Q2 2023 Ormat Technologies Inc Earnings Call
Good morning, and welcome to the Ormat technologies second quarter 2023 earnings Conference call. All participants will be in listen only mode. After today's presentation. There will be an opportunity to ask questions. All lines have been placed on mute to prevent any back.
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After the Speakers' remarks, there will be a question and answer session. He would like to ask a question. During this time Please press star.
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Please note. This event is being recorded I would now like to turn the conference over to Alex Steinberg with Alpha IR. Please go ahead.
Thank you operator hosting the call today are drawn bizarre chief Executive Officer.
Ginsburg, you're fine.
Actual officer.
All of the Vice President of Investor Relations, and ESG planning and reporting.
Before beginning we'd 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 that are forward looking as defined in the private Securities Litigation Reform Act of 1995 East.
These forward looking statements generally relate to the company's plans objectives and expectations for future operations and are based on management's current estimates and projections future results or trends actual future results may differ materially from those projected as a result of certain risks and uncertainties for a discussion of such.
Risks and uncertainties. Please see risk factors as described format technologies annual reports on Form 10-K, and quarterly reports on Form 10-Q that are filed with the FCC and.
In addition, during the call the company will present non-GAAP financial measures such as adjusted EBITDA.
Reconciliations to the most directly comparable GAAP measures and management reasons for presenting such information is set forth in the press release that was issued last night as well as in the slides posted on the website.
Because these measures are not calculated in accordance with GAAP and should not be considered in isolation from the financial statements prepared in accordance with GAAP before I turn the call over to management I'd like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at war, Matt Dot Com under the presentation link that's found in.
On the Investor Relations tab with all that said I would now like to turn the call over to derive the shar drawn the calls all yours.
Thank you Alex and good morning, everyone.
You for joining us today.
In the second quarter, we delivered strong financial results and healthy earnings growth, we're making several portfolio expansion to drive continued revenue and profitable growth.
As the development is a strategic focus for us as we enhance existing projects, while also commencing operations and achieving commercial operations across our electricity generation and energy storage portfolio.
This quarter, we commenced operations of approximately 100 megawatts in geothermal solar and energy storage assets.
We are encouraged by the initial results. We're seeing you know we're drilling campaigns.
Cooler and we expect to see an increase in generation, but year end. It is both partners.
Our product segment is displayed a notable recovery in revenue, resulting in significant margin expansion and revenue growth for the segment.
In the electricity segment, we successfully commenced construction of a 50 megawatt geothermal project in New Zealand. In addition to the 10 megawatt expansion relief globally on both <unk> and Guadalupe.
Following significant progress we've made you know, stating the PPA.
In addition, we commenced the development of the 42 megawatt solar project located adjacent to out broadly geothermal complex. Following the signing of a long term PPA with San Diego community Pablo.
You know energy storage segment, we released for construction three battery storage facilities. The 35 megawatt 114 megawatts hour.
Project in California.
Two projects in Texas, the combined capacity of 120 megawatts 240 megawatts, though.
We expect each of these projects to be operational by the end of 'twenty 25, allowing.
Allowing us to take advantage of the recent decline in battery prices.
As we look forward, we see the improved economics of our project following the recent IRS guidance and the increased demand for assets.
As a result, we are excited to increase of our medium term goals targets by approximately 7% to one nine to two gigawatt by year end 'twenty 'twenty five demonstrating our confidence in the company's gross debt.
Now before I provide further up further updates on our operations and future plans.
Turn the call over to Us to review the financial results.
Thank you Darren.
Let me start my review of our financial highlights on slide five.
Total revenue for the second quarter was 191 hundred $94 $8 million up over 415, 2% year over year.
Reflecting substantial growth in our product segment.
Second quarter 2023, total gross profit was $49 $5 million.
This resulted in gross margin of 25, 4% down from the gross margin of 34, 1% in the second quarter of 2022.
The reduction in gross margin performance for the quarter.
And by increased product segment revenue, which is operating historically are lower margin.
Additionally, two lower margin in electricity segment.
