormat is doing today and where we will be in the next 5 years. So that's Ormat today. And now let's look at where we are going to be. And we are all aware of the International Energy Association and the global decision to become net zero by 2050. And in order to get to net zero by 2050, and you see on the slide here the targets for -- where we are in 2020, the target for 2030 and the zero in 2050. In order to be there, there are some various aspects that needs to be dealt with. Obviously, since the world is growing and is developing, the emissions are going to go up by the nature of how we operate today's world. And the idea to get to global net zero is not to stop growing, but actually to find the right mitigating efforts in order to reduce the emissions going to 2030 and then to 2050. And if you see now on the graph, you can see that the largest contributor to the reduction in emission is the electrification and the renewable energy. And that's the only way, basically, to get to net zero. And the same is going to happen between 2030 and 2050. Activity is going to grow. The world is going to be more developed. We'll have more emissions. And then will come the parts that will reduce the emissions. And again, the 2 main parts that will do that is the electrification and the renewable energy. So when we talk about electrification, we see a very significant change in the way businesses are operated today. Today, about 20% of the energy consumption comes from electricity and the remainder is coming from fossil fuel. And when we get to 2050, the forecast is that about 49% will be coming from electricity. And we all know the electrical vehicles, the EVs, and that's a very big change that would increase the 20% to 49%. And when we see the increased demand for electricity, we can see what is forecast to deliver that increased generation. So today, in 2020, about 29% of the electricity is generated by renewable energy. The forecasts are that by 2050, 90% will be supported by renewable energy. And out of that 90%, 70% will come from wind and solar. And wind and solar, as we all know, are intermittent power, and that has significant implications on the grid and the stability of the network. So in reality, when you look towards the future, when there is 70% of generation from wind and solar, there has to be somebody that will deliver to the grid stability and flexibility. And that's exactly the place where Ormat is. On one hand, we have the geothermal, which is a firm and flexible power, generating 24/7. Availability of our new power plants are close to 100%. And that's basically a base load that you can rely on, on the day-to-day. However, when we see the solar and the amount of solar that have been developed across the world are tens of gigawatts, without any storage, the grid has to get somebody that will stabilize it. And the only thing that can stabilize the grid fast enough are battery storage. And Ormat went into this business, and you'll see later what we have today in the energy storage and what our forecast that we have in the future. So if you look at where the world is going and where Ormat is today and how Ormat has been implementing the strategy that we presented to you in 2017, entering into the energy storage market, so our growth strategy is based on these 3 segments today. The first one is the electricity, which is -- the growth will come mainly from organic growth in the U.S., Indonesia and from M&A. Paul, after me, will discuss the U.S. market and the increased demand that we see in the U.S. And after that word, I will talk about the electricity and where it is going. The storage market, when you see the numbers of the forecasted growth for the market, this is basically an endless market. And it's not something that you need to forecast or to guess. If today, there's a few tens of gigawatts of solar developed, they need storage. And you'll see in Paul's presentation the famous duck curves and that is following the solar. And the Product segment, that's where Ormat actually started before it went to develop and own power plant. We started with the Product segment. And Assi will talk about the Product segment, where it is now and how we see the future. But we are increasing our technology. You will see in the presentation that we're increasing our turbines. We are going to compete with the steam turbine on the larger projects as well. So that's the growth strategy. But since most of you are probably looking for the numbers, then we also have the numbers for you. I will show them now. And these are very high numbers. You will see the presentation. And at the end, I will show them again, and I'm sure that you will feel much more confidence that we are able to make them. So these are the numbers in megawatts. We are today 1.1 gigawatt of our portfolio, and we plan to double it by 2026, that at an average of 15% CAGR. And on the right, you can see the spread. We see that the U.S. is increasing significantly as a percentage, and that's mainly due to 2 reasons. One, as of now, we are focusing the storage business on the U.S. We will go outside of the U.S., but at this stage, it is focused mainly on the U.S. and the numbers that you will see are only U.S. numbers. So that basically reduces the risk or increases the work that -- the revenue that we generate from the U.S. And the second big change is Indonesia. Today, Indonesia is 4% of our fleet. It's going to be 6%, and I will have a few slides on Indonesia later. And if we move from megawatts to dollars, so we see a CAGR of about 11% on the revenue growth from $660 million to about $1.1 billion to $1.15 billion. We will cross the $1 billion mark during these 5 years. And on the EBITDA growth, going from $400 million to close to $700 million, a similar growth. But in total, it is a 70% increase. The revenue and EBITDA growth are a bit slower than the megawatts, mainly because we have an increased Storage business and the Storage business revenue comes with lower revenue compared to the Geothermal that we are much more common to in the past. So this is, in general, our plan, and the places that we're going to go. And now we will discuss the U.S. market and then the electricity market, and Paul?

