Ormat Technologies, Inc. announced today it has signed a binding Memorandum of Understanding (MOU) to acquire, gradually, 85% of Geothermie Bouillante SA (GB) at a total company enterprise value of up to around €52 million (approximately $56 million USD, based on current foreign currency exchange rates). GB owns and operates a 14.75 MW geothermal power plant and owns two exploration licenses with a total additional potential capacity of up to 30 MW, all located in Guadeloupe Island, a French territory in the Caribbean.
The MOU was signed with the owner of GB, Sageos holding (Sageos), a fully owned subsidiary of Bureau de Recherches Géologiques et Minières (BRGM), the French geological survey. Upon closing, Ormat will hold approximately 80% of GB which will be increased to 85% within two years by capital investment agreed upon in the MOU.
Ormat’s total consideration will be paid in installments in accordance with the specific milestones, including production milestones, expected to be achieved in the next few years. On the basis of the MOU, Ormat and Sageos will negotiate a definitive Investment Agreement (IA) subject to customary employee and Board consultation processes according to French law. The IA will be subject to customary conditions precedents for closing, including, among others, certain approvals from third parties. Closing is expected by May 2016 and the transaction is expected to be immediately accretive to Ormat’s EPS.
GB has two Power Purchase Agreements (PPAs) with Électricité de France S.A. (EDF) the French electric utility. A new 15-year PPA with EDF with improved energy rates is expected to enter into force in January 1, 2016 and replace the current PPAs.
As a global leader in the geothermal industry, with vast experience in constructing and operating geothermal power plants, Ormat is confident that with its technology and expertise it can optimize the use of the resource and existing facilities and recover its current approximate production of 10 MW to its designed production of 14.75 MW by mid-2017. Additionally, Ormat plans modifications to the existing equipment as well as to further develop the asset, with a potential of reaching a total of 45 MW in phased development, by 2021. To accommodate the initial acquisition price and the future capital investments, Ormat plans to use existing cash and future cash flow.
“This acquisition represents another milestone in the execution of our strategic plan to expand our global footprint and enhance our portfolio through targeted M&A activity,” noted Isaac Angel, Chief Executive Officer. “This transaction is a strategic fit for Ormat as it will enable us to leverage our technology, engineering, procurement and construction capabilities and our geothermal expertise to add value to the assets we acquire as well as to Ormat shareholders. We plan to continue our proactive search for acquisition opportunities worldwide.”
As a major renewable plant in Guadeloupe Island, the Bouillante geothermal plant is entitled to certain benefits from the French government that were set in order to promote renewable energy, mainly through feed-in tariff and tax benefits.
BRGM group’s decision to partner with Ormat as the majority owner and industrial operator in GB is part of the French Government strategy to support the development of geothermal energy in Guadeloupe and globally, as a contribution to energy transition and lower CO2 emissions. Ormat will provide GB with the skills and resources that will make an expansion feasible. Both Ms. Ségolène Royal, the Minister of Ecology, Sustainable Development and Energy, and Mr. Emmanuel Macron, the Minister of Economy, Industry and Digital Affairs have expressed support for Ormat decision to invest in Guadeloupe to further enhance and expand Bouillante geothermal production.
Ms. Ségolène Royal stated: “As France is hosting COP21, the decision of Ormat Technologies, US Company listed on the NYSE and a global player in the field of geothermal energy, to invest in the French island of Guadeloupe for the further development of a clean and renewable energy source is a vindication of the French government’s policy. It demonstrates, once again, that France is a desirable investment destination for environmentally conscious corporates. The recently-adopted energy transition law fosters the development of renewable sources of energy. In Guadeloupe, geothermal energy is highly welcomed as an alternative to fossil fuel for power production. We will fully support Ormat’s intention to expand the production of Bouillante and develop local employment in the coming years in accordance with their ambitious industrial plan.”
“After having pioneered the development of Guadeloupe geothermal resources in our capacity as a leading European research institute in geosciences, we are delighted to hand over the further development of Bouillante as a key producer of clean energy in Guadeloupe to Ormat, a first-class industry leader in the geothermal arena, who will develop it to contribute to the objectives of the recently adopted French energy transition law. This achievement is a reward for our long term commitment to this renewable source of energy. Our scientific research effort and service activities will continue to pave the way for further successes,” said Mr. Vincent Laflèche, Chairman and CEO of BRGM.