The City of Riverside’s first RA contract requires Ormat to bring the project into operation by the guaranteed commercial operation date (COD) of 1 March 2026, although the company said it expects to be able to do so earlier, by the end of 2025.
Ormat develops, owns and operates geothermal energy projects, with additional business lines in waste-to-heat and energy storage technologies.
The energy storage division opened in 2020, following the company’s 2017 acquisition of energy storage developer Viridity. Ormat decided to enter the market to broaden its revenue base and noted in 2020 that the COVID-19 pandemic impacted revenues from its geothermal power generation and development as well as waste-to-heat generation.
To date, it has 190MW/318MWh of operational BESS assets in its portfolio, with projects in states including Texas, California, Ohio and New Jersey. In mid-2023, Ormat CEO Doron Blachar said the company was on-track to achieve a growth target that would bring its portfolio to 500MW-530MW and over 1GWh by the end of 2025.
Ormat CEO: ‘Segment transitioning to higher-growth’
At a 20 June 2024 Investor Day at the New York Stock Exchange (NYSE), where the company’s shares are listed, Ormat’s EVP of energy storage and business development Ofer Ben-Yosef said that the division has 335MW/1,040MWh of projects under construction which are scheduled to be online by the year-end 2025.
Energy storage comprised just 4% of the company’s total revenues in 2023, but Ormat sees it as a high-growth potential business, with Ben-Yosef pointing to market tailwinds such as the investment tax credit (ITC), the forecasted continuing growth of renewable energy deployments and equipment cost reductions.
Ormat also expected to see an ongoing shift in California and Texas from merchant opportunities to contracted revenues, noting that prior to 2023, California mostly saw 10-year RA deals with merchant upside, and the Texas market was pure merchant.
Post-2023, California will be characterised by up to 20-year tolling PPAs or RA contracts of between 10 and 20 years, with merchant upside, and Texas by tolling PPAs over 5-year to 7-year terms. RA and tolling agreement prices have risen by 20%-30%, Ben-Yosef said.
The company is also transitioning to executing larger projects, from average project sizes of 7.5MW/15MWh in 2018 as it entered the market, to 75MW/220MWh between 2024 and 2028.
While its other divisions are internationally diversified, Ormat Technologies’ energy storage division is focused on the US and has a claimed pipeline of 3.5GW/12.2GWh, of which California accounts for 2,105MW/8,420MWh of its development opportunities.
The company claimed 100% of its projects under construction as of Q1 2024 are eligible for the ITC. The Shirk project in Visalia for the City of Riverside is ‘currently expected to be eligible’ for a 40% tax credit, Ormat said in its announcement this week.
“The Shirk project shows the continued progress that Ormat has been making towards aligning our strategic growth focus to capitalise on key target markets in the US, such as California, while also transitioning our energy storage business to become a higher-growth segment with a balance of contracted revenues,” CEO Doron Blachar said.