After nerve-wracking delays, Ormat Industries Ltd. (TASE: ORMT) subsidiary Ormat Technologies Inc. (NYSE: ORA) has signed a 20-year power purchase agreement (PPA) with Sierra Pacific Resources’s (NYSE: SRP) northern Nevada utility Sierra Pacific Power Company for the sale of energy to be produced from Galena No. 3, a new geothermal power plant to be built in northern Nevada. Galena No. 3 will produce 15-25 megawatts (MW). (Actual power production will depend on the output by Galena No. 3).
Under the terms of the PPA, power will be delivered at a fixed price of $61 per megawatt/hour (MWH), or at $58 per MWH, assuming that Galena No. 3 will be eligible for a tax credit on production. Ormat Technologies said the price was subject to an annual increase of 1%, including credit for renewable energy. The Public Utilities Commission of Nevada has to approve the agreement.
Ormat Technologies added that it was negotiating two additional geothermal PPAs with Sierra Pacific Resources.
Ormat Technologies submitted three different bids from three geothermal sites it owns in Nevada, each of which will generate 15-30 MW. Ormat Technologies reserved the right to set the final power generation at each site within in the stated range. The company’s announcement implies that only one of its bids won, and that negotiations on the other two bids are still ongoing.
IBI analyst Yuval Zehira predicts $10-17 million in annual revenue from the Nevada tender, which will increase to $30-60 million if Ormat Technologies signs contracts on its two other bids.
A new financing arrangement proves its worth
Ormat Technologies originally planned to announce the good news about the Nevada tenders back in December 2005. Today’s announcement was released in tandem with the company’s financial report for the first quarter of 2006, only two months after it published its previous financial report.
In the previous report, Ormat Technologies posted a loss of $5.1 million, or $01.6 per share, for the fourth quarter of 2005, due to a new financing arrangement for loans taken for the Heber geothermal power project in California. The new arrangement was designed to reduce Ormat Technologies’ long-term costs, but the company posted a one-time expense of $16.6 million ($10.3 million after taxes) in its fourth quarter report.
Ormat Technologies’ first quarter report indicates that the move has paid off. The company posted a rather modest increase in revenue, but a dramatic improvement in its net profit. Zehira said one factor that greatly contributed to the improvement in the company’s bottom line was the dramatic reduction in its financing expenses as a result of the new arrangement.
Ormat Technologies’s board yesterday approved the distribution of a dividend of $0.04 per share, in accordance with the company’s announcement from the preceding quarter. The $1.42 million dividend will be paid on May 30; the ex-date was set at May 23. The company added that it expected to distribute a similar dividend in each of the next three quarters of this year.
Published by Globes [online], Israel business news - www.globes.co.il - on May 10, 2006
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