Can you give us a brief background on the founding of Ormat Technologies and its evolution since 1965?
Ormat Technologies was founded in 1965 with a focus on renewable energy. Initially, the company began by developing solar electricity facilities, including a 5-megawatt facility in Israel and a small well in Africa for water access. However, the oil crisis in the early 70s led the company to pivot to geothermal energy. Our focus shifted to creating turbines to harness heat from the ground. From the 80s to the late 90s, Ormat primarily sold its technologies to global developers of geothermal power plants and provided EPC services. In the late 90s, we began owning and operating our own power plants, and currently, as a second large holder of geothermal power plants, we own 29 geothermal, REG, and Solar complexes with over one gigawatt globally. Since the 80s we supplied over 3,200 MW of geothermal and REG equipment and became the leader in geothermal binary technology with a market share of over 70%. We have also recently branched into the energy storage market and currently own and operate 13 storage facilities with a total capacity of 170MW/298MWh.
Can you elaborate on the Ormat Energy Converter and how your geothermal technology works?
Our key technology, known as the binary technology, involves drilling into hot, dry locations in the ground and bringing up a fluid that passes through a heat exchanger. A second fluid then turns into steam at a lower temperature, driving a turbine and ultimately generating electricity. Essentially, we use two closed cycles, ensuring that nothing is depleted; the brine taken from the ground is re-injected back into it. Our unique intellectual property lies in the turbine, enabling efficient electricity generation. This system operates, in most cases, without emissions, making it both an efficient and eco-friendly solution for power generation.
What is Recovered Energy Generation (REG) and how does it fit into your portfolio?
Recovered Energy Generation (REG) is a smaller but essential part of our portfolio. It utilizes the same technology we use for geothermal energy, but sources heat from industrial operations, such as cement or glass manufacturing plants, or gas compression stations. We capture this waste heat and convert it into electricity, essentially recovering otherwise lost energy. REG enhances our capability to provide a comprehensive suite of renewable energy solutions, leveraging existing infrastructure to generate more power.
Can you discuss the geographies that are most suitable for geothermal energy and your expansion plans?
Geothermal energy is most suitable in locations around the "Ring of Fire," which encompasses parts of Southeast Asia, as well as areas with a thinner Earth's crust. We operate globally, including in the U.S. where 70% of our operations are in California and Nevada, in Kenya, Indonesia, Honduras, Guatemala, and Guadeloupe. We are developing our first plant in New Zealand and our future expansion plans as an owner and developer mainly focused in the U.S. and Indonesia. We see large opportunities for equipment sale in other leading markets such as New Zealand, Turkey and the Philippines. Currently, we have drilling operations in six global locations to meet growing demand. Unfortunately, geothermal energy cannot be applied everywhere due to geological constraints, but wherever possible, it is the preferred technology.
How does geothermal energy compare in terms of cost to other energy sources, and what impact does legislation like the Inflation Reduction Act have on it?
In terms of cost, geothermal energy is often the most economical choice when considering all associated costs. While the upfront cost may be four times that of solar or wind facilities, geothermal plants operate 24/7, 365 days a year, making them more cost-effective in the long run.
In the U.S., demand for geothermal is growing significantly, especially in states like California and Nevada that face grid issues due to intermittent solar power. Legislation such as the Inflation Reduction Act (IRA) has been supportive, extending tax credits for geothermal energy and even allowing for the sale of these credits, further incentivizing its development.
Do you foresee a substantial growth in the demand for geothermal energy in the coming years?
Absolutely, the demand for geothermal energy is growing much faster than the supply. States like California and Nevada are looking for stable, renewable energy sources to stabilize their grids, making geothermal a preferred choice. We have already signed contracts covering every project we will develop in the U.S. for the next four years. Furthermore, geothermal brings both economic and social benefits, as we employ local workers and invest in community relationships wherever we operate, making it a win-win solution.
Why did you decide to focus on energy storage, given that geothermal energy does not have the issue of intermittency?
Indeed, geothermal energy does not inherently require storage; it has a constant supply. However, about five years ago, we recognized the surge in solar and wind energy coming into the grid, especially solar in the U.S. We understood its impact on the grid and how its intermittency could present challenges. In response, we began investing in energy storage projects, expanding into markets on the East Coast, Texas, and California. We have been doubling our size annually, aiming to have between 600 and 670 megawatts or 1.5Gwh to 1.7GWh of energy storage assets by the end of 2025. These assets will support the grid as the adoption of renewables like solar and wind continues to grow. In addition, the Storage activity is supported, for the first time, by tax benefits (ITC) that cover between 30% to 50% of the initial investment. These tax benefits improve significantly our expected returns.
What are your future goals for Ormat Technologies, given that you have headed the company only for the last three years?
Looking ahead, the aim is to significantly grow Ormat Technologies in various dimensions. While we currently focus on geothermal and energy storage, we are open to exploring other renewable technologies. Our overarching goal is to be a part of the solution to the world's energy and environmental challenges. Coming to work every day, knowing that we are contributing—even if it's in a small way—to solving these problems makes the work all the more rewarding.