Net income attributable to the company's stockholders was $24 $2 million or <unk> 40 per diluted share in the second quarter.
This compares favorably to the results of $11 3 million.
Or <unk> 20 per diluted share in the same quarter last year.
Our solid performance combined with support from the inflation reduction Nate.
Drive substantial growth in year over year, net income and earnings per share.
This legislation will continue to have a significant positive impact on our bottom line results going forward.
Adjusted EBITDA increased by 2% to $109 million in the second quarter compared to $170 million in the second quarter last year.
We delivered this year over year adjusted EBITDA growth.
Which overcome the oil margin in our electricity segment and energy storage segments compared to a year ago.
Driven by an observed decline mainly in energy storage mentioned markets.
Breaking the revenue down.
At a segment level are presented on slide six.
Electricity segment revenue increased two 7% to $155 $3 million.
This increase in electricity revenue year over year was driven by portfolio expansion at our CD four and notoriety.
Which successfully came online.
And contributor to our revenues in the quarter.
These help overcome lower revenues four corner.
Due to temporary lower generation and lower energy prices versus last year.
In the product segment revenue increased by 222% to $33 5 million and represented 72, 2% of consolidated revenues in the second quarter.
The year over year increase was mainly due to higher backlog.
We also saw an improvement in margin capture for the product segment driven by the improved contract that we signed in 2022.
And we expect product segment margin to continue and improve throughout the year.
Energy storage segment's revenues were up $6 million compared to $7 $5 million in the second quarter of 2022.
The decrease in storage segment was driven primary by loyal merchant energy prices in the PJM area.
Let's move now to slide seven.
The gross margin for the electricity segment was 29, 6% compared to 36, 8% in the same quarter last year.
The gross margin reduction was attributed to a weaker performance year over year at our Florida facility due to lower generation combined with slightly lower energy prices for the period.
The step down in gross margin for the segment as compared to the prior year period was also negatively impacted by the absence of the business interruption insurance proceeds, which helped drive strong margin in last year's second quarter.
Excluding these two items gross margin in Q2, 2022 was 32% that's materially different in this quarter.
We expect improved performance from our Puna power plant towards the end of the year. Following a successful drilling campaign, which should help improve our margin going forward.
In the product segment gross margin was 10, 4% in the quarter, notably higher than the 2% gross profit margin performance in the second quarter of last year.
Inflation continued to abate and of course as seen through commodity prices continue to normalize we believe that our product segment will continue to experience growth and produced strong gross margin performance.
The energy storage segment recorded a gross margin of one 9% an improvement from the negative Biogen recorded during the first quarter of 2023, but lower than the gross margin reported in the second quarter of last year.
No other merchant energy prices in the East Coast head has a significant impact on energy storage margin performance, we expect margins to improve as well.
Now project with tolling and capacity agreement will start operation over the next year.
Moving to slide eight.
When looking at the consolidated breakdown of adjusted EBITDA results. The electricity segment generated 97% of my total consolidated adjusted EBITDA in the second quarter.
The storage and product segments. Both contributed one 5% of the company EBITDA during the second quarter.
A reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide.
Let's go to slide nine.
Before I move to discuss the balance sheet I want to spend a few minutes discussing the impact of ITC and PTC on our P&L this quarter and going forward.
We include in our income attributed to the sales tax benefit line in the P&L two types of Ptc's credits.
The first one is related to PTC sold under equity tax transaction that we signed previously.
And the second is towards several PTC related to new assets that are not yet part of tax equity transactions.
In the second quarter, we had five active tax equity transaction.
For which we recorded $12 $3 million income.
While the remaining $2 $7 million related to towards several ptc's form a new geothermal facility that are not yet under tax equity partnerships.
The two kinds of recordable Ptc's are included in the adjusted EBITDA.
The ITC benefits equivalent to 30% to 40% of the eligible investment.
Usually in the storage segment, the ITC benefits are related to our new energy storage facility and are recorded under the income tax provision line in the P&L.
And we can sell them to anyone that needs. These credits.
In the second quarter, we recorded $9 million ITC benefits in the income tax line related to the full energy storage facilities that came online in the quarter.
