Ormat Technologies, Inc. (NYSE: ORA) announced today that it has entered into a purchase agreement with TG Geothermal Portfolio, LLC (a subsidiary of Terra-Gen, LLC) to acquire two contracted geothermal assets in Nevada with a total net generating capacity of 67.5 MW (net), a greenfield development asset adjacent to one of the plants, and an underutilized transmission-line. The acquisition is expected to close in the second half of 2021, subject to regulatory and other customary closing conditions.
We reported in April 2021 on the acquisition of Terra-Gen by investment firm ECP, which included the geothermal plants. So rather interesting to see this deal now with Ormat.
Under the terms of the agreement, Ormat will pay TG Geothermal Portfolio, LLC $171 million for 100% of the equity interests in a portfolio of entities that own the assets described below and will assume debt and associated lease obligations of approximately $206 million book value as of March 31, 2021.
zThe acquired entities own, among other things, the following assets:
- Two operating geothermal power plants in Nevada comprising: 56 MW (net) Dixie Valley geothermal power plant, one of the largest geothermal power plants in Nevada. Dixie sells its electricity generation to Southern California Edison (SCE) under a long term PPA expiring in 2038; and the 11.5 MW Beowawe geothermal power plant that sells its electricity generation to NV Power, Inc. under a PPA expiring in December 2025
- Rights to Coyote Canyon, a greenfield development asset adjacent to Dixie Valley with high resource potential
- An underutilized transmission line, capable of handling between 300MW and 400MW of 230KV electricity, connecting Dixie Valley to California.
Doron Blachar, CEO of Ormat Technologies, said, “This transaction bolsters our leadership position in the western United States, and particularly in Nevada, and increases our ability to provide electricity to both California and Nevada to help each states’ utilities meet their expanding clean energy requirements. This transaction aligns with our strategic goal of enhancing our geothermal portfolio through M&A activities. We are confident that we can leverage our distinctive core capabilities to unlock value by achieving synergies and enhancing generation and efficiency of the acquired assets. Additionally, to maximize our returns, we plan to use our strong balance sheet and low-cost capital sources to reduce over time the cost of assumed debt. Together with the projects’ skilled employees, I am confident that we can increase significantly the profitability and value of the acquired assets.”
The acquisition is in line with the strategy of Ormat on initiatives creating values, as the release states.
Accelerates Ormat’s electricity segment growth plans – This acquisition aligns with Ormat’s strategic goal of enhancing its profitable Electricity segment through organic growth and M&A transactions. Ormat is confident that with its technological expertise it can optimize the efficiency and productivity of the operating assets over the next four years, with the intention to increase the geothermal revenue and EBITDA of the projects by more than 20%. Ormat also plans further expansion of the assets through utilization of nearby greenfield resources.
Accretive transaction – The two operating power plants sell electricity under PPAs. Ormat expects these assets to generate $55 million in revenue and approximately $37 million in EBITDA in 2022. Ormat management expects to update 2021 guidance towards closing.
Significant strategic synergies – Improved efficiencies and cost savings through a combination of operational proximity to Ormat’s power plants in Nevada, expansion of the assets using our technology and expertise and the refinancing of the current debt structure supported by Ormat’s strong balance sheet position are expected to drive additional shareholder value.
Transmission line connecting Nevada and California – The transaction includes a materially underutilized transmission line that has a direct connection to CAISO. This transmission line may allow Ormat in the future to enhance its capabilities in transferring additional capacity from Nevada to the California power market, subject to third party grid connectivity. This asset can materially reduce Ormat’s electricity transmission expenses in the future or alternatively provide additional sources of revenues from third parties.
Advisors to the acquisition were Norton Rose Fulbright as Ormat’s legal advisor and Citi acting as Ormat’s Financial Advisor.
Source: Company release