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Ormat Arm Enters Agreement for McGinness Hills Phase 3 Plant

Zacks Equity Research

Ormat Technologies Inc. ORA announced that one of its wholly-owned subsidiaries has entered into a partnership agreement with a private investor. Notably, the subsidiary owns the 48-megawatt (MW) McGinness Hills Phase 3 Geothermal power plant. Per the deal, the private investor will pay $59.3 million for membership interest in this geothermal project.

Ormat will continue to operate and maintain the power plant, and will receive substantially all the distributable cash flow generated by the power plant. Conversely, the private investor will receive substantially all the tax attributes.

The third phase addition to the McGinness Hills geothermal plant complex increases the total capacity to 138 MW. This plant, which had started commercