Q4 2023 Ormat Technologies Inc Earnings Call
Good morning, and welcome to the or Matt technologies fourth quarter and full year 2023 earnings conference call. All participants will be in listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question Press Star. One again. Please note that this event is being recorded I would now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.
Thank you operator hosting the call today.
Our Chief Executive Officer, Ginsberg, Chief Financial Officer.
Levine, Vice President of Investor Relations and ESG planning reporting.
Before we begin.
I'd like to remind you that information provided during this call may contain forward looking statements relating to current estimates current expectation estimates forecasts and projections about future events that are forward looking at defined in the private Securities Litigation Reform Act of 1995.
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 for matrix apologies annual report on Form 10-K quarterly reports on Form 10-Q filed with the SEC.
In addition, during the call the company will present non-GAAP financial measures such as adjusted EBITDA.
Reconciliations to the most.
The 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. They 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. The slide presentation accompanying this call may be accessed on the company's website at Ormat com under the presentation link that's found on the Investor Relations tab.
With all that said I would now like to turn the call over to Toronto shock or on the call is yours.
Thank you Josh and good morning, everyone. Thank you for joining us today.
<unk> concluded 2023 on a positive note fourth quarter results, finishing off a successful year.
The company reported robust fourth quarter revenue growth with a 17, 4% increase compared to the previous year's quarter.
Commendably 11, 5% rise in adjusted EBITDA.
Yeah.
Throughout the year, well must maintain its momentum with a successful development execution and enhanced operational performance from existing facilities.
Coupled with the promising recovery in the product.
These factors collectively contributed to a 30% interest in total annual revenues and a $10 six increase in full year adjusted EBITDA.
Throughout 2023 at the beginning of 'twenty 'twenty four we successfully augmented our capacity by adding 239 megawatts through development projects and acquisitions.
Among these portfolio additions 157 megawatts will integrate it into the electricity segment.
Probably the 100 megawatts of geothermal and solar PV assets acquired in January 2024.
In 82 megawatts from the addition of five new storage facilities to the stores segment.
This expansion aligns with a multiyear capacity expansion.
Further strengthening our EBITDA and earnings generation in 2024 and beyond.
Since the beginning of 2023, we have signed four long term ppas for a total of 98 megawatts you know what it was at the site.
Yeah.
55 megawatts or one other than 80 megawatts hour.
Energy storage system.
As we continue to successfully execute against our growth strategy, we expect the benefits of improved generation capacity and our demonstrated ability to sign ppas with attractive pricing terms.
We will continue to support solid with sales and earnings performance for our shareholders as we head into 'twenty 'twenty four.
You know for the segment, we are encouraged by the recovery. We saw in 2023 annual product segment's revenues grew 87 three versus 2022.
The increased backlog of $152 million is representative of the growing global demand for different products.
We had said this healthy demand combined with our industry leadership position to allow us to continue competing and growing our presence in key strategic region.
Okay.
Looking ahead to 2024, we expect to continue capturing the benefits of <unk> successful growth strategy.
We are on track and Doe capacity expansion in both the electricity and if those segments with the potential to reach between two one gigawatt to two three gigawatts across our portfolio by the end of 'twenty 'twenty six.
We anticipate a significant increase of 7% and 10% in revenues and adjusted EBITDA, respectively for 2024.
We continue to see strong support for renewable energy that.
I already benefits, including the PTC for geothermal and ICC full storage.
Which basically support will continue to create opportunities for new ppas in both the electricity and store segment and it stays at these benefits will continue to reduce our capital needs.
To help fund our growth strategy and enhance our EPS in 2024 and beyond.
The challenging environment carries intelligent tailwind supporting demand for geothermal energy storage.
Driven by global Decarbonization efforts and the collective push to utilize the words, the renewable energy resources to reduce greenhouse gas emissions and combat combat the impact of climate change.
Now before I provide further updates on our operations and plans I will 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.
The fourth quarter marks another strong finish to an overall excellent year in 2023.
Creating positive momentum as we head into 2024.
And positioning us well.
We aim to deliver on our multi year financial and operating targets.
Total revenues for 2023 was $829 4 million up 13% year over year.
And revenue for the fourth quarter was $241 3 million, marking 17, 4% growth year over year.
This fourth quarter and full year results represent solid growth across both our electricity and product segments.
Across the full year of 2023, our adjusted EBITDA results of $481 $7 million increased 10, 6% comp.
Compared to $435 $5 million in 2022.
Our record fourth quarter adjusted EBITDA results of $139 million increased 11, 5%.
Compared to $124 7 million in the fourth quarter of last year.
Year over year the growth in adjusted EBITDA was largely driven by an increase in revenue in our electricity and product segments.
With a larger contribution from tax equity transactions.
In the full year 2023, net income attributed to the company's stockholders was $124 4 million or $2.08 per diluted share.
This represented an increase of 88, 9%.
77, 8%.
The prior year, respectively.
On an adjusted basis net income attributable to the company stockholders was $121 9 million.
Or $2.05 per diluted share an increase of 32, 2% and 25% versus the same period last year respectively.
The significant year over year earnings growth was driven by higher operating income.
Further supplemented by the impact of the other benefits that flow through our tax line.
In the fourth quarter of 2023.
Net income attributed to the company's stockholders was $35 7 million or <unk> 59 per diluted share.
In comparison to $18 million or 32 cents per diluted share in the same quarter last year.
On an adjusted basis net income materially to the company's stockholders was $45 million or <unk> 67 per diluted share compared to $41 $2 million.73 per diluted share during the fourth quarter of 2022.
Quarter over quarter earnings was impacted by a higher effective tax rate.
Moving to slide six.
We breakdown the revenue performance of this segment delivered electricity segment revenue increased by five 5% to $667 million.
11, 3% to $184 million in the year and from a fourth quarter of 2023, respectively.
This increase was largely driven by the new projects that came online in 2022.
The commercial operation of our numerous geothermal solar PV and energy storage project.
These include the EBIT, one geothermal power plant, which went which went online in May 2023.
The quarter also benefited from improved generation, it's puna power plant that had been operating at lower capacity in the first three quarters of 2023.
In the product segment revenue marked a substantial increase growing by 87, 3% to $133 8 million and by 56, 7% to $54 million in full year 2023, and in the fourth quarter respectively.
The growth in our product segment was primarily due to the new contracts that are reflected in a higher backlog and the timing of revenue recognition versus the prior period.
Energy storage segment revenue decreased by six 8% to $28 $9 million in the full year 2023, and by 14% to $7 million compared to last year's fourth quarter.
Lower year over year segment revenues was driven primarily by lower revenue in the PJM and Kaiser markets as mentioned rates were lower than 2022.
New facilities that came online during the year, partially offset the impact of a weaker merchant prices.
Moving to slide seven.
The gross margin for the electricity segment was 36, 6% and 39, 5% in 2023 and fourth quarter.
Down 320 basis points, and 400 basis points respectively.
The decrease in full year margin performance was mainly due to business interruption of $15 $6 million recorded in 2022 compared to $6 3 million.
Recorded in Q1 2023 related to the Hebron and the Puna bonkers.
As well as revenue at Fuller due to lower generation and energy prices.
In the quarter. The reduction was mainly driven by $6 4 million of business interruption income recorded in fourth quarter of 2022 related to EBIT World.
In the product segment gross margin was 13, 4% and 12, 6% in the full year of 2023 in the fourth quarter respectively.
Down 190 basis points and 1000 basis points.
Margin decreased due to lower profitability associated with contracts that were signed during 2021 and 2022.
Partially offset by new contract with higher margin that were signed in 2023.
Looking forward, we expect our product segment margins to be between 15% to 20%.
The energy storage segment reported a full year gross margin of six 4% compared to 21% in the prior year Deridder.
The reduction was driven by significant pullback in merchant prices in the east coast compared to last year's observed market driven pricing strength.
In the fourth quarter of 2023 margin was negative eight 9% compared to positive 11, 7% year over year.
As we enter 2024, we expect improved margin rising to between 10% to 15% supported by the Pomona to PPA that was signed this year.
And the city of bottleneck, which also carry fixed price tolling agreement.