In the next few years in line with our growth plans to increase our energy storage portfolio, we expect to continuing to report lower tax rate.
Looking at Slide 10, our net debt as of June 32023 was approximately $1 $6 billion.
Cash and cash equivalents and restricted cash and cash equivalents as of June 32023 was approximately $395 million compared to $27 million as of December 31, 2022.
This slide breaks down the use of cash for the six months illustrating our ability to reinvest in the business and service our debt. We note that this use of cash have been funded from equity offering cash generated by operation and strong liquidity profile, we maintain.
Our total debt as of June 30 was approximately $2 billion net of deferred financing costs.
And its payment schedule is presented on slide 29 in the appendix.
The average cost of debt of the company standards for one 3%.
Our balance sheet remains strong.
During the second quarter, we paid off Plumstead and structured loan, which carried a floating interest rate structure, reducing interest rate risk and further sitting on our balance sheet with nearly all of the remaining debt liabilities in fixed rate films.
Additionally, we saw a material increase in interest income during the quarter as a result of the healthy financial position.
Moving to slide 11 in the first half of 2023, we had invested $247 million in cash capex to advance our growth plan.
We have $920 million of liquidity between our cash balance and available agonist grades.
Our total expected capex remaining for the two quarters of 2023 include $328 million of capital expenditure as detailed in slide 30 in the appendix, although we have strong position in terms of capital sourcing with excellent liquidity and access to additional capital.
Tractive rates to support our development.
Okay.
<unk> per share in the next quarter.
That concludes my financial overview I would like now to turn the call over to Ron to discuss some of our recent developments.
Thank you asking turning to slide 13 for a look at our electricity segment operating portfolio.
Our generation growth continues to be positively supported by the addition of North Valley.
And the operation of the Brady solar facility that they provided 25 megawatts six megawatts of capacity respectively.
Following the <unk>, which occurred during the period.
Our electricity results were impacted by lower generation and lower prices at Puna, but we still managed to increase revenues year over year through strategic expansion to the portfolio and operating assets.
Turning to slide 14 for an update on our backlog we are seeing significant improvement from last year and our backlog now stands at approximately $120 million.
With approximately $44 million in contract signed.
At the beginning of the year.
Moving to slide 15, the energy storage segment was affected by lower merchant energy rates.
PGM is actually explained earlier however.
However for new facilities started operations in the second quarter, which added a combined capacity of 62 megawatts of 62 megawatts hour.
In July we started operations of all of them, one or two a 20 megawatt 40 megawatt to our facility in California. This will provide ancillary services to the grid.
In addition, we released three new storage project that will add 155 megawatts or 380 megawatt hour and support our 2025 roast ovens.
Moving to slide 17 and 18.
World demand for electricity and energy storage projects remained strong.
Combining this with our unique development capabilities, we are well on track to improve our 2025 targets, we increased our targets to one nine to two two gigawatts capacity portfolio.
Presenting close to 17% growth at the midpoint compared to year end 2022.
This will be achieved through the addition of 230 to 260 megawatts of geothermal and solar energy power plants.
Actually in July with momentum approach.
One or two in California.
We have today six projects totaling 275 megawatts 740 megawatt hour actively underway and combined with the operating assets our portfolio well, we'll exceed the one gigawatt hour.
Our energy storage pipeline remains robust and stands at three three gigawatt or 11, five gigawatt hour of capacity.
Please turn to slide 23 for a discussion of our 2023 guidance.
We are reiterating our guidance, which includes full year revenue to range between 823 and $858 million.
Representing a 12% to 70% interest in yogurt.
Within the electricity segment revenues are expected to be between 670 $685 million.
A 7% interest at the midpoint.
We also expect product revenues to be between 120 and $135 million and.
Similarly, 79% increase at the midpoint.
Storage revenue guidance is 33% to $38 million for the year, which is also significant interest yields.
Adjusted EBITDA for 2023 is expected to be between 480 million.
To $510 million, a significant improvement from 2022 throughout the range.
I will end our prepared remarks on slide 27.
We are pleased with our results in the first half of 2023.
Satisfied with the progress we have made towards our new growth started adding approximately 100 megawatts of new generation capacity.
Starting construction of approximately 260 megawatts of new capacity.
We will continue to be the beneficiary of growing demand for a new but an energy storage and we expect to continue to benefit from PTC and ITC under the Iot, we look forward to achieving our goal of one nine to two gigawatts by year end 'twenty 'twenty five.
As always we remain dedicated to delivering sustainable profitable growth for our shareholders.
I'd also making a positive impact on the environment and the communities where we operate.
This concludes our prepared remarks, now I would like to open the call for questions.
Thank you at this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Alright to your question comes from the line of Noah Kaye.
With Oppenheimer. Please go ahead.
Morning, Thanks for taking the questions.
So just first on electricity results.
Maybe just explain what drove that lower Pune generation two.
What extent was this this plan and you know given you're reiterating the full year electricity outlook just help us understand you know.
The cadence of improvement to recovery.
Over the back half of the year.
Hi, Thank you I would say it's their own.
In Pune.
<unk>.
<unk> been continuously.
In the drilling campaign.
Effectively what's happened is ROE generation a bit low.
<unk> is.
One of the world reduced its slow right.
On one hand, and the other part that impacted the revenues is the pricing as you know we have 25 megawatts in Pune.
Tied to the avoided cost.
Some of us might not remember, but last year, there was a big war between Russia and the brand that is still ongoing but now it's less in the news and pricing at that time were almost $300 per megawatt hour.
It's about 200.
That was the.
The big impact.
However, we finished drilling.
<unk> 22, and we're collecting it it should be connected at the beginning of Q4.
The initial.
The outcome of the initial temperature and pressure that we see a very positive.
So overall, we see that we despite the impact on pull in Q in Q2 that we will be within the guidance that we gave at the beginning of the year.
So it sounds like to the extent, there's a real pick up there would be it would be in the fourth quarter.
Okay, and then you know upsizing the yearend twenty-five portfolio targets it looks like that.
Really all driven by higher storage. So maybe you can talk a little bit about.
The drivers of increasing the storage outlook.
Your thoughts on treasury guidance around ITC for storage and the implications for or Matt and just what gives you confidence and sort of strong project economics on the storage developments going forward.
Yes.
No Youre right, we increased the future guidance due to the storage projects that we already released this quarter and that we expect to continue in the release.
We see the storage.
<unk> today.
Very good to see.
Project return is somewhere in the.
High single digits and equity returns that can get to double digits.
The other way.
Yeah.
<unk> is the IRS issued base improved significantly the view on the ITC that storage can sell it came out with the guidance.
Full cash only it can be used three years backwards.
So the value of the ITC went up you cannot trade with them and they have to be between the seller and buyer.
We do see significant impact and that allows us to this project.
Most of the projects that we released today.
If 40% ITC.
And.
Okay and.
Thats, obviously improve the returns.
We also saw in the last quarter the reduction in the battery prices.
So all in all this quarter between reducing the battery pricing and increasing the ICC.
Allowed us to reduce LOE project.
And in reality the minute we release a project within a few weeks after that we should appeal for the batteries to.
Confirm ill or to fix the price that we pay and thats. It.
So the risk that we have.
Maybe one more thing this is.
Especially in California.
Especially in California are our customers are really scrambling in getting a contract.
A lot of developers are now understand how tough is to get the interconnection.
Might build over use pipeline that allow us now to start construction of project.
And we actually see.
A less tolling price it is even higher level than what we signed with the bottleneck and then hopefully a pomona to that was just the start we're operating in the next few weeks will sign.
I think the highest tolling.
What we've seen again, it's still under negotiation, but I believe it will be the highest tolling, which seems significantly higher than the one before.
Very helpful. Maybe just one more.
The industry on the geothermal side its been.
Fairly a wash.
In news around <unk>.
New disruptive drilling and sensing techniques, maybe expanding the addressable market. It sounds like kind of early days here, but very interested in your perspective on some of the innovation is happening in the industry and from a technology development perspective to what extent hormats participating in some of that tech.
<unk> innovation.
We all are.
Yeah.
The amount is the leading company in geothermal so any new development that will drive geothermal to be widely spread and increase the ability to build more geothermal facilities.
Is a huge upside for a month.
As you said most of these item is still in the early stage.
It has not been fully commercially viable.
But we are watching it very closely.
With specific people today that are looking at different.
Ups to make sure that we see this new technology.
We keep it and if we will be able to utilize it to utilize it.
And I would say you know if there will be and the ability to have the geothermal energy everywhere.
I assume that's what has been the only renewable energy because it's a 24 seven.
Energy I think they will.
So we're looking at locally unfortunately.
We haven't seen one that changed the dialogue so far and we hope that the there will be one that will come soon.
Well, we'll stay tuned thanks for taking the questions.
Thank you.
Okay.
Great. Thank you. Your next question comes from the line of Justin Clare.
With Ross.
Please go ahead.
Yeah. Good morning, So I wanted to start on geothermal and you had indicated that you had started construction on the 50 megawatt geothermal project in New Zealand.
Wondering if you could just speak a little bit more about your <unk>.
Development pipeline, how thats progressing in terms of.
The other prospects that you are evaluating.
What the potential might be for other projects that could be released for construction.
The possibility that those could be completed in the let's say 2025 timeframe.
Yeah.
Hi, Thank you for the question.
On the slides the list of projects that we are already.
<unk> had mentioned.
I can tell you that due to the significant demand that we see.
In the U S.
We have quite a lot of discussions internally, how we can push forward.
The project.
The 2025 timeframe of geothermal project takes longer than the two and a half years to develop if you don't have the resource. So we are now doing quite a lot of exploration.
We have.
Doubled and tripled our exploration efforts in our exploration team.
Drilling today between five to seven locations in parallel in order to develop it.
And on top of the U S. We're working quite a lot in Indonesia.
Well we are drilling.
Into two locations.
One of them Mike.
To get to the end of 2025, but thats not for certain.
And we're also looking in other places in other countries.
Have geothermal and are looking for the geothermal developed through.
That can develop.
Because.
At the end of the day, if somebody wants a renewable energy, which is 24 seven it is only geothermal.
So we are discussing and negotiating in other countries.
But this.
This is not.
Not yet ready to be discussed.
Yeah.
Okay great.
Helpful. And then maybe just shifting to the products segment.
You indicated you expect product segment gross margins to improve throughout the year here I think you had previously talked about a range, 15% to 20% in terms of what was possible there.
Are you anticipating getting into that 15% gross margin range for Q3 and Q4, maybe you could just speak to the speak to the trend that you expect there.
Hey, good morning, just conditions actually so yes, we are looking to go towards the 15 to 20 percentage throughout the year.
<unk> <unk> from last year that.
This time, we had basically no margin already in Q2, we had close to 10% margin.
As the all the project going away and the new 2022 signed contracts are kicking in.
Should see a better margin because they were signed in that improved margin.
We'll say that.
Hope that.
As we continue to sign contracts in New Zealand, and India, Turkey, and these margins will continue and stay higher than what we saw in the last few years.
Got it Okay, and then just one on storage.
So you've added more projects with Ppas in the storage segment was wondering if you could speak to the visibility you might have into the gross margin for that segment.
Do you have a better sense for how the margins might trend in Q3 and Q4.
I know theres still a merchant component, but maybe you could just speak to the visibility there.
So when we look at Q3, we do see some improvement in the.
Energy prices in the <unk> area.
We don't see much improvement in two.
Two areas that we operate which is the one area.
And in the PJM.
The new contract.
Ppas.
It will kick in.
Starting a mostly next year.
And I do expect to be somewhere between 15% to 25% gross margin I can tell you that the projects that we are signing now ppas may have slightly higher gross margin in them, but let's sign those contracts and we'll have more visibility. So when they look between now and year end, we will see some improvement.
Because also we have new projects coming in.
Fixed cost in operating the business, but I expect.
In late Q1 next year when the bottleneck kicks in and Pomona two will have the full tolling agreement too to start seeing pickup in margin.