Thank you very much, Doron, and thank you all for being here. It's good to see some familiar faces and some new faces. By way of introduction, my name is Paul Thomsen, and I'm the Vice President of Business Development for Ormat. I want to take a moment, and my background is a little unique. So I worked for 2 United States senators dealing with land policy and energy policy. Senator Richard Bryan and Harry Reid from Nevada, both Democrats. And then I had the opportunity to come work for Ormat almost 16 years ago. Then I was asked by the Republican governor of the State of Nevada to be his energy adviser for the state and chaired the Public Utilities Commission for the state of Nevada. So I had this federal component, private sector, state service, and then I chose to come back to Ormat, because I think Ormat had something that other companies didn't have when I was sitting at the Public Utilities Commission, and Doron touched on it and you're going to hear me say it over and over again, but it's this carbon-free capacity. We saw markets evolving very quickly, adopting huge renewable portfolio standards, and there was going to be kind of a reckoning of how do they provide capacity to keep the lights on with no carbon. And Ormat provided that through Geothermal and through Storage. I want to take a step back and tell you about the U.S. geothermal market, then I'm going to jump into the Nevada market and kind of why we see the tailwinds behind geothermal today and the increase in valuation. So to start off with the U.S. market today is about a 3.7 gigawatt market. That represents 23% of the global installed geothermal capacity and almost 95% of that capacity is located in Nevada and California, which is really Ormat's backyard in the United States. And the market is projected to grow immensely. The Department of Energy did a report called the GeoVision report that took about 10 years, and Ormat worked very closely with the Department of Energy looking at this, and they said with enhanced drilling techniques and looking at new reservoirs, they see a projection of 60 gigawatts of additional geothermal potential in the United States. In that 60 gigawatt number is also an important number of 13 gigawatts that can be developed just by streamlining permitting. So as the Vice President of Business Development in the U.S., I work very hard to try to get these projects through the Federal bureaucracy and the permitting program, and we're going to touch on that a little bit later. But Ormat has been growing massively in the U.S. geothermal market since our entrance. Today, we are the second largest geothermal operator. We are the largest geothermal developer. And very soon, we will be the largest geothermal operator in the United States. So Ormat today operates about 674 megawatts from 17 different power plants. 65% of our geothermal operations come from the State of Nevada. And I think it's important here to note that this was kind of organic incremental growth. Some of those other developers you saw in the previous slide, have 1 large geothermal field or multiple large facilities. We brought this binary technology to the market. We said we can capture low-grade temperature. We can heat a secondary working fluid, turn a turbine, produce electricity with 0 emissions. Skeptics said, it's too complicated. Can't do it. It's flash or nothing. And I'm happy to report that in the last decade, 90% of the installed geothermal capacity in the United States uses a binary technology, and emission-free, a carbon-free technology. And the other number I want to point on this screen is the projects and prospects. The sheer volume of prospects that we have is what separates us from others in the market. This has enabled us to develop multiple projects simultaneously, to handle projects that may hit permitting snags or slow down or accelerate, and enabled us to put forward portfolio agreements that only Ormat has done in this marketplace. It was always kind of one power plant to one power purchase agreement. And now we are saying, let's look at large grouping of megawatts in a portfolio and Ormat can deliver that because of these projects and prospects. So what has led to the realization of this geothermal value that we're going to talk about today. It's a renewable portfolio standard, the increase in intermittent resources, blackouts, and our relentless focus on regulation. And I'm going to jump through each slide to kind of explain those briefly to you all and then look forward to your questions later. So the RPS, the Renewable Portfolio Standard, I think you are all familiar with it. What this did was say, states have to get a certain proportion of their energy from renewable resources. And as we saw the RPS grow, there was a need to replace higher capacity resources, replacing a peaker plant with intermittent resources is doable. You can have solar and wind, do that for you. But as you seek deeper penetrations in the renewable sector, you have to replace high capacity resources. Your combined cycle natural gas plant. And this leads to the increased value and desire for geothermal, which is a firmly flexible, carbon-free capacity resource. So we saw this uptick. The chart on the right here shows you that the RPS in California is 33%. Today, 23% of that is coming from intermittent resources. The low-hanging fruit, so to speak, has been developed, and now we have to go after these unique resources that Ormat has. So not only just replacing fossil resources is the key, but also fixing the issue here. This is the duck curve that Doron talked about. And the chart on the left shows you, if you take out the solar generation, this is what the load forecast looks like. And what California quickly realized was that you have to have resources that can ramp up in the hours -- in the evening when solar stops working, 13 gigawatts, and they were doing this with fossil resources, and they said, our carbon reduction is kind of like dieting all day long and then binging all the food you can eat at night when this ramp comes up. And so what they've targeted is said, how do we fix this ramp with firmly flexible capacity -- carbon-free capacity, and that's geothermal. That's storage. These are the options to try to help this problem. So we're not only replacing high-capacity resources, we're now fixing the problem by huge intermittent resources. It just so happens that this correlates with energy prices. You can see that the prices have gone up in the hours that they have to ramp. That's great for geothermal. We used to provide power at these times when utilities said, we don't need your power at these -- the peak is in the middle of the day. Why aren't you delivering it? But the change in the market is we now have bimodal peaks, one in the morning and one in the afternoon. And that fits air-cooled binary technology perfectly. And this, keep in mind, is only the energy price. We sell energy, renewable energy credits and capacity or resource adequacy. So that's why we're seeing the surge moving upward. Blackouts. If you take that duck curve, and you don't pay attention to capacity, you will be left in the dark. In California, we notified the Public Utilities Commission. We said, look, you guys have to pay attention to this capacity issue you're bringing on these intermittent resources, but you're not backing it with capacity. Nothing gets people motivated than not having the energy and the lights on. And the CPUC, the California Public Utilities Commission, has said, what are we going to do to bring on more firm resources that have zero carbon? Well, what they did was pass a really monumental procurement the likes we've never seen in the industry, which was they said, we need 1 gigawatt of geothermal resources by 2026. Now you can imagine, if you say, I need 1 megawatt of geothermal resources in California, some other interest groups may get excited and say, wait a minute, why are we playing favorites? So the commissioner, commissioner Rechtschaffen, changed the definition to really narrowly focus around binary geothermal. He said, "We need resources that have an 80% capacity factor, resources that have zero emissions, that are weather invariant and produce electricity." And when you put those 4 variables out there, Ormat's binary geothermal solution is one of the very few options that can fulfill that mandate for all load-serving entities in California to get that gigawatt. Now I just want to take a step back because this didn't just happen overnight. This is the result of a lot of work from Ormat in the industry. And so just a quick history lesson. In 2019, California put out its first integrated resource plan to say, how do we meet our carbon reduction goals to get to 30 million metric tons of carbon reduction? And that first plan came out and had 200 megawatts of geothermal in the plan. We said, I mean that's an industry killer, game over. We need to go look somewhere else. Ormat dove into the resolve modeling and said, what costs are you using? And the CPUC was using costs from flash plants that were developed 20 or 30 years ago, well over $100 a megawatt hour. We said, you got to bring those costs down. And when we did that in the model, we saw striking results. The second thing is they put arbitrary caps in the modeling to say, there's only so much geothermal generation in California. And we said, what about Nevada? What about Oregon? What about we remove these arbitrary megawatt caps? And what happened was their modeling selected between 2,000 to 3,000 megawatts of geothermal. That was the first huge win. The IRP that was finally adopted selected 1,700 megawatts of geothermal. And utilities were starting to move in that direction, and we were thrilled, but they needed to go procure that. Fast forward to -- that was 2019. 2020, blackouts happened. 2021, CPUC says, we still have those targets of 1,200 megawatts of geothermal, but you need to go get 1,000 megawatts now because we need help keeping the lights on. What this also did was not only affect California, but it affected the Western marketplace. NV Energy, the utility in Nevada, was buying power from the open market. And when California went into this blackout status, Nevada couldn't purchase as much power from the open market. And they had to issue warnings to say, reduce your energy consumption or we may have blackouts in the city of Las Vegas. If you can only imagine, you're playing a slot machine and it shuts off. So the Nevada Public Utilities Commission said, what on earth are you doing Nevada? Why are we not procuring the geothermal that's developed right in our own state? And so in the most recent IRP, the Integrated Resource Plan in 2020, balance NV Energy's load. The last bullet you'll see on here is for the Los Angeles Division of Water and Power. They are the largest municipality in the world. They sit in a small city called Los Angeles. They are looking to go completely carbon-free. And in their LA 100 study, there's different -- they have a lot of different scenarios in there, but the least advantageous scenario for geothermal selects 500 megawatts. The most aggressive selects over 1 gigawatt, 1.5 gigawatts of generation. So in a very short time period, we've seen what was really a hard sell to go to utilities and explain the value add and the ancillary benefits and the capacity of geothermal turn aggressively fast. But now we have gigawatts and gigawatts of market demand and there's relatively limited supply. Thankfully, Ormat has a lot of that supply. So what is required to support these goals? Are we ready to deliver? We are hearing from a lot of developers out there, they're going to go get their land position. They're going to go try to -- there's a lot of talk about the geothermal sector and what can be delivered. But there are some key components to that discussion. You need to have a land position. You need to have started permitting days ago, years ago, and you need transmission to get your product to market. Luckily, Ormat has all of those positions. And that was because of a long lead time, the foresight and really the work in the marketplace. We started this regulatory work 10 years ago. I was looking back at a first paper we wrote. And so it's coming to fruition. Let's jump into each one of these. Land position. Ormat has about 356,000 acres of land that we are trying to develop geothermal projects on. 76% of that is owned and operated by the federal government, the Bureau of Land Management. 20% is privately held and 4% is from the states, State of Nevada and State of California. This land position allows our resource development team to constantly be exploring and try to find additional resources. It also positions us to again develop these large portfolios of hundreds of megawatts to deliver to load-serving entities. And just so you don't think we're lazy, just 2 years ago, we had about 250,000 acres. So we are constantly going to federal lease sales and looking at lease positions. We're looking at acquisitions. We are trying to grow that land position so that we can be the -- well, continue to be the premier developer of geothermal resources moving forward. Next is permitting. The best time to start permitting was probably 4 or 5 years ago. The second best time is today. Unfortunately, the federal government, to permit these projects, it takes about 4 years. 2 years to permit the exploration wells, to find out if you have a geothermal resource and 2 years to permit the power plant that you see here that's going to be operating for the next 20 years. So this 1-gigawatt mandate has to be online by 2026. It's 2022, I can do this math. You had to have been doing -- you start your permitting today if you want to try to meet that goal. You probably needed to start it a year ago, so you can complete it to build the power plant in 12 months. This is key. And Ormat has been so focused on permitting over the last decade. In the last 2 years, we have completed 11 NEPA and CEQA permits more than any other developer out there. We have more sundries and geothermal drilling permits that I can even list to allow our resource and development teams to go out and find these resources. In addition to just a massive amount of permitting work that we've done to make us ready for this moment in time, we're still working with the federal administration to streamline this process. And there's currently an initiative underway to implement what's called a categorical exclusion, which says during the exploration phase, we shouldn't need to spend 2 years to go explore to find out if we have a resource that -- and if we don't, we don't have a project, how do we speed that up, so we can bring more renewables online? So a categorical exclusion says, in the exploration phase, you can go drill very quickly if you find the resource, then you get to go through NEPA. Because if we don't find the resource, we can reclaim the well. It's a common practice in the oil and gas sector and the current administration is figuring out to deploy it to geothermal. Also, tomorrow, the Deputy Assistant Secretary of Lands and Minerals is going to be touring an Ormat facility in Reno to look at this incredible small footprint of our geothermal facilities and talk to our permitting team to figure out how do we continue to streamline this process. And I would be remiss if I didn't tell you one of my favorite statistics, which is the footprint of one of these facilities, if you wanted to produce the same amount of power from a solar project, it would take 22x the land disturbance because of the amount of megawatt hours we produce, the 15- to 20-acre disturbance you see here jumps into the thousands, if you want to do this for stand-alone solar. So we can permit these and the government and the administration is working with us to do it as quickly as possible. Next is transmission. You've all heard about the infrastructure builds and how the U.S. is lagging in infrastructure development. Well, that applies to transmission. But Ormat didn't just sit back over the last decade and say, well, transmission is a problem. We aggressively got positions on the Nevada online, that is a large transmission line that runs from Northern Nevada to Las Vegas, Southern Nevada, Hoover Dam. We have 318 megawatts of transmission and capability on that. What does that mean and why do you all care? The other 600 megawatts of transmission capability are owned by NV Energy. If you want to develop a project in the state of Nevada and wheel it out of Nevada, you've got to either come to Ormat or NV Energy to move that power. That gives us a superior position in the future of geothermal and renewable development in the state of Nevada. We also have a 140 megawatts of other firm transmission capacity assets in other places. So we can move power from Southern California, the Imperial Irrigation District, into the CAISO market and so forth. And most recently, we acquired the Oxbow transmission line from Terra-Gen. This is a 300- to 400-megawatt transmission line that was really underutilized. It was built during the early days of PURPA. It runs from Central Nevada right into the CAISO, the California Independent System Market, and I think had maybe 100 -- less than 100 megawatts on it coming from the Terra-Gen assets. We are talking to and we have worked with LS Power and NextEra as they're looking at building out their CAISO expansions, utilizing this line and getting another 300 to 400 megawatts of transmission access that is Ormat's to be used to move our power and to develop our assets to meet this growing market. Pricing. In 2015, we saw pricing at about $75.50. We see this kind of, let's call it, the desert period between 2018 and 2021. This was the time that we were working in this regulatory market. We've seen this huge influx of renewables and intermittent resources that we've talked about. We were stunned, Nevada -- California did a great job of developing intermittent resources. Over 20 gigawatts of solar resources in the state of California. That was a slow time for us. We were waiting. We were waiting for those -- the intermittent value to come up for geothermal, and we are starting to see that now. We are seeing prices jump from $60 a megawatt hour up to $80 to get capacity resources. And I really think the sky is the limit because when you go back to that fundamental question, what developer can provide firmly flexible carbon-free capacity that meets that criteria of the CPUC, 80% capacity factor, whether in variant, 0 emissions, you start to run out of solutions. But Ormat has all of those solutions. And so we're very excited as we move forward, taking our geothermal portfolio forward in the United States. The tailwinds are stronger than they've really ever been. And for the first time, our phone is ringing instead of us calling people and saying, let's discuss geothermal, let's go talk and look in your forecast report and so forth. They're coming to us to say, what do you have available? What's the maximum amount? What can you develop by this time period? And it doesn't just stop in 2026. These integrated resource and these demands throughout the West are growing, and we're going to be there to continue to develop and deliver these resources moving forward. In summary, we're seeing unparalleled increased demand. We have an incredibly strong position when you look at our land holdings, our permitting capability and our transmission assets. And the increased PPA pricing going forward really makes my job exciting on a daily basis. So thank you all. I look forward to questions later. Appreciate it. I will turn it back to our CEO, Doron.