Looking at slide eight the electricity segment generated 94% of format total consolidated adjusted EBITDA in 2023.
The product segment generated 4% of the energy storage segment reported adjusted EBITDA of $90 9 million, representing almost 2% of total adjusted EBITDA.
Reconciliation of EBITDA and adjusted EBITDA provided in the appendix slides.
Moving to slide nine in the fourth quarter, we recorded $18 $7 million in income related to tax benefits.
<unk> $14 7 million was income related to five active tax equity transaction, while the remaining $4 million is related to towards favorable PTC, which were recorded in 2023 and the provision of the sexual reduction Act.
The income related to tax benefit increased this quarter by $11 2 million compared to the same period last year.
For the full year income related to tax benefits increased by $27 2 million.
Also in the fourth quarter and full year 2023, we recorded $1 4 million and $18 7 million of ITC benefit in the income tax line related to new storage facilities that COPD Shea.
For fiscal year 2024, we expect an annual approximately five to 10 million reduction in PTC recorded under the income attributed to the sale of tax benefits line of the P&L due to the elimination of one of our tax equity transaction that creates the flip date offset by new transaction, we expect to sign related to.
Heber and B Riley.
We also expect to record $14 million in ITC benefits to our storage facility under the income tax line.
The way we plan to record the ITC benefits during 2024 is slightly different compared to 2023.
And instead of recording the entire benefit under the tax line in the quarter that the storage projects came on line, we expect to reduce our tax rate proportionally throughout the year.
We anticipate the receipt of approximately $145 million in cash proceeds related to the PTC and ITC benefit that will reduce our capital needs for 2024.
Looking at slide 10 or.
Our net debt as of December 31, 2023 was approximately $1 8 billion dollar equal.
Equivalent to three seven times debt to EBITDA.
Cash and cash equivalents and restricted cash and cash equivalents as of December 31, 2023.
It was approximately $288 million.
Compared to $227 million at the end of 2022.
Slide 10 breaks our cash for the 12 months illustrating our ability to reinvest in the business and service our debt obligations, while returning capital to our shareholders.
Our total debt.
Our total debt as of December 31, 2023 was approximately $2 1 billion net of deferred financing costs. Excluding the short term commercial paper. We issued is presented on slide 33 in the appendix and outlined the payment schedule and the average cost of our debt for the company standard for.
3%, we think it is important to note that nearly all of our debt liabilities remained fixed rate in nature.
Which we believe will help continue to position or much competitively in the rising global interest rate environment.
Let's move to slide 11.
We have approximately $741 million of total liquidity.
Our total expected capital for 2023, four is approximately $550 million as detailed in slide 34 in the appendix in 2024, we plan to invest approximately $340 million in electricity segment and construction drilling in maintenance capex and $187 million in our storage assets.
Overall, our market is very well positioned to execute our strategic growth plans from a capital ratio perspective.
Maintaining excellent liquidity and ample access to additional capital as well as cash we expect to receive from the IAA benefits.
We expect that each project that reached commercial operation in the next few years in the U S will be entitled to between 30% to 40% of funding supported by the new IRS benefit.
On February 21, 2024, our board of directors declared approved and authorized payment of quarterly dividends of <unk> 12 per share to all holders of the company issued and outstanding shares common stock on March six 2024.
Payable on March 22024. In addition, we expect to pay a quarterly dividend of <unk> 12 per share in each of the next three quarters.
Finally.
On January four 2020 for Walmart completed the strategic acquisition of contracted operating geothermal and solar assets from Enel Green Power North America.
<unk> paid $272 million for 100% of the equity interest in the portfolio basis.
The overall transactions were funded with available cash in combination with new corporate loans in the amount of $200 million.
Rates in January 2024.
The Enel great assets portfolio acquisition is expected to be immediately accretive to both revenue and EBITDA and we intend to further improve the performance of the acquired Asa portfolio through a series of operational enhancements and optimization initiatives.
That concludes my financial overview I would now like to turn the call over to Ron to discuss some of the recent developments.
Thank you. Thank you <unk> turning to slide 13 for a deeper glimpse at our operation operating portfolio.
Generation growth in our core electricity segment.
It's a follow up from our multiple seal deals we achieved during 2023.
Most notably at North Valley in April.
Additionally, we brought operation back online at our EBIT one facility following the replacement of equipment, allowing higher generating capacity.
And we also completed an expansion to the Dixie value plant that we undertook to maximize the value of our existing PPA.
Our portfolio capacity also carry the additional support for full year operations at <unk>, and tungsten phase II, which we can achieve their respective facilities over the course of 2022.
This was partially offset by a reduction in capacity at our Florida facility due to operational issues related to the performance of the oilfield.
Which caused us to run the plant at lower capacity rates.
The performance of Puna improved in the fourth quarter and is currently operating above 30 megawatts.
Our current total generating capacity, including the Enel assets more recently purchased stands at 1215 megawatts in the electricity segment compared to 1070 megawatts in 2022.
This marks a 13, 6% increase versus prior year level positioning us well to achieve our multiyear portfolio expansion.
Turning to slide 14, I will give more details on our operating footprint. We are back to normal operating operation at Puna and if successful increased generation above 30 megawatts up from the low Twenty's, we observed earlier in the year.
Currently received an approval from the Hawaii PUC for new Ppas facility.
And confirmation of the Eas.
New PPA expands the contracted capacity and.
Fixed energy rate this will remove the volatility of the current avoided cost structure.
The PPA will be in effect following the completion of the power plant upgrade expected in 2026 and will carry an average rate per megawatt hour.
Approximately $1 27 to $137 per megawatt hour, assuming we sell 100% of the generated electricity.
<unk> power plant in Kenya, we are currently operating at the 125 megawatt level.
Up slightly from prior year.
Our professional team continued to work through.
Work to increase the capacity of <unk>.
And the drilling campaign, we conducted in 2023 has shown successful results.
Now being tested.
We are optimizing the resource utilization and extended the connection of the new ways to support and improve future performance.
In the Caribbean, we continue with the development of the <unk> power plant in Guadeloupe and expect to finalize PPA negotiations shortly.
The end of 2023, we signed a new beauty Ppas for new 10 megawatt power plant, we expect to build in Dominica near <unk> Buddhism.
The proximity of these two partners creates attractive operational synergies this will reduce <unk> costs and strengthen the economic potential of the expected new power plants.
And on the strategic front on slide 15 in October we announced the acquisition of the contracted operating asset portfolio in the United States from Enel Green Power North America.
This transaction closed in January 2024.
The asset portfolio, including through geothermal facilities and three solar PV facilities.
<unk> consolidated capacity generation of roughly 100 megawatts with a three year trailing average annualized EBITDA contribution of $24 million.
The portfolio is to carry the opportunity to expand economics through a targeted series of growth investments, including operational optimization through the replacement of existing equipment with best in class utility manufacturer of equipment and the option to explore future Greenfield projects in Utah and in California.
Turning to slide 16.
Our product segment backlog stands at 152 million.
This backlog carries roughly $157 million of contract.
<unk> signed in 2023, including the recently signed $95 million geothermal contract for the North America project in New Zealand.
We see future potential coming from New Zealand, Indonesia, and Latin America.
Moving to slide 17 for an update on our energy storage systems. This segment reported lower revenues and gross margins in the fourth quarter due to lower year over year merchant rates, primarily in the PGM and Kaiser market.
We successfully field this new project to add 82 megawatts or 102 megawatt hour in total Gulf fleet.
And we are currently in the final stages to commission the 20 megawatts 20 megawatts hour East Flemington facility.
We also successfully secured a long term tolling agreements for one or two facilities.
This agreement marks the third tolling agreement expanding portfolio. Following the 2022 bottleneck contract in 2020 early for solar and storage facility.
These three agreements contribute to the growth of a stable profitable and predictable revenue stream for the energy storage segment with over 40% of the segment's revenue expected to be constructed by the end of 2024.
Please turn to slide 19, where I will briefly discuss our both of them.
We continue to see an increase in the demand for geothermal energy.
The successful and steady execution of our growth strategy has given us the confidence to reiterate our 2026 targets that we provided in early 2022.
With the successes, we have achieved thus far you know growth efforts supported by the trustee of organic and acquisitive growth captured in 2023, we are targeting between $2. One to two three gigawatt portfolio capacity by year end 2026.
Our critical target markets of California, and Nevada.
We recognize the critical role the geothermal resources play in supporting their respective energy rates.
Are the forefront of developing and supplementing intermittent power generation with reliable and renewable high capacity geothermal energy resources with zero emission.
This support has helped sustain and expand the tailwind for future Ppas.
Additionally, it has created adjacent tailwind for energy storage demand is added storage capacity will be necessary for the region to achieve their goals and further reduce greenhouse gas emissions to supply power to the grid.
As we have discussed previously the inflation reduction Act, which was signed on August 16, 2022 has had a significant positive impact on our ability to develop geothermal and storage assets in the U S. It's higher economics due to lower capital needs.
We plan to continue seeking the PUC benefits for new geothermal power plant and plan to enter into further tax equity transaction, which can fund over 40% of our capital needs for new geothermal plants in the U S.
Okay.
Moving to slide 20, we are on track with our long term targets as communicated back in 2022 on those things.
We expect to increase our total electricity portfolio generation two between.
1450, and 1470 megawatts by the end of 2026.
In energy storage, we remain on track with our growth plans and we expect to reach between 700 to 800 megawatts or one nine to two three gigawatts hour by year end 2026, marketing and more than five fold expansion from prior capacity level.
Slide 21, and 'twenty two.
Shoguns, the geothermal and the hybrid solar PV projects currently underway.
We are on track with our BYU Repowering project, which we expect to be complete in the second half of 2024.
Later towards the end of 'twenty 'twenty four we expect to achieve the commercial commercially for the Egypt plant in Indonesia, which will add another 15 megawatts of capacity plus one portfolio.
In 2025, we expect to add 20 megawatts in operations in the Caribbean area and one large power plant in New Zealand.
In addition, we are planning to upgrade our recently acquired assets and other approximately 17 megawatts between the end of 2025% in 2012.
Tuna, North Valley tool and new prospects that we'll have successful exploration are expected to be operational by end of 'twenty 2006.
Our project development underway in our solar PV portfolio are weighted towards the first half of the year as we expect to commission the steamboat Hills solar by the end of Q1, and North Valley <unk> by end of Q2.
Moving to slide 24, the third leg of our growth plan focuses on the growth and development of our energy storage assets.
We currently have seven projects under development that will add 355 megawatts or 1060 megawatt hour storage portfolio by the end of 2024.
We are currently in the latest stage of 20 megawatts is flemington storage facility in New Jersey.
Also we released for construction the shield 18 megawatts 320 megawatt hour storage facility.
In California that is expected to be online in the second half of 2025.
Our pipeline and energy storage as displayed on slide 25 shows our overall potential future capacity at three six gigawatt of 31 gigawatt hour.
Geographically, we continue to focus our efforts largely in the core target market of the United States, where we have the ability to benefit from the increased demand for energy storage capabilities.
Please turn to slide 26 for a discussion of our 2020 for guidance.
We expect total revenue to increase by 7% yogurt the midpoint.
And to be between 860 and $910 million.
With electricity segment's revenue between 710 and $730 million.
An increase of 8% compared to 2023.
We expect between 115 and $135 million in the product segment.
And energy storage revenues are expected to be between 35 and $45 million.
We expect adjusted EBITDA to increase by approximately 10% at the midpoint to range between 515 and 545 million.
We expect annual adjusted EBITDA attributable to minority interest to be approximately $18 million.
Yes.
I will end our prepared remarks on slide 27. This was a strong quarter that capped off a very strong year for us.
We are confident that our attractive and differentiated portfolio of power generating assets.
Unique growth strategy, and our demonstrated ability to develop attractive geothermal solar PV and energy storage projects with attractive long term ppas.
Physician or months for successful and will drive significant shareholder value as we progress across 2024.
Before I open the call for questions I'm happy to tell you that we will have our next Investor day in New York City on June 22024.