Hope, we will get eventually to 225% margin install ads with around 50% to 60% of EBITDA margin.
Okay very helpful. Thank you.
Okay.
Alright, Thank you for that it looks like our next question comes from Julien Dumoulin Smith from Bank of America Julien. Please go ahead.
Hey, guys. This is actually Cameron lochridge on for Julian.
Good morning, I, just wanted to ask first starting on storage so.
Nice to see 2025 targets getting raised here this quarter.
Congrats on that I wanted to ask.
How are we trending how does this increase in 25 put us in terms of reaching those 2026 targets that you guys laid out at Investor day last year.
And then on a related question.
I believe I heard earlier in the call.
Storage returns in the high single digits, but maybe maybe markdown market I just wanted to hear or just clarify that when you guys were referring to there.
Okay.
Thank you so.
Obviously.
The more we grow into more projects, we're bringing online gets us closer stronger with the guidance. We gave on the analyst day for 2026.
And.
On the storage part.
Permitting process in our collection process to the degree that takes time.
And we do expect that as the portfolio of the storage area will grow.
And we will be more balanced between merchant.
The projects are a contracts and.
And PPA contract.
The profitability will.
Drill.
Going forward.
The gross margin as well as in the EBITDA.
On the return to what I said is that we see high single digit return.
The projects of the storage today with ITC. This is the range.
We see obviously if the project returns are in the high single digits.
Look on equity return.
It would be higher.
Higher than that even in today's interest rate environment.
You can get to low double digits or very high single digits.
Got it thank you very much for that.
Just to put a finer point it sounds like it was 26.
<unk> do you still stand no no changes there.
Yes.
Okay, Great and then briefly just wanted to touch on product.
Obviously.
Strong growth in revenue.
Backlog year over year, but backlog did decline.
Decline.
Quarter over quarter, I, just wanted to kind of get a sense for.
How you see that trending sequentially here into the back half of the year.
And kind of with some leading indicators are for for the for that business going forward.
On the product segment.
The quarter over.
Quarter analysis is complicated because.
It's a specific date when you sign the contract.
Quarter over quarter might be up or down.
We are.
Negotiating a few contracts today, both in New Zealand and in Turkey.
Which we hope will be finalized and will be signed in Q3.
By the end of the year.
And within these contracts we have.
David the future backlog to be higher.
But specific quarter, sometimes you sign a little bit later than it was another quarter. So when we look at the backlog, we usually try to look at the yield back to see some trends in the.
For me only goes up.
Got it okay.
Thank you all and that'll do it for me.
Yes.
Alright, it looks like we have one more question from Jeff Osborne at TD Cowen. Please go ahead.
Hey, good morning, I Might've missed this but I was just wondering how to think about the.
The monetization of the tax credits and that flowing through the P&L in the second half of this year and then based on the project cadence how to think about that next year.
Jeff Good morning. This is asking so currently when you look at the Itc's credit.
Those are mostly related to the storage assets that we bring online so.
So if you look at the appendix you will see the list of storage project that we have between now and the remaining of the year.
And basically you can see that the Pomona to.
Was the one that came in early Q3, so we should expect in Q3, the benefits coming from those the tax.
We are currently booking into the 90 cents per dollar.
ITC.
There are indications that the market is growing to 95% 96 based on what Ron alluded to earlier.
As we look into 2020 full on ITC credits this will be a very positive year for us.
We have three project as you can see on this slide is flemming can storage project the bottleneck in the Montague It I think.
Between the three Capex is close to a $150 million.
Dr. <unk> is a 40%.
The ITC. So we definitely expect next year, if you do the math.
Over $40 $50 million of ITC credit or 90% base you can do the math it can and significantly add value to the earning per share of the company.
And also provide a lot of cash to our business.
Moving to the PTC.
As we mentioned this year, we are expecting to do few tax equity transaction. So the tax equity income should continue and ryzen as we bring more and more assets.
Your line.
When we look at next year.
The biggest addition next year will be the in the U S. It will be to be while we repowering, while it's a six megawatt project in the slide it's actually a repowering of the full plant and it will be roughly equivalent to a 20 megawatt.