Okay. So I'll follow up from where Paul stopped to discuss our Electricity segment. And again, this is our major segment that generates most of our revenue and EBITDA. So this is where we are spread today, our 1 gigawatt of energy in 6 countries, majority is in the U.S., but also in Indonesia, Kenya, Guadeloupe, Guatemala and Honduras. This is a very stable business. I'm sure our CFO is very happy with the stable business that generates constant revenue and cash flow. We have an average -- a weighted average PPA life of 15 years. We do see PPAs that are coming offline. We usually start negotiating or recontracting them between 2 to 4 years. The SCPPA portfolio, the aforementioned that we signed in 2017 actually were able to recontract all the projects that came off PPA until the end of 2022. And we are working now on the projects that are coming off PPA in the next few years in order to recontract them. And as Paul alluded, these are very good times to recontract projects. Our average PPA price is $90. It varies between the different places. It varies between the different times that we signed the PPA, varies between the U.S. and international, but on average, this is the price that we see. I can say that on the international market, we see higher prices. The complexity and the cost to develop project outside of the U.S. as well as the financing of it are higher, and that's why you usually see higher PPA prices out of the U.S. And when we look into the future, we see 3 main areas that we are focusing on. In the U.S., the potential is 35 gigawatts, which is 9x the existing capacity. Paul showed you all the prospects that we have and we will see them again soon. We are investing a lot of work in them. The second one is Indonesia, 29 gigawatt potential 12x its capacity today. You see -- we'll show you in a few minutes the targets that the Indonesian government has put, very, very aggressive targets. And Latin America, which is the highest potential, 21 is current capacity. However, Latin America doesn't have in all of the countries, the right regulatory environment. Financing there is usually much more complicated and challenging. And that's why it is on our list, but mainly on expansion in existing countries that we operate in. And this is the growth target that we have for the Electricity segment, going from about 1 gigawatt to close to 1.5 gigawatts over the next 5 years. That's almost a 50% increase. Just as a comparison, in the last 5 years, we grew about 200 megawatts in geothermal. In the next 5 years, we plan to grow, if we exclude the solar, somewhere between 350 to 400 megawatts of geothermal in the U.S. and outside of the U.S. So we are accelerating our growth plan significantly, and you'll see in a minute how we are doing it. So the growth that we see in the electricity segment will come from 2 main areas, and one is an upside basically to what we're showing you today. So the first is organic growth, the enhanced exploration that we are doing. The second is Indonesia and M&A, we will elaborate in a minute. So here are the 41 prospects that we have, most of them in the U.S. and with the regulatory environment and the support from the CPUC, as Paul mentioned, this is going to be the largest growing area that we will have. In Indonesia, we have 3 prospects. Honduras and Guatemala, these are prospects in countries that we operate. And Ethiopia, the ones who follow us for a longer period of time. We are negotiating a PPA in Ethiopia for more than 7 years. We are not signing the PPA, although they are willing to sign, because we do not think that the PPA that they are offering us is financeable and it manages the risk the way that the country and a developer should manage the -- allocate the risk between them. So that's why Ethiopia is still here, because we do have the 4 concessions. There's no certain around it. It's not in the current plan. But if in Ethiopia, we will be able to get to a PPA that is -- fits international standards, we will sign and the prospects look very nice, but we need the regulatory environment that we don't have today. So we are focusing on the U.S. and Indonesia and the countries that we operate. I can say that the other -- we see other countries like El Salvador and Costa Rica that we are discussing various items. But these are prospects that are at very early stage, and they are not yet in the plan. So this is why we believe that we can make the change in the growth of the geothermal. Over the last 3 years, we have been drilling mainly development -- development drilling, construction, basically building power plants that have already have a confirmed resource and supporting our existing fleet. The exploration are the drilling that we are doing for the future. And you can see the increase in the amount of drilling that were done in 2020, 2021 and 2022. When the pandemic started in 2020 -- early 2020, we decided to invest maybe contradiction to other companies. We've decided to invest in Ormat. We in geothermal, we enhanced our drilling plans and we see today the fruits of most of these drilling plans. The next main contributor to the plan, and it's going to contribute to the coming 5 years, but much more as we move forward is Indonesia. And since I assume that not everybody is familiar with Indonesia. So Indonesia is the fourth largest country in the world in population after the U.S., China and India. It is the largest economy in Southeast Asia. And it is an investment-grade company -- country. They have investment grade for quite a few years back, if you look back, by S&P and by Moody's. So basically having an investment-grade country allows foreigners and international investors to operate in that country, get financing in that country. So Indonesia is the country that we are focusing on. If you go from the high level into the energy market in Indonesia, they use 33 gigawatts of electricity in 2020, 12% of that is renewable. And out of the 12%, 5% -- so 5% out of the 33% is geothermal. And you can see on the right, the main electricity is coming from coal and from natural gas. But if you look at the year starting 2010, 2015, you can see the renewable coming into play. And if we drill into the geothermal part in Indonesia, so they have 2.3 gigawatts of installed geothermal capacity, which is steam dominated. The first binary project is the project that we won last year with Star Energy, Salak, that is now in construction. And if you look in 2021, 56% of the new geothermal coming online was in Indonesia, so Indonesia is going to be the next big player in geothermal. The estimated potential there is about 29 gigawatts. And we see in the coming 2 years, new tenders of about 300 megawatts, close to 50% of that in the binary. These are tenders that we have been working with the developers and with the local utility for quite a few years. All of them have been delayed due to COVID, and we expect them to come to the market and to be tendered towards the end of this year. And as I mentioned a couple of times, the supportive regulation. It's very hard, almost impossible to operate in a country if the regulation is not there. So look at the target that they have. They have today in 2021, 12% renewable. Their target is 23% in 2025, which is far beyond an aggressive target. But the 31% for 2035 is also an aggressive target, and that's what they are looking for. And they're doing also actions. They have built the government drilling program. What the government is going to drill? And once they finish drilling, they will tender this project to developers. They understand that drilling is the major barrier to develop the country and by taking upon themselves part of the drilling, not all the drilling, but some of the drilling, they believe they can expedite the development of geothermal. And the geothermal rate based on the presidential tariff is average between $0.09 to $0.12 a kilowatt or $90 to $120. There's a range of pricing. Indonesia, as you probably know, is made out of many, many islands. And the further you go from the main islands, the higher the PPA price, because of the complexity and the challenges to develop projects in very small and far islands. And so the prices can go up to $170 based on the presidential tariff, and it can also go down to $80. So that's the framework that we see in Indonesia. And we took that framework already a couple of years ago, and we started to develop Indonesia. And that's what we have today in Indonesia. Sarulla is a 330-megawatt project. We own 12.75% of it. That was our first taste in Indonesia. We were the supplier there. We started operating, building the project, and it has been working since 2017 and 2018 in phases. The second part that we did, we joined forces with Medco, which is a local Indonesian company to develop [ e-gen ]. [ E-gen ], we have 49%, they have 51%. The resource has been confirmed by our resource team and by their resource team, as a 30-megawatt facility. And we are working now with the banks to see financing, because as you all know, when we develop projects outside of the U.S., we get financing as part of that nonrecourse financing in order to mitigate some of the risk. The next one is Toka Tindung. Toka Tindung is a project that we own 100%, although since the project is on the mining companies land, Archie, a large mining company, they have an option to buy 25% into this project. So that's why you see 75% to 100%. Currently, it's 100%, but they do have the option to get 25%. We're actually drilling slim holes over there as we speak. And the same rig, once it will finish drilling in Toka Tindung, we'll move to obsolete, which we own 100% and start drilling there probably in the second half of this year. And on the right, you can see some of the pictures from Sarulla, the drilling in [indiscernible] already constructed in Toka Tindung. Paul mentioned the time frame in the U.S. That takes time in order to develop a project, in Indonesia, it takes longer. The permitting process is longer, buying the land is longer. And that's what time frames are a bit longer than what we are used to in the U.S. But that's the outcome of what we've been doing in the last few years. We have built a local force, a local team there. We have business development people that work on getting the land, the concessions and the permitting. We have salespeople that are working on the sales like we've done with Star Energy and are preparing for the tenders that are going to come. We have resource people, Indonesian resource people over there. We have finance, obviously, and all the support surrounding it. We are recruiting project managers. So we see Indonesia as a major player going forward. And on top of the projects that we hold as in organically, there are 3 additional sources of growth that we see. One is M&A. This is not M&A that we are used to in the U.S., it's mainly M&A of concessions and on developing projects in various stages. And we are targeting now some concession between 40 to 60 megawatts. Partnership with PLN. PLN is the state-owned utility in Indonesia. We were selected in the first RFP for 4 prospects. The ownership there is set by the regulation of the PLN has to have 51%. So we will have 49%, and we are in ongoing discussions with them. And the third, as I mentioned before, the government drilling program and the tenders that we expect to be released in 2023. And these are tenders for concessions, not for the supply project, but it's a concession and building power plant. And if we summarize it into the numbers again, so we have today 42 megawatts, that's our share in Sarulla. We expect by the end of 2026 to be -- we are targeting to be between 100 to 150-megawatt, difference is basically M&A. But what we believe much more is that on top of this, during these 5 years, we will build a very strong foundation. And quite a lot of prospects that will mature in the following period. And the last part is our M&A. We have done a few M&As over the last few years. We are -- we have very strict requirements and criteria how to do our M&A. We don't just buy operating assets that are operating perfect. This is basically playing with money. We buy power plants that are either underperforming or power plants that we see an addition for enhancement. So if we take the examples in Guadeloupe. It was a 9-megawatt facility. It took us 6 months and we expanded it to 15 megawatts. You can do a simple math and see that what we've paid for a 9-megawatt facility was -- very soon became 15 megawatts. And today, we are going to increase it to 25. We are in the final stages of getting the permit, the interconnection in order to develop it to 25 megawatts. PPA is under negotiation. However, we are entitled according to the French law for PPA. So it's mainly a discussion on the details, not on the fact that we are entitled to PPA. So an acquisition of a 9-megawatt facility will get us to a 25-megawatt facility. U.S. Geothermal had 3 operating power plants doing 38 megawatts. Today, they're doing 47. We're in advanced stage to increase one of them by another 25 megawatts, and we have more profits under exploration. And that's on top U.S. geothermal is a public company. So on top of all the G&A savings that we've got immediately when we actually acquired them. And the last one is Terra-Gen . Again, we are already increasing the capacity there from 68 to 72 megawatts. We are going to drill already in the second half of this year in 1 of the projects -- the development site that we got. And as Paul discussed, the Oxbow line, the underutilized transmission line. So we are continuously looking, but we're not doing M&A just to do an M&A. We're doing M&A if they support our growth plans. And these are the numbers for the Electricity segment. We plan to grow from $586 million in '21 to around $900 million. That's more than a 50% growth plan. And in the gigawatt, we plan to go from 1 to up to a target of 1.5 gigawatts, again, close to 50% increase, more than double than what we've done in the last 5 years. So that summarizes the electricity part and we'll open it, the electricity [indiscernible]. We will have 2 Q&A sessions. One we'll have now, and then Paul will join me and Shimon, who's our EVP for Electricity and Assi to join me. If you have any -- assuming we'll have some questions for them. So we'll have one Q&A session now on the Electricity part. And after the second part of the day, we will have a Q&A session on the Product and the Storage part. So any questions? Yes, Julien.