This concludes our prepared remarks, now I would like to open the call for questions operator. Please.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. Our first question will come from the line of Justin Clare with Roth MTN. Please go ahead.
Yes, hi, thanks for taking our questions.
So first off here.
I might've missed it but did you share the expectations for electricity gross margins in 2024.
If not would you mind, providing the expectations there and then just wondering if we compare the gross margin in 2024 to 2023 what are the key.
Elements that we should be thinking about that are influencing that change so there's that.
At Puna operating at a higher level of capacity. There is also the acquisition of <unk> assets, but one of the other factors that we should be thinking about.
Good morning, So when we look at the 2023 and electricity and I'm going to talk on the full year for the full year gross margin was roughly a 36, 6%.
When we look at the 2024, we expect a slight uptick by one 2% in the gross margin is coming basically from.
Three elements one as you rightfully said that <unk> is operating at a much higher capacity for the full year expected 2024 versus <unk> 2023.
Second in our Korea, we had a very successful drilling campaign.
Back in the second half of the year to impact us positively.
And third is the assets of <unk> that also contributing a high relatively high gross margin.
Okay got it.
Helpful.
And then you reiterated the 2026.
Capacity target here 21223, Gigawatts I was wondering if you are still.
Anticipating to meet the interim target for 2025.
About one 9% to two gigawatts essentially by the end of 2025 are you on track there. It looks like you do have the assets in geothermal and solar two to achieve that target storage. It seems like some assets may be needed to be added to the pipeline still so how are you thinking about that.
Oh, yes, yes.
Yeah.
We are expecting to reach the target for the end of 'twenty five as you.
Said when you look at the lease of prior to that release, including the shield product that we released this week.
We are very close to have all of the detailed all the project, which will get us there.
They still are.
Some projects on the energy storage that will need to release and we are working to release them getting the final.
Permits.
So we do expect to be in line with these targets.
Okay got it and then maybe just one more it looks like you had prospects.
So youre exploring here increase the decent amount quarter over quarter. Thank you 42, now versus 33 last quarter I was wondering if you could just expand on what drove the increase there and what.
What opportunities you're pursuing.
The prospects are.
In the in the U S.
Referring tool increased mainly due to that position.
<unk> brought in a new targets, new Greenfields in Utah and California.
And it's an ongoing process that we continuously look at opportunities.
Whenever we have a chance we buy new labs, the BLM issue, but I think the main differences.
Yeah.
The acquisition of <unk> and the potential prospects they brought in.
Got it okay all right. Thank you.
Thank you.
Your next question comes from the line of Ryan Levine with Citi. Please go ahead.
Good morning.
Hoping to start off on new Mexico, I noticed you have one development project there their freestyle legislation that came into that got passed last week. What's your outlook for development in that state and is there more meaningful commercial opportunities that youre seeing emerge and new.
Mexico.
So we have really fallen in new Mexico.
The potential to increase which we actually like I can tell you that until the last legislation in a few weeks ago, we didnt see stronger <unk>.
Little support in New Mexico.
But with this new.
Change we are looking at it we know that that all power plants over the operating can tell you that we're also looking on the energy storage market in new Mexico.
So this is definitely a place that we're looking at.
Okay, maybe shifting region of the world in terms of Kenya.
Give us an update around the cash payments may have received this quarter.
That's the case that out and Knowhow state of commercial negotiations or the state of those projects are progressing.
You know as I mentioned in the last call.
Kenya AAR last year, there was rising noted because of <unk> inability to pay but because of the lack of U S dollars in the country.
Because of the very good weather in the second half of 2023 that positively impact the agriculture export.
In addition to the fact that the Kenyan government was able to issue 2 billion euro of new debt bond a few weeks ago.
To say that in the first 40 50 days of 2020 full we already collected over $32 million.
So I will say that.
So far for the year, a very good outcome to to.
Our cash and benefiting us tremendously.
If you look at the cash flow last year, we were suffering almost $60 million increase in the receivable I hope that this year, we'll see the opposite and therefore, the operating cash flow will be much stronger.
As of the negotiation as you know and everybody knows that.
In every negotiation there is it.