Okay.
The facility that will be entitled to PTC, So that will add to our PTC value on the other hand, we do add in historical.
Equity transaction that basically will discontinue in the end of this year because it basically reach it almost 10 years of the operation and its contributing around $9 million to $10 million annually of Ptc's. So next year.
What we will see the 10 million reduction in tax equity transaction on one hand, but Dan all the projects that kicked in this year plus to be while we should at least make up for it. So our year over year, we should see flat with slightly up numbers. So bottomline ITC will be extremely significant next year.
PTC should be very close year over year.
And all of it will bring a lot of cash to the company to support our growth.
That's helpful. Maybe just two quick follow ups.
The legacy $9 million to $10 million, which project is that.
P J.
Got it.
Yes.
Okay perfect.
We have a call yeah yeah.
Yeah, No worries and then maybe the final question is just how should we think about the new energy community map.
Quite a bit of Nevada is characterized as an energy community, which will give you an extra 10%.
So you mentioned Ron that you were accelerating some drilling and testing are you specifically targeting.
Energy community areas and try to capture that extra 10% now that you have.
Bill roadmap on where to go or not necessarily.
Alright.
Yeah.
Unfortunately the.
The resource underground doesn't follow the math.
So when we have whenever we see a resource we will develop it regardless of the 10%.
I would say that the PPA pricing of today that continues to go up supports geothermal development, regardless of this additional 10%, which is a very nice upside.
But we're looking to develop geothermal wherever we have.
I appreciate it.
But we do have assets that are sitting on.
40% or if you think about the $30 plus.
PTC.
With that being said the returns are so good at regardless of that we will do the project, but we may benefit from it you know we may get Lucky we were surprised of how.
A big part of Nevada, as part of the LG community.
No.
With respect to storage.
We were very lucky to have many of our storage assets in the 40% ITC criteria.
The two assets that we released this quarter, which is a burden lower REO.
Both entitled to 40%. In addition to our biggest project right now which is bottleneck that also chartered to 40%.
It looks like.
We will benefit from the energy community.
On top of the the.
The expectation that the liquidity of the ITC and PTC is will be extremely high because of the ability to carry back three years.
Okay.
Tax credits versus the historical profit of.
Of other companies.
Thanks, So much that's all I had.
Okay.
Great. Thank you we have another question from Derrick pod Hiser from Barclays. Please go ahead.
Hey, Good morning, just one question for me you talked about battery prices being an area of relief just wanted to get a sense of your long term outlook at these prices structurally step down or is this temporary and you would expect inflation to creep back in just some overall thoughts on the battery prices and what do you think about over the next few years.
What we've seen.
In the battery prices in the shift of the suppliers from.
Fixed.
The long term.
Contrast, why you would or you.
You would sign a contract and although the batteries over time.
And to the fact that pricing is getting fixed only one new issue the actual po and until that time that pricing tied to lithium prices as well as other elements.
Lithium prices.
I believe over the last year year, and a half went up 500% went down 50% went up another 200%.
And I think at the end of the day. It is important to have the right.
Frame agreement.
With the battery developer.
And be ready to issue the appeal once.
Economic of the project are working.
Might be that you do not capture the lowest strategy pricing, but obviously not the highest but regardless.
The economics of the project work and that's the time to issue the appeal and once you issued appeal the prices are fixed.
So thats basically the way we look at it we do.
Signed frame agreement and we issued the field simultaneously when we start construction of the project and by that the lock in their retail businesses.
Yeah.
Great I appreciate the color I'll turn it back.
Okay.
Great. Thank you I will now turn the call back over to Darren <unk> for closing remarks.
Thank you.
So thank you all this was a strong quarter and represents our continuous work to grow the business with 37 megawatts of geothermal and solar is 62 megawatts of energy storage coming on line.
And 102 megawatts of geothermal and solar and 155 megawatts 380 megawatt hour of energy project stole it.
Started construction this quarter.
These projects will support our future growth.
That allows us to increase our target for the end of 2025.
Thank you everyone.
Thank you ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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