Julien Dumoulin-Smith, Bank of America. Congratulations on the nice targets there. If I can, and I want to focus a little bit on the U.S. and some of the details. You guys gave a great summary of Indonesia just now. Can we get into some of the same details, especially on Permian, right? You broached the subject several times, but maybe we can get a little bit more granular on the specific projects that kind of add up to getting to that 1.5 gigawatts by '26 when you think about what that implies, like 300 megawatts or something like that from U.S. or what have you? What comprises that? Where are you in permitting those specific projects given the time line that you articulated yourself?

I will start, and Paul can follow up. We have 30 prospects in the U.S. that are in between various places. We can obviously have a detailed list. It's a very long, it's the same file that the permitting people have. I basically kick Paul every month, what about permitting.

Yes. I think just to follow up on that, a couple of years back, we made the decision to really focus on both sides, the exploration, environmental assessments and the development environmental assessments. So what we were targeting a couple of years ago was the ability to go drill and find these resources. So as Doron said, we do have a very long list. I can't wrap it off the top of my head, but we can share it with you. And we are in -- most of that is in the exploration phase to be ready to drill. And then we are also simultaneously permitting the development side as well to be ready. You can overlap those and permit them simultaneously. But what we were doing aggressively is the exploration, where we're confident and we see resource, we are then permitting the development of the power plant as fast as humanly possible. And we have all that very detailed information.

Excellent. And then when you think about the Storage side of the business, just to run with this a little bit. I'm just sort of curious, and again, I know we're talking principally a geothermal here, but how do you think about Storage as part of the growth ambition relative to Geothermal? I mean the story you paint on Geothermal is fairly compelling, right? The state has very -- the states, plural, have meaningful targets. How does Storage fit into this equation, just given how meaningful the opportunity is before you? Again, I just -- I know you guys have talked to it at times. I know you haven't talked to it as much here. Just curious if you could kind of paint the outlook.

Okay. So I will give one sentence, and we have a full presentation that Ofer is going to do just after the break.

All right. No, I know it's tough to talk to the EBITDA targets ahead of getting there. On the Electricity -- on the electricity targets themselves, how do you think about targeting international returns versus U.S. returns? It seems like, again, framing of the way that it was just approach, I mean the opportunity is plentiful in the U.S. How do you think about, just given all the noise that's existed in the past year around the international operations, the hurdle rates that you're targeting in Indonesia, obviously, the PPA rates that you target there are meaningfully higher than the U.S. But what -- can you talk about like what kind of premium return broadly, lot of stuff to talk about this?

I will talk a little bit what you referred to about issues on the international market. And I will say, and then Assi can follow up on the specific returns. But on the international front, we've been working in Kenya from 2000. That means 22 years. We have grown the power plant from 14 megawatts to 150 megawatts. We have been working under PPA according to all the local requirements, and we've been able to collect all the money that we invest. There's obviously sometimes the payments are slower than others. But at the end of the day, we have been able to collect all. Tax issues. We see that in every country. In the U.S., due to the fact that we have losses, we are not actually dealing with the IRS, but similar items like we see in Kenya, we see in Israel. We're seeing Guadeloupe. We see them in other places as well. It's negotiations. And the government always wants to take more money on the taxes, and we just have to buy the new tax ideas, how to tax more people. And so this is something that we discuss and we work with. We are able to get to win-win situation. We've been working in Guatemala, I think also for more than 20 years. In Honduras, we're working already 5 years. So we are able to work in these countries and to collect the money that we do, we should get and Assi, you can refer to the returns.

Sure. So when you look at the U.S., just 2 years ago, we thought that we must have the production tax credit in order to be in the teens for returns. But what happened lately with the increase in PPA prices, it looks like that -- and we still have PTC for many of our projects for 2022 and 2023 and even for some of the 2024, the returns can get to the high teens, which we did not anticipate. But at the same time, as you can see, when it takes a project 4 years to develop, you need to get a nice returns for it, and competition is very limited. On the international, we see slightly higher returns. But as Doron mentioned, there is a slightly higher risk, slightly higher interest cost when we do the deal. But specifically in Indonesia, we do see a slightly higher returns than the U.S. But overall, both places for us, we want to invest money and time, because the combined growth of Ormat for the next 5 years has to come from both of them.

Noah Kaye with Oppenheimer. First question on M&A. Of the roughly 2.5 gigawatts, 2.6 gigawatts of U.S. installed capacity that you don't really own and operate, how much would you say fit your target model in terms of potential M&A? And then can you elaborate whether part of the M&A opportunity is also around development stage assets, things that other parties have concessions to?

In order to do an M&A, you need a few stars to align, and one of them is a willing seller. So out of the 2.5 gigawatt in the U.S., we believe that we can enhance the existing projects. We can develop them all. The issue on this project is the seller, not our ability to increase it. I think if we would be able to buy any one of those assets and we're familiar with all of them, and we've been in discussion with all of these owners, we would be able to have a lot of synergies, but you need a willing seller at the right price.

And then just to clarify on the capacity addition targets, are these net capacity targets for 2026? Assuming that there's no meaningful deterioration in the capacity of your current portfolio, obviously, there are some assets that are underperforming right now and you're working to restore the capacity there. How do you think about long-term resource loss or production loss in the existing portfolio? And I ask this as a related question to the prior one, because obviously, other developers who currently own assets, may be experiencing some of the same issues.

I will just say from a high level and Paul can elaborate. The CPUC decision requires incremental megawatts. So just recontracting existing project doesn't fit. You need to show incremental megawatts.

Yes. So to build on that, the idea of incremental it has to be new. And what the CPUC is looking at is, in the west, WECC, we call it, the Western interconnect, they have a list of these projects that have been operating. So a repower is not considered incremental. And so it's not qualify to meet that 1 gigawatt target. But we are seeing, I think, renewed interest in -- it's interesting, to your previous question about these other assets, a lot of them are utility owned, investor-owned utilities, and then large operators, who have just been really reaping the benefits of those projects for decades without doing much expansion to them. They are starting to pick up the phone and call us and say, this is interesting. Could we add binary technology or enhancements to these existing fields or look at some of our assets there? So I think it's -- we're seeing it on both sides, which is really interesting. And it's fantastic that this kind of new initiative in the U.S. is getting these other players interested for our product side, but then also if they are willing to talk to us about M&A, it could be a fun conversation.

Other than the acquired asset last year, how many PPAs you have rolling on to North America in the next 3 to 5 years? And how early on are the utilities willing to renegotiate the PPAs that are rolling off?

Paul, I don't have the list of the PPAs, but, yes. So I think it's kind of a 2 part question?

25, right?

I will say the following, we are on every project that is coming off PPA in the next 3 to 5 years, we are negotiating recontracting them. We are negotiating to recontract them today.

And to your -- so the PPA question, I mean, I think we are discussing and negotiating multiple power purchase agreements at this moment. Both portfolio size, so larger PPAs that encompass multiple projects and single project power purchase agreements moving forward. And then maybe my interpretation of your question is we can also talking to utilities, if we want to move a project quicker, we can buy it out of its contract and utilities have been willing to do that if we want to expedite kind of repowering or selling it somewhere else.

Gerry Sweeney from ROTH Capital. You talked about Indonesia and there's obviously some excitement there. I think you said 300 megawatts to 400 megawatts of tenders coming out this year. Could you maybe discuss the tendering process. Historically, we've seen some tenders given out with a point system based on experience, financial backing, but also companies have gotten points for helping to develop the project before tender. Can you maybe give us a little bit of details on how it's going to work and maybe your positioning going into those tenders?

Yes. The tenders are long in Indonesia. There's a very long negotiation phase that goes over there. I would say the Star Energy tender that we won with a local EPC player, the negotiation there probably lasted more than a year. But as we said, we know about these tenders, because we're working with the developers and building the tenders. We were able to convince them to have binary projects, not just steam. That was a steam dominated technology. And that's why out of the 300, we see about 140 megawatts that will fit our binary technology, and we are working with them very closely to make sure that when they do issue the tender, it is -- you can answer it with steam, but also with binary technology. So we are in a very close relationship. And that's why we also build a local team of business development and sales locally.

Thanks for the update on project level returns in the U.S. I appreciate that. Maybe we can have an update on that in terms of -- obviously, PPA prices are up, which is good, but the current inflationary environment does provide somewhat of a headwind. So maybe you can provide an update on the development cost per megawatt to develop a new power plant, both greenfield and maybe brownfield in or expansion in the U.S. And then, yes, just maybe an update on that would be helpful.

Okay. So first of all, you're right, inflation and the supply chain issues have increased the cost to build the power plant. And we have soon a presentation on the product segment and Assi will elaborate on it in the presentation. Sounds good. Okay. So I suggest we'll take a 15-minute break. We'll come back at 10:30. And then we'll come back with the Storage part and the Product side and obviously some financial part. Thank you. [Break]

Okay. So good morning and welcome to the best part of the day, the storage part. Obviously, I'm not objective. My name is Ofer Benyosef. I joined Ormat 2 years ago from a global software technology company. I was very excited to join Ormat and deal with renewable energy. And I'm more excited to lead the storage business because I believe that we have a very rare opportunity right now. It's not every day in industry that you experience nonlinear growth. And this is exactly what we are experiencing right now. If I may use an analogy from the water surfing world, it's like a good surfer prepare himself, build the skills and the capabilities, then the platform, in my analogy, is the surfing board. Then you wait for the perfect wave to come, a very big wave. And if you catch the wave with a perfect timing, you have a very long and very exciting ride. And I believe that this is something that we are going to see a perfect wave. We have the capabilities, we have the platform, and we caught the wave in a perfect timing and now we'll try to convince you why this is going to give us a very long and exciting ride. So where this wave came from? Actually, it's a secondary wave as a result of the massive growth in the wind and the solar. So while wind and solar is a great renewable resource, it creates a lot of challenges to the grid manager. Doron mentioned that it will be 70% of the generation capacity, it will be very difficult to manage. But we already see that once it's grow above 10%, it's created that curve that Paul showed you in California. And in California, once it's crossed the 30%, it reached a situation which is very difficult to manage. And basically, this situation created demand for the battery storage. And why is that? Because now, think about it, 30% of your generation capacity is not baseload. It's generating only during certain hours and not necessarily the peak hours that you really need most of the electricity. So if you are the grid manager now, you need to somehow shift the energy from the hours that the demand is low and the generation is high to the hours that the demand is high and the generation is not sufficient. And what else or what best tool they have better than the energy storage? But this is not all of it. So this is one application that's called energy or energy arbitrage. There is another family of services which are fit the battery storage, and this is the ancillary services. And this is basically allow the grid manager to stabilize the network, keep the frequency, overcome on -- if a generated unit is going to fail. And basically, whenever you need a big amount of energy in a very short time line and the battery can respond in seconds, then this is a good service that battery storage can give. And these are the 2 services that basically we see in the market for the storage. What we are going to talk about, I'm going to show you some growth trajectory and to explain you how we got to those numbers, this nonlinear growth. Then we'll talk about the strong regulatory support that we start to see in the market, and we believe that it will be even stronger. Then we will talk about the markets that we are operating in and what is the services that we deliver in each market and the different characteristics of each and every market. And then I will talk about Ormat growth strategy and why we believe that we have the right tools and the right platform. So first of all, let's look on the trajectory. This is the front of the meter. This is where we are operating now, front of the meter with the big utilities, the big capacity. There is also behind the meter, but the growth there is more moderate and you need to spend more energy to build capacity behind the meter. Why? Front of the meter, you work with the utilities, utility grid, big projects. We know how to work with those different parties. It's the same parties that we are working on the geothermal side. And it's relatively easy. They understand energy, electricity. This is what they do for their living. If you go behind the meter, you need to deal with enterprises. This is not their main business, so you need to spend time to educate them. Once you educate them, they're usually going out to bid and then you have a tough competition. So we consider front of the meter as the low-hanging fruit and behind the meter as the hanging fruit, and we prefer as long as we have low-hanging fruit to focus there. Now when you see such a growth trajectory, immediately you ask yourself, is it real? Because it looks like a hockey stick, and we, as executive, we don't like to see hockey sticks. We tend to be suspicious. So how can we know that this is real? You can see that until 2021, there was a moderate growth. And 2021 was the year of the change. In 2021, suddenly, we saw a big increase to 7 gigawatt of capacity -- of energy storage. So the growth from 2.3 to 7 already happened. That's the first proof point. Now of course, we did the obvious and cross-reference from many sources. But this is not enough. We want to know if the numbers that we can see here in 2022 and 2023 and over is really something that we can believe in. So we decided to dig and did some research work. How we did it? Every time that you want to develop any asset, the first thing that -- not the first, but one of the first things that you are doing is you fight for interconnect. So we went to all the markets and analyze all the interconnect and sum up all the interconnect requests and we got to very high numbers. But now we know that only 15% of those projects will meet the finish line. So we calculated 15% of this number. And surprise, surprise, we got to the same number as 2023 and 2024. That's why we believe that this number is real. That's why we believe that we have a huge wave that already started, and we are going to leverage this wave. On top of it, we can see some specific regulatory support for battery storage only on top of all the RPS that Paul described and the other policy support that we see. You can see some states here like California that have 1.8 gigawatt by 2024. But on the right side, you can see that they are aiming to have 15 gigawatt by 2032. And California is by far the biggest market. Then you can see in New York, they currently have a target for 3 gigawatt by 2030. And we already heard the rumors in the market that they are going to double it by 2030 to 6 gigawatt. And we believe that we will see more and more states adding some targets. And on top of it, the existing states will increase and expedite the targets that they already have. And this then translates to some quotas for the utilities which help us to close deals with the relevant utilities and get some RA contracts and, of course, increase the demand. By the way, there was one state that doesn't have any policy currently. It's Texas. It's just the second biggest market for energy storage. So the policy is not mandatory. We can see that even in Texas, we can do a very good business despite of the lack of the policy. But it definitely helps. So let's go market by market, and let me try to explain you how the market behave and what we have there. So the first one is, obviously, CAISO. This is the biggest by far. The penetration of solar and wind there is the highest in all the other states. You can see the targets growing from 3.4 gigawatt to more than 14 gigawatt in 2026. On the right top side, you can see the prices that we experienced, dollar per kilowatt month. This is just for ancillary and energy services. So let me explain because in California, there is something which is unique. On top of the ancillary services and energy, we're also being paid by capacity. So we can get a few dollars for having certain capacity. We don't need to do anything, just to be there and participate in the market. This is the reason that in California, we have 4 hours battery, unlike other states, because the condition to get what we called RA, resource adequacy, contract is to have 4 hours battery. And obviously, the CapEx is very high, but with the payment that we are getting for this contract for the capacity make it a good deal. Also, the more hours you have battery, then you can capture more opportunities on the energy. So that's why in California, we have 4 hours. The market in California is very sophisticated. You can trade in all day, you can trade in the day ahead and you can trade in real time and you can trade with -- decide which portion is for ancillary service, which portion for energy. And it's a very good and developed market. Let me show just the indicative project in CAISO. This is just an example of the recent project that we already released. And we are talking about 80 megawatts for 4 hours. I think [ Alex ] asked about the cost. So you can see the cost of the CapEx to build -- you multiply it by a thousand, you will see the cost per megawatt and also the OpEx. And what we see in California, we see a project IRR of 9% to 10.5%, and this is without ITC, okay? All the numbers that we will show you is without ITC. ITC is still unknown. It's pending legislation. If it will come, it will be an upside. But hope is not a plan. So all our plans are without ITC. And you can see the returns, it's very good returns for California. The next market is PJM, which is accountable to 32% of our total revenue in 2021. You can see the growth plan from 2021 to 2026, almost 10x. You can see the prices in dollar per megawatt hour. PJM, we are selling only one service, which called -- it's type of ancillary service. In PJM, we are using 1-hour battery, and it's a different type of batteries and the one that we use in California and in Texas. And this is something which is very important. When you build the site, you need to understand the market, what is the service that you give them, what is the different characteristic of this service and how the battery profile will look like. So if you have many cycles during the day like we have in PJM, then you need a different type of batteries than the batteries that we have in California, which usually require on average 1 cycle a day. The third market is ERCOT. ERCOT is a very interesting market. Until recently, we sold one service, which is called RRS, it's ancillary service. Now the price of the RRS is going down a little bit, and we started to operate in the energy market and compensate. So until recently, when we build sites in Texas -- we have 1 site in Texas currently and 2 more under construction, we built the site for 1-hour battery. But now that we start to play or to look for opportunities in the energy market, the next site will be built for 2 hours, so we can capture more and more opportunities there in the market. You can see the growth trajectory again from 1.4 to almost 10 gigawatt, and the prices per megawatt is somewhere between $10 to $20. This is an example of an indicative project. In CAISO again, you see 80 megawatt for 2 hours. And you can see the price, the CapEx and the OpEx, which is basically half than California because this is 2 hours batteries versus 4 hours. And again, we are talking about project IRR of 8% to 10%. Again, this is not taking into consideration ITC. By the way, all the forecasts that we are using in order to make these models and to calculate are very conservative. They are less than the prices that we see now in the market. And they are less than what we get from other companies that has a forecast. We try to be very conservative because we don't have the luxury to give forecast and to miss the forecast. We want to deliver, and this is something that we are doing in a very conservative way. Okay. So now let's talk about our strategic focus. As I said, we want to target the largest and the most lucrative markets. Currently, this is the 3 markets that we discussed, it's California, it's PJM and ERCOT. We want to focus on stand-alone energy storage because the returns are good. We will augment it with some portion of solar plus storage contracted in order to mitigate the risk, but our main focus is a stand-alone storage. We want to expand to a new region. Currently, we have 3 other markets that we are checking and doing an analysis with an intention to penetrate to those markets and start our activity and build our pipeline there. And of course, we want to increase scale and margin. Until recently, all the sites that we built were relatively small, up to 20 megawatts. But recently, we released project with 80 megawatts. And going forward, all the projects in our pipeline are somewhere between 50 to 100 megawatts, which is definitely -- will give us a benefit of the economy of scale. So why we think that we can be successful and what is our competitive advantage? So if you look on the value chain, you can see that there are different players. There are players that manufacture the batteries, inverters, the suppliers. They are developers, people that just go and get the land control and file the interconnection and start the permitting, but they don't have the money to build the project. So they try to sell it to someone. So if you are the someone and you want to get the rights, you need to pay decent amount of development fee. Then you have system integrators that does the design and basically take the different components and assemble them together, put it as a container, ready to install. Again, those players needs to make some money. So they have some margin on top of the price. And then you have the EPC contractors. They are the one that really does the engineering and the construction. And they also need to take some margin. And then if you want to own and operate, sometimes you ask someone to operate it for you because this is not a trivial exercise. So you need to pay also for them. So we have a lot of stations along the way that each one require some sort of additional revenue. And our advantage is that with the exception of manufacturing the batteries, inverters and other equipment, we does it all. We have the business development team doing the development. It's the same team that does the development for the geothermal, the same customers, the same utilities, the same activities, the same permitting process. The only thing which is different that when it comes to geothermal, the location is being decided by the resource where we have some underground potential. And here, we have a team that need to think where is the best place to build the plant. This is a very professional work. We need to take a lot of data how the demand will look like 2 or 3 years down the road; the transmission, how it looks; the volatility. The more volatile the nodes, then the better prices we can get for the storage. And they basically decide and come up with a recommendation and then we start to develop around this area. So this is something which is the bread and butter of Ormat. System integration. Again, this is something that we does in-house. We have a very strong team, R&D team and engineering team that build templates for each and every market. So we don't need to invent the wheel when we come with a new site. If it's CAISO, we already have the template. If it's PJM, we already have the template, and we don't need to -- every time that someone will do the work for us, we just do the adjustments which are specific for this project. We have a beta site with all the batteries that we are using, that we are testing and understand the degradation curve of each and every battery, so we can build the optimal design for the specific service that we deliver in each and every market. EPC contraction, this is something that we are doing also for many years in the geothermal side. And the last but not least is being an operator. So we have 3 aspects of operating the sites. First, all our sites are unmanned. And we have 1 NOC, central NOC in Philadelphia with very few people that monitor and operate each and every aspect of the battery storage site. So we don't need to put people all over the place, and we can save some money. Then we have the people that does the maintenance for the site. It's also in-house team. But the most important thing is the trading team, what we call asset management. Those are the people that really are responsible for optimize our revenue. Mike here is leading this team. And they need to take a very important decision about how we are going to participate in the market, whether it's going to be in the day ahead or in the real time, in what capacity, when we are going to charge, when we are going to discharge, at what prices. This is a secret sauce that we have in-house. So by doing all this in-house, first of all, we save all this additional money that you need to pay to other players and we can come with a better CapEx and OpEx, but also we can build a self-learning culture that we learn from project to project, improve it, implement it in the next project and by that, become better and better and more efficient. Let's talk a little bit about our pipeline. You can see the growth of the pipeline from 2019, 300 megawatts with 19 projects, most of them very small. The 2.3 gigawatt with 32 named projects, much bigger than what we had when we started. Of course, in the middle, we built some projects, and we have operating assets, and we have assets under construction, which is not part of this pipeline. And I'm sure that by the end of the year, our pipeline will be even bigger than that. Now remember, I told you at the beginning of the presentation that only 15% of the projects meet the finish line. And why is that? There is a lot of challenges. For example, you can find that the interconnection cost is very expensive. California, it can be $20 million in some places, if you need to build a new substation or to enhance an existing transmission. And you might find that currently, there is no financial reason to build this project. You can find a lot of issues with permitting, with land and someone claiming and things change because you find out that there is another developer and the capacity there is not going to be so attractive. So in the industry, the thumb of rule is 15%. We believe that we can get to 20%, 25% because we have a really professional team that knows how to do development and know how to take these things in consideration and check them before we start the process. Obviously, we cannot cover all the cases and predict all the potential hurdles, but we can predict a lot of them, and that's why we believe that we have the pipeline to support our future growth. This is a project that's currently under construction. You can see we are talking about 189 megawatts. Basically, those projects together with more will allow us to double our operating assets year-over-year in the next 2 years at least. And then I think about all this project is that we already secured the batteries for this project. We got the signed POs and delivery dates, some of them already delivered. And this is very important because as you probably heard, there's a lot of challenges to -- with the pricing of the batteries that is going out and also with the supply date. So we feel very comfortable that we will meet the COD dates on those projects, and it will enable us to recognize more revenue in 2022 and in 2023. This is our target. You can see that we plan to grow from 172 megawatts to somewhere between 445 and 465 in 2024 and between 700 to 800 in 2026. This is a massive growth. And on a personal note, I will be very disappointed and will see it as a personal failure if we will not overachieve those numbers. We still have some upsides, potential upsides like M&A, which is not included. So we have the pipeline to support it, and I'm very confident that we will meet this number and hopefully even more than that. So just to summarize, we have the right pipeline with -- in a lucrative location. I think I tried to convince you that we have the right expertise and the knowledge and the core capabilities. So we believe that this is the time, this is the wave, this is the skills that we have. And now it's just all about execution. Thank you.