It needs to be a win win situation, we have a valid contract with BP until 2034.
We are always happy to negotiate new terms on the win win base.
I can't say that there was any change in the prospects of getting into a.
The new terms, because mainly of the fact that to all must electricity is needed and it's already priced.
Probably the most cheapest electricity in Kenya other intention.
I don't anticipate any major changes in the contract going forward and if there will be one we will.
We will announce it to the market, but as you said at the beginning they need electricity.
And they are paying for it and we expect 2024 at least from as of today is to have a very strong collection in Kenya.
Okay, and then on the storage segment I appreciate all the disclosure around your fix various merchant.
Our revenue mix.
Is there any.
Key hubs that may have caused the margin.
Pressure in this recent quarter and how are you seeing the outlook for storage margin going forward.
And to the extent, there's any resource adequacy or any other payments that that are relevant for that margin outlook that we should keep in mind.
I would say 2023 was.
Relatively.
Low merchant pricing across the whole place all of the markets that we operate in and that's why we saw lower margins in the energy storage.
Part of the balancing of the risks that we are doing is signing tolling agreement or PPA agreements. We've signed the Pomona tool, we signed with bottleneck that will come online this year end.
As I said before we expect at the end of the year to be around 40% contracted in the next deal we have.
Additional contracts coming with the Ppas and we are negotiating additional contracts with PPA. So.
All in all this is going to be a balance. So we will not see this high volatility that we see today.
However, we definitely do not want all storage assets will be contrasted because we do believe that.
We can get benefits from this volatility with just want to have it better aligned.
And on the margins. So we expect in 'twenty for around 10% to 15% gross margin in the second half of 2024 to be even higher at around 15% to 20% once Boston that comes into operation.
Great. Thanks for taking my questions.
Steve.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, Good morning can you hear me.
Yes, Julien it's fun and thank you very much guys. I Hope you guys are well look thank you.
I can't just can we talk a little about the storage segment, just what exactly is going on.
Just the latest revenue guidance, obviously, a little bit more flattish last year off of a robust 22, but how are you thinking about the cadence of that business over time here. We've had a couple of flattish year as you've been putting more capital into it obviously more profitable than the earlier years, but just a little bit more color on just why it's still is sort of in the same ballpark here if you will.
Alright, and then negative margins in the quarter.
I think on the the negative margins of the quarter.
Yes.
We said relates mainly to the merchant pricing and decided that most of the fleet is merchant what we are going to change.
Once Pomona.
The tolling agreement with.
<unk> and bottleneck or the second half of the year.
We finished 23 with around 29.
$1 million of the guidance that we gave you 35 to 45, which is the.
Close to 40% increase year over year.
What we see in the.
In the area.
In the storage market is that as we bring online more project and we signed more contracted asset pricing goes up actually if you'll go in annualized.
23, and 24 to see how they would look at all the assets come online.
<unk> operated for the full year, you will probably see.
Over 50% increase year over year.
So we actually are starting to benefit from the growth that we see in the storage.
When you see the plan that we have to grow the storage to over 700 to 800 megawatts at the end of 'twenty six.
It is a significant growth and we expect.
This segment to grow to continue and grow significantly as we continue to believe large projects.
During the year.
And as I said the margins, we expect 24 to be 10% to 15% with the second half after a bottleneck coming into.
Two operations around 15% to 20%.
Got it excellent and then just vis vis longer term here.
Obviously, we're talking here about storage growth, but overall you guys have this analyst day coming up how many years forward would you expect to provide here and then the interim here just as you think about these targets that you had how are you thinking about achieving the sort of 'twenty five 'twenty six financial metrics that you articulated and I get that maybe you are now going to pivot to something that might have a little bit more.
More of a longer data due to it by mid year.
Look what we've said now is that.
The target that we've set in 2022 the growth targets we have.
Reiterating the growth target and we expect to be in line with these growth targets as we come to the analyst day in June.
Obviously come with the longer term targets I can't tell you exactly how many years down the road, but.
In all the previous analyst.
We'd give longer term targets.
So you will know where the company is going I think today, we gave out the target for the end of 2006 again to 121% to three gigawatt.