Good morning, everybody. My name is Assi Ginzburg. I'm the CFO for Ormat. I joined the company in May of 2020. I'm actually coming from the dark side of the refining industry. I was the CFO of a large refining company in the U.S. between 2005 and 2020. And I'm really glad to join a company that first does very good to the world, as Doron mentioned earlier, and providing very clean renewable energy on one hand. But at the same time, as a CFO, it's really nice to work in a company that you can really predict its cash flow, you have a 15 years contract that allow us to grow the company. And I think the target goals that we put here together are quite remarkable. Ofer, I will also be disappointed if we won't meet those goals, I will say. And I hope that when we sit here 5 years ago, we'll be able even to show a greater growth. I will start discussing a little bit about the product segment. The product segment is probably one of the strongest segments of Ormat over the last few years. I know that what you've seen on the revenue side is a $40 million, $50 million annual revenue versus what we used to have, which was $40 million to $50 million in a quarter. But actually, that shift that mostly was a result of the pandemic allow us to make a big difference in Ormat and to take the disadvantage of lower revenues and work from third party and to invest all of our efforts in building new sites for Ormat. And had we not done it in 2020, there was no way that in today's challenged supply chain market and rising prices, we could have meet the 2024 goals that in most of them, these are assets that have been built already, constructed and the piece that is missing is the EPC itself. With that being said, geothermal is still alive and kicking. If you look at the next page, you will see that over the next 9 years, geothermal is going to grow by roughly 1 giga every year. And the majority of it is going to come from binary. Over 45% of the growth will come from assets that Ormat know how to build best in the world, and I will show you the market share in those. With that being said, steam flash is growing and we are planning, and that's probably quite new news for many of you, to develop a new set of turbines that will be able us to commit in that market, which we haven't done ever. We spoke about roughly 450-megawatt globally for the next 9 to 10 years only in binary. And when we look at our internal work that we're doing, discussion we have with customers and Ormat organic growth, we are seeing a potential for the next 3 years to install, sign agreements for over 1.2 giga. Well, it sounds great, but there is no doubt that the pandemic and the supply chain in the last 2 years impacted our ability to sign those agreements. I'll give you a few examples. Turkey is a great market to sell products in. For years, we were the known supplier for binary geothermal assets in Turkey. With that being said, a year ago, the feed-in tariff in Turkey has changed. And now it has some correlation to the local currency, which we can say is problematic at best. Therefore, we do see an appetite to develop assets, we see the resource but the developers are waiting to get probably slightly a better tariff, and not from size, but probably more dollar denominated. New Zealand, our customers are calling us. They would like to meet us. And the great thing about New Zealand, they did a very good job with the pandemic. It stops us from doing a lot of work in the last 2 years, but starting May 1, they are starting to open gradually the ability to visit the place and Ormat will be, I promise you. And with the 400-megawatt needs over there, mostly binary, it can make a big difference on this segment. Looking at the U.S., most of that growth is actually coming from Ormat. And I can promise you that we will use Ormat equipment in building our plans. There will be no competition there. Well, binary, as I mentioned, is the primary installed capacity over the last few years. 62% of the projects in the last 4 years were binary. And I think it's remarkable to see that Ormat has an 80% market share in those. In most cases, we are not losing projects because we are not competitive. In most cases, it's because we decided that it's better to invest in other places. But overall, I can tell you that 80% market share, our goal is to continue and maintain it even if we need to reduce prices because we know one thing: once we have the customer, it's -- he's basically ours for a long time. We have customers in Turkey that have done 8 projects with us [indiscernible]. And this is just a remarkable place that Ormat can be in. I mentioned that binary is growing. But as you can see earlier, steam is growing too. And our engineering team has already developed in the last few years and installed in few location, Ormat and third party, new turbines at the size of 32 megawatt. But the real game changer is actually going to happen by the end of this year. We plan, following the lot of work on our team, to develop or complete the development of a turbine that can manage a 50-megawatt field. We'll be able to compete very well with other technologies like the Steam. It will be economically well for them. The O&M costs will be lower. The installment costs will be lower. And we hope that this will make a change in the industry. As you can see here, it happened over 30 years, but we are there to start collecting our fruits of work. What we've seen in the last few years is basically on the next page. When we look from left to right, the developers that used to basically buy from us equipment in roughly $200 million annually have taken a step back and decided to a little bit, I will say, hold their work during the COVID. We've seen a lot of interest, but at the same time, it was tough to sign agreements. And our revenue went down all the way to $46 million in 2021. In 2022, we are already expecting recovery. Some of it, we're expecting $50 million to $60 million of revenues. And as I remind you, these projections for 2026 of $95 million to $105 million, it can be $150 million, and it can be $50 million. These are not our power plants that generate every year the same amount. But the key takeaway of this slide is on the bottom right. We took our manufacturing facilities and turned them into manufacturing facilities for Ormat electricity segment. And right now, most of the focus and the efforts in Israel is to build as much as we can assets for Ormat. Everything that we constructed in the last few years is eligible for PTC, a syndicate in the U.S., because we've done the work earlier. So when you look at Ormat, I think we hit the bottom on the product segment in 2021, but in the same thing, I think we also hit the top in 2021. Why? Because that's when we understood that the manufacturing facility should grow Ormat. And with the nice regulatory support that we see, it's a game changer for us. But as I mentioned, we are not stopping there and we will compete with this team and probably you will see higher yields than what you see here. But I think in the end, the main reason to buy Ormat is because of our electricity and storage segment growth. And in my mind, this will always be the backbone of the company. As I mentioned earlier, we know how to build assets worldwide in places that you can't even imagine that assets can be built. On the foot of the mountain next to the water, the pictures are amazing of what we're able to do over the last few years. And I think we'll continue to do it and demonstrate our capability worldwide. Yes, pandemic impact us and probably the pandemic will be here for a while, but now we see developers' appetite to invest growing. I think that what happened between Russia and Ukraine actually supports the ability to grow more renewables in places that we never thought and that will able to make geothermal even a better solution. And finally, it's the technology. And I think that advantage is what brings us the ability in the next 3 years to grow as much. Without the people that can really know how to navigate within the supply chain, the fact that we manufacture almost every part of the facility really allow us to grow. I don't even want to think what would have happened if we had to bid now for construction of new plants. I think somebody here asked about cost. Cost is higher, yes. We see 10%, 20% increase in cost. But please remember that as part of the total cost to manufacture our power plants, roughly 25% is equipment. And in the equipment, it's probably 50% labor, 50% raw materials. So when you look at the overall cost for Ormat, it's not going to be as significant. And there is no doubt that with the new prices, as Paul mentioned, it will be very likely that we'll develop more assets in the next few years. Now we'll go on the fun part, numbers. And I think that Doron already gave you a preview. But in my presentation today, I would like not just to give you a preview, but to go a little bit more into the details, provide a bridge from where we are today to where we want to be and try to win your trust that we will meet these numbers. I won't say easily, but we'll meet these numbers. As Doron mentioned, we're going to double the size of the company in the next 5 years. Every year, we plan to grow 15%. We haven't done it ever. But this time, there is something that wasn't there before. First, in the U.S., we have 30 prospects, many of them ready to drill with nice prices following 2024. Two, in Indonesia, for the first time, we have an operation and we have 3 assets that we plan to develop -- I'll say at least 3 assets that we plan to develop during this period. Third, on the storage side, we saw 2.3 gigawatts of pipeline. We have land position. We have interconnection. It takes years to develop. We saw 2 transactions in the market of sellers, of pipelines, paying hundreds of millions of dollars for what we've built independently with some of the people that sits here today. When you take those 3 and add the regulatory support both in Indonesia and the U.S., you see that the tailwind format is different where it used to be and we are really on a course of a big change. Now can we finance it? Of course, we can. In order to build these assets between 2023 and 2026, we plan to spend on CapEx roughly $2 billion. But then I think about Ormat is the EBITDA is growing. Over 50% out of it is going to come from free cash flow. Additional 10% of it is probably going to come from production tax credit that we capitalize on them. And then the remaining is probably going to happen from corporate debt. Our balance sheet is in a great situation. We have $1.9 billion of debt but also $400 million of cash on the balance sheet, put us in a net debt position of $1.5 billion. And because we are conservative, 98% of our debt is fixed interest. So when we see others screaming when a 5-year treasury goes to 5% -- to 2.5%, I'm sorry, Ormat is saying, oh, that is secured. We think that during this projection period, we'll be able to maintain roughly 3.5 to 4x of net debt to EBITDA, in line with where we are today, and probably improve towards the end of the projection. We target net debt to total cap of roughly 50%, which means 50% of the business will be with our earnings and 50% will be coming from that. And that's something that we maintain over the last many years. And you know where it gets us? It gets us to a company that is planning to grow 70%, 7-0 percent, in 5 years. And how are we going to do that? First, improve operating margins and size of our storage facilities. Second, we are turning Indonesia into our new growth markets, expecting to operate by the end of the period between 100 to 150 megawatts. Third, every year, add at least 2 to 3 projects in the U.S. greenfields. Some of them are brand because we've already done some of the exploration between 2024 and 2026. And as you saw earlier, we're not relying on improvements in our product segment or significant improvement, but there is no doubt that there is a chance we'll see that. Ormat takes every $1 of revenue and turn anywhere from 60% to 70% of it to free cash flow or to adjusted EBITDA. And that's quite unique on us. We have done it in the last few years. And as you can see in this forecast period, we're not planning to change our margins. We know today that for 2022, we gave guidance of roughly $440 million of adjusted EBITDA. And we got questions in the past of, okay, so how are you going to get to $500 million? So today, we're going to show you not only how we get to $500 million, how we get to $700 million. So $500 million is quite easy. You've seen the CapEx that we spent over the last few years. And during 2022, we'll have few assets that are coming online that will generate on an annual base additional $33 million on top of what they're going to generate in 2022. On the storage segment, we are doubling the size in 2022. And as you can see, annualizing those revenue -- EBITDAs will earn us another $3 million. And then one key component is getting Olkaria back on track, not to full capacity, but getting closer to it. As we speak today, we are enhancing the facilities over there, allowing us with the same resource to sell more megawatts. And there were questions about Kenya here earlier. And I can tell you that Kenya, KPLC, is stronger than ever. They put up great results, earnings actually making money over the last 6 months, big demand for electricity in Kenya. And think about prices of diesel these days. We won't see too much curtailment. I'm sure they will take everything that we'll produce. And therefore, we think that as we grow back towards 150 megawatts in the next few years, we will see Kenya already in 2022, much better than what we see in 2021. And how are we going to get to the $700 million? Well, that's a billion dollar question -- actually, the $2 billion question. First, storage, and I will show you in a second, big change in the operating margins. Ofer mentioned 80% EBITDA margins. But on a corporate level, taking breakfast today, lunch today, salaries for the CFO, bonuses, et cetera, our operating margins will be roughly 50%, but with finally over $100 million of revenue, and I'll show it in a second. On the electricity, we just need to do the right thing. The prices are there, the prospects are there, the customers are there, the demand is there. Our biggest issue now is how to divide our growth between all of the customers that are requiring more electricity. And I think that's a good place to be. We are in the seller market. And the fact that we have seen across the board increasing commodity prices really put geothermal more competitive. There is no more solar at $10 and $20. There is no more solar installed there for $25. Batteries cost more, panel costs more, everything costs more. And therefore, geothermal become much more effective. When you add it all up, we can get to $700 million of adjusted EBITDA. And I can say that if the product segment will go back to historical level, numbers will be even higher. But let's drill down for a second on storage because we all know how to do the math for geothermal. We had the site, we get anywhere from $70 to $80 per megawatt, our operating costs are roughly $20 per megawatt. But in the storage, we want to give you more precise forecast. And as you can see here, we are going to go from 80 megawatts to 800 megawatts in 5 years. And I remarked what Ofer said here that he will be disappointed, Ofer, again if we won't meet it. Our profitability is going to grow. Our operating margins are going to be anywhere from 55% to 60%. We have very limited cost once we install the assets. But in order to do that, we had to build a 2.3 giga pipeline. We had to negotiate option on lands. We have to sign up to get interconnection. If anyone in this room would like to develop a storage assets, here's 2 options, either to buy from a developer or to wait for 2027. That's the 2 option. There is no way to get interconnection for 2024, 2025 and 2026, basically. We plan to develop only 25% of the pipeline. We may develop more. We may supplement with M&A. But assuming that we'll develop 25% is actually not a very hard assumption. As you saw, we just recently announced the release or basically start of construction of a 80-megawatt project in California. And I can tell you that all of the projects that we are building today, we already secured the batteries, which is a nightmare. But we were able to do that. It wasn't easy. I think that will be one of the biggest bottlenecks of this, I will say, industry. By coincidence, the project is also known as Bottleneck, and it will help Ormat really makes a big difference. So to put everything in perspective, as I mentioned earlier, Ormat is in the right place. We have a very strong financial position. We plan to maintain a strong balance sheet. What's more, we plan to grow the company and improve the profitability of the product segment, the storage segment and the electricity segment. All the question in the past about product segment going away, it went away. And what we decided to do, we took the leftover from the fish dish and we made it a fancy poke. That's what we did. Please remember that. And only a company that is vertically integrated can do it that way. Other companies could have collapsed, but Ormat decided to make it a growth story much more than before. And therefore, we think that this plan is achievable. And I will also be disappointed if we won't meet it now with you also. Thank you very much. I'll turn it now to Doron.