Hopefully operating assets.
Which is a very nice growth target.
Once again that is star one for any questions and our next question will come from the line of Derek <unk> with Barclays. Please go ahead.
Hey, good morning, I just wanted to go back to the 2024 guide you guys talked about gross margin expansion on electricity.
<unk> and storage.
Can you just clarify as far as how much EBITDA support you expect out of the PTC just trying to triangulate the guide and the different puts and takes there. So can you expand on.
What brings you we got the revenue guidance, but what brings you on the margin front and then the.
The ptc's would be helpful.
Good morning, Derik as I mentioned on the call.
We expect <unk> to be down roughly $5 million to $10 million year over year because of the elimination of one of our.
Facilities that we enter into 10 years ago, and it's basically ended in steel partly tax equity transaction.
This will be offset.
The five to 10 minutes 10 million is the net number we will plan to enter into new to tax equity transaction.
In Heber.
Be huawei, but the net number this year, we had $62 million next year, we expect $5 million to $10 million.
Got it that's very helpful. Thank you.
I wanted to ask about the 12 megawatt reductions you guys put in your deck. I mean can you help explain that to us what's driving that how should we think about that for all your other projects just going forward and then just curious as far as what the call on the balance sheet capacity could be as potentially having a react what is our.
Just some thoughts around that as far as what it means for our covenants.
Yeah, just everything with the covenants and the reductions and how we should think about it as far as the call on the balance sheet.
Let's start with the balance sheet the balance sheet is very strong debt to EBITDA at year end.
At three seven times metrics, our covenants are sometimes around six to seven times debt to EBITDA.
For us to be even close to it our EBITDA should be half of what we should do borrow additional $2 billion with no additional EBITDA.
From a liquidity perspective, as we said we have over $700 million of liquidity and we did not impact the liquidity by Dan and transaction, because we board additional $200 million.
To fund it.
On the balance sheet side, I think Matt is one of the strongest companies in the industry with probably the lowest leverage in the industry. If you look at our peers. Our peers are mainly leveraged five to six times and therefore, we don't anticipate at this point any equity requirement, we raise the equity in 2023 anticipate.
<unk>, a strong M&A market, knowing what we see in front of US and then we were actually right in times very well the transaction of the equity versus the transaction of the offering.
Can you repeat the question on the 12 megawatts, which page are you looking at just for me to follow to second.
Yes.
No and I appreciate all those comments.
Slide number 13, and just the 12 megawatt reduction just how to think about that what's driving that and how should we think about that for the rest of the portfolio.
So.
Every time every quarter, we over the year, we balanced all the power plants in our soft power plants have may be more willing than what <unk> anticipated and thats, how we adjust the portfolio I don't think there was any one project that was big but it was a mega here in the Mega deal.
Got it Okay. That's helpful. And then just one more question for me can you just talk about the capacity factor trends I mean, you are bringing on more solar which can be diluted.
The geothermal assets, but how should we think about your capacity factor over the next few years and all the puts and takes around that.
I think that the fact that we are bringing more and more new facilities should overtime increase.
The capacity factor.
So nowhere you have in Pune in Kenya assets that were not performing well over the last few years, we expect them to perform much better over the next year or two starting even already Pune. So we should see a slight uptick you are right.
Hey.
Actually the solar is not as dilutive as you think because it produce we are producing more electricity from the power plant, but you are right. The capacity factor of the solar is low error, but please remember that on our solar.
The effective price that we're getting is actually geothermal price, but maybe dilutive to the capacity factor, but it's very accretive to the earnings.
Yeah.
Got it great I appreciate the comments I'll turn it back.
We have no further questions at this time I will hand, the call back to <unk> for closing remarks.
Hi, Thank you 2023 was a very good year, and we expect 2024 to be even a better year.
<unk> is committed to.
As we demonstrated in 2023 with the new projects really lift in the Enel acquisition and we are continuing to grow the company with the target that we exit.
So I want to thank all of you for your support and looking forward to see you in June Thank you.
That does conclude today's call. Thank you all for joining you may now disconnect.
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Yeah.
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Okay.