Okay. So before we open for some more Q&As on the storage and the product or any other items that you would like to discuss. So some key takeaways from the presentation. So Ormat has been always delivering sustainable growth and profitable growth. This is what we've been doing for many years now. We have a very, very large potential that you've seen today and will soon see again in the summary slides, a very strong tailwind in the U.S. and Indonesia. You saw us this number on the financial position that we have. The market -- the capital markets today are looking for investments. Ormat is a green company, is one of the choices to invest in and to support our growth and one of the pure-play renewables platform. We work according to ESG guidance, international guidelines. We filed our ESG report. We do it annually for many years now. And all of the report is aligned with all international standards. And we continuously improve it. We continuously look at reducing our emissions, the manufacturing and power plant emissions. And this is something that is embedded in the way that Ormat thinks and acts. And this is the slide that they showed and summarized what you've heard so far today. Electricity, which is the base and the backbone of Ormat for many years, will continue to be the base for Ormat. We're focusing on the organic growth in the U.S. and Indonesia. We've built it in the last couple of years, and we're going to increase it significantly over the next 5 years. The growth in the storage that Ofer showed you, you don't need to be a magician to see this happening. You just need to look back at the solar, how much solar was deployed without any storage and how much solar is going to be deployed in the next few years. Storage has to come with it. And the product that Assi mentioned, we are expanding our offer, and we are focusing on internal projects. We have the capability to shift between the 2. And if we will get many more projects, external projects for third party, we'll be able to manage it between our internal project and the third-party project like we've done in the past when we had $200 million of sales. This is something that we know. We have economy of scale. We know how to duplicate our processes. If we need to go to subcontractor, if we have too much demand, we know how to do it. And as Assi said, we have got to the safe harbor to get PTC for the project that will come online in the next few years in the U.S., regardless if the PTC will be extended or not. And this is the summary of the portfolio growth that we see. I will say that the solar part, we're not a solar developer. We're not building utility solar projects. The solar is supporting our geothermal project. These are hybrid projects. We build solar as part of our geothermal power plants to support the auxiliaries when there is sun and actually, by that, increase our geothermal facility. And we are planning to double our portfolio. And the focus to the U.S. is from the storage and from the very, very strong tailwind that we have, which means basically that if you go to 2026 and a larger portion of Ormat is in the U.S., it means the risk that you see operating in developing country is less because we are more in the U.S. And these are the revenue growth numbers. And as Assi said, on the EBITDA, that's a 70% increase over 5 years. Not many companies can look at it and since everybody is going to be disappointed, so I'll also be disappointed if we don't make it. And the last slide, you don't have it in your deck, but that's another slide. So Ormat is committed to a continued profitable growth. We're more than doubling our exploration activities, as you've seen. And that's going to support the growth in the U.S. and in Indonesia. And Paul knows whenever I call him, he doesn't answer, he goes to the permitting and then he calls me back. Permitting is an issue always, but we are focusing on permitting all the time. And we are pushing it on various and we are working on multiple sites in parallel in order to meet all these exploration and growth targets. Indonesia, we will enjoy some of the growth in Indonesia in these 5 years, and we'll enjoy much more after that because the foundation is there, but it takes time. It's not like a U.S. project, it takes longer, but we already have a few projects that will come online in this term. And our energy storage, we are targeting to increase it tenfolds in 5 years. It is in line with the market, and we have built the pipeline, the interconnection, the site controls, and we are continuously increasing it. So today, as Assi said, when we get [ 5 ] for interconnection, we know it's going to be in '27 or '28 in CAISO, in California. In PJM, it might be even later. They don't know how to deal with the massive amount of interconnection requests that they get. But we are working on it. We have the pipeline that we've seen. And as we've done in the past, we are giving you a forecast that we believe can be met and the regulatory tailwind that we get. As Paul said, it's very nice to sit in an office and get calls, what can you sell me? So we get this. And more than that, we actually issued a reverse bid. We told our -- the utilities, we have an asset who wants put your price. So Paul is enjoying very much the current period. That's the end of the presentation. And for Q&A, so maybe Shlomi, or the President, the EVP for Products, can join me here and Ofer, Assi and Mike. So if there's any questions, please.

Yes, Julien. I started before, you can start now as well.

Thank you, guys. I appreciate it. Congratulations again. So perhaps let's focus first on the product side, if we can, just talking through that a little bit. Obviously, it's been a few more challenging years relative to what you're forecasting. Can you walk through a little bit more on the margin side of that? Obviously, you showed the revenue numbers. You said -- again, you acknowledge yourself that there's a wide range potentially there. But let's talk about margins and also just concentration, geographic concentration when you think about where that revenue is coming from.

Okay. So on the geographic concentration, we've been working in multiple countries. But today, when we look at the market, we see a few markets that are more relevant for the product side. I think the first one is New Zealand. The potential in New Zealand is huge. We have built multiple sites in New Zealand. We know that market. And if we've been able to get there over the last year or 2, I'm sure that we would have had some more contracts there. The second one is Indonesia that we've mentioned on the supply part as well. And the rest are spread around. I can say these are the 2 large ones. Turkey, once the internal discussion between the developer and the other one will settle and they will agree on the new feed-in tariff, we believe that's a very strong market. We've built more than a dozen projects there. I think we've built 400, 500 megawatts of projects in Turkey. And so these are the 3 main ones. And Assi, if you want to elaborate on the margins.

So what we've seen in 2021 and 2022 is a lower-margin environment. Because in those cases, what we've done, we signed agreements to construct for third-party. And then at the same time, after we sign the contract, we start seeing rising raw material costs and shipping costs. In our new methodology of signing contracts, Ormat is -- at least desire is not to take any more of the exposure for a shipping cost. And we have priced our product now that it will take into consideration the higher raw material costs. Bottom line, this year and last year, we see somewhere between 10% to 15% margins. And in the model, we see roughly 20%, which basically takes out the fact that you sign a contract into a rising commodity market.

And I can elaborate on that one point more is that as we see in the U.S. that the prices of electricity was a little bit behind the growing price of commodity, we also see that in the rest of our world. And our product segment that suffered in the I think 1.5 to 2 years from this high price of commodity and electricity that is not keeping up with the price now is changing. We see that in places. We're waiting for that in Turkey. And we assume that margin will go back again to the margins that we saw before.

Got it. So the key is you actually see, in addition with the revenue growth, margins returning to call it, pre-2020-type levels, pre-COVID?

Yes. I believe we're going that way.

Excellent. And if I can, just coming back to a higher-level question here. When you think about M&A -- in fact, you've alluded to it. I don't even know who to point to because you guys have mentioned it several times. But as I think about it, not just acquisitions, but divestments, how do you think about the backdrop of the market? There's fairly robust multiples being paid for a range of contracted assets. You have underutilized assets, for instance, on the transmission side. There's just a lot of ways that I could see things evolving. And especially given the capital demands of the business, can you talk about maybe this being an alternative to any form of external equity that you might eventually need as you think about this growth, too?

Ormat is a buyer. We're not a seller. I don't see us divesting any one of our assets. The Oxbow line is a bit of a unique asset, but we need to see exactly what to do with it. And we had approaches by multiple interconnection group companies, but we are not planning to divest it.

We've got a question from the online portal. Can you please provide us an update on the operational issues you had over the last few months?

We had some operational issues, I will say, in Kenya, but these are operational issues that we are dealing with them. I don't think there's any special partner today that is suffering from operational issue that we haven't discussed. We have issued a press release talking about the fire that was in the Heber power plant earlier this year. We lost about 25 megawatts. This is something that will come back online probably next year. We are discussing it with the insurance company because, obviously, things are insured, and that's a discussion that is ongoing.

Let me actually follow up on that because I think you guys have laid out a very clear development and growth opportunity today and clearly indicated your commitment to that development. But there are some questions about operational continuity. And so I just want to ask what kind of initiatives might you be undertaking to ensure stable operations across the portfolio? You've got some assets that were built when I was in elementary school, which was a long time ago. And as those assets age, you're having to invest in them, whether it's CapEx projects or OpEx. So just talk about stable operations initiatives and your expectations for investments on that existing fleet over time.

Okay. So I will give a few examples on projects that we do, and then Shimon can elaborate a little bit more. There are various items that we're looking into existing projects. The turbines that we are increasing allow us to replace multiple turbines with 1 turbine and by that, reduce O&M cost. We have some of our power plants that had artesian wells and we changed them to pump wells in order to maintain production. So these are some examples, and maybe Shimon, you want to elaborate a little bit on the maintenance part.

Yes. Okay. Thanks for this question. You actually said it correctly that we do have some facilities that have been running for many years. As a result of all of those facilities that we are now operating, we just established a reservoir management group that is actually done before, but now we are doing it in more methodical way. And as such, we are monitoring the reservoir. We have a makeup program for each reservoir from the production side and the injection side. And this is from the resource side. As Doron said also, we're evaluating each facility and as such from time to time, we enhance the asset by means of either change the configuration of the facility, change equipment, for instance, turbines or cycle pump or some other equipment. And by that, utilizing in more efficient way the resource and such keeping those assets performing in the rated capacity or close to the rated capacity for a long time.

This is a constant cycle that we do over time.

Yes. It's constantly monitoring. And by the way, what I would like maybe to say is it -- as said before, this is the strength of the company, by means of vertically integrated. Our engineering group actually provide us this support, and we are using our updated and the most efficient equipment that is being developed in the engineering group.

This is very helpful. I just wanted to ask, and maybe it's a financial question that's related to this. The $2 billion CapEx over 5 years is for growth. How do we think about kind of a maintenance CapEx profile for the company going forward?

So the $2 billion, as we mentioned, was the growth -- was all of the CapEx between 2023 and 2026. In that, there is 2 components that supports the local -- the operation, $40 million roughly annually of maintenance CapEx on top of additional $40 million annually of drilling and exploration work, some of it to support new plans, but also some of it to support what we see, for example, right now in Kenya, what we saw late last year in Bali, which is to bring assets back online if there was some deterioration in the production. So the CapEx does include significant dollars also to maintain the current fleet.

Any more questions on the webcast? Okay. Yes, [ Alex ].

Just maybe one on the storage assets. I appreciate the added color and it sounds as though the returns are very promising. I guess I just would like to know and better understand given that the -- there is a mix between capacity or fixed or PPA or contracted revenue and merchant revenue. As you think about kind of your model development or project going forward, what level of variability in annual revenue should we expect? Obviously, events like outages, blackouts, events like weather-related events in Texas will create revenue opportunities to the upside and then a more normal environment will yield lower opportunities. So I guess as I think about it, how should I think about that up, down, that range of best versus more normal or lower revenue opportunity?

So we take into consideration in our forecast such events like severe weather, et cetera. It's part of the forecast. On top of it, currently, most of our assets are merchants. So obviously, it's very hard to predict, and there will be some changes up and down. Going forward, we tend to increase the contracted parts to be close to 30%, maybe 40%, which will give us better predictability and we'll reduce these ups and downs in a very significant way. But that's part of being merchant. You need to accept that the revenue is unknown and it can be a bit higher or a bit lower than what you predicted. Over time, you get better in the way that you do the forecast, so the deviation shouldn't be that great, but it's possible.

The variation on the storage segment might be more meaningful because a big part of that would be merchant. But if you go and look at the Ormat level, so if we plan $650 million to $700 million of EBITDA and out of that, on average, $50 million the storage part. So even if there's a 10% or 20% variation, which is a large deviation on the overall number, it should not be very significant.

That's fair. And just maybe on the solar component. Should we assume that going forward, any new geothermal plant will have a solar component? In other words, has that language been included in most PPAs going forward?

So this is part of the new world that we see in PPAs. And historical PPA did not allow any solar into them. That's why old power plants do not have any solar into them. Now today, in the PPA that we are signing today, we are negotiating today, all of them have the ability to add solar, but only for the auxiliaries, not more than that. So our plan of about 100 megawatts of solar, all of them are tied to existing power plants.

Perfect. And...

The new power plants, sorry, not existing.

Sounds good. And all else being equal, how much of an impact on returns would that have? Just curious.

It's not very material. The auxiliaries are not that high. So on a 25-megawatt power plant, we can add maybe 1.5 megawatts of solar on average. So it's not that of an impact. It is nice. It's a nice upside to the geothermal numbers, but it doesn't change the diet for it.

Each project, when you look at it on stand-alone, the solar has a very nice returns. So because in most cases, we sell the solar at the price of the geothermal. So when you look at the stand-alone investment, investment is not high. Most of what we build is 5 to 10 megawatts. So we invest $5 to $10 million and maybe we get 15% return, okay? So it's only going to make a big difference in Ormat, but it's one more avenue to deploy capital in a very good way.

Can you give us a sense of the incremental dollar economics for storage versus your traditional electricity geothermal development? So projects are competing for internal capital, how do you think of investing incremental dollar and the margin it can generate?

It was at start of the previous presentation. On average, we see a project return on the storage of between 9% to 10.5%. Geothermal today is higher. However, we're growing the business and we have the capacity to do both. Geothermal, we do as much as we can, and we still have capacity to grow the business even more. And that's why we decided to go to the energy storage market. It's an evolving market, very much developing market. And we see the returns today. Obviously, as time will pass, this market will develop tolling agreements, mainly PPAs, maybe some hedging strategies, some other strategies that we believe will be able even to increase the returns of these projects.

Okay. And if I can follow up, there seems to be much more competition on the storage side. How are you thinking about competing with the likes of Tesla and even influencers from strong backers and others in that space?

I don't think we really compete. We compete with ourselves because at the end of the day, it's not that 2 parties are competing on the same location to develop their -- we compete against time, against the ability to get the interconnection to -- but once we get the location, others will not approach the same location because it will dilute everyone. So if we are trying to go to a location that someone else started to develop, we know that we will not get good prices. So we will not do it, and it works other ways. There is enough for everyone. It's not really a competition.

We see and the competition is impacting the M&A part. On the M&A part, competing with these funds or companies that are looking to acquire assets that they weren't able to develop themselves, they are paying very, very high pricing to that. I think Assi related to that in the presentation of maybe the value of the energy storage that we have. So on the M&A, we see a very hard competition and that's why we haven't done it so far, no M&As. We are very precise on what we are willing to pay for an asset. Okay. So thank you all, the people that came here, the others that joined us from the webcast. I'd love to go over the presentation again, but we did -- I hope we did show you where we are today, what our targets are and how we plan to get there. And we'll see you soon again. Thank you. And there is lunch for whoever is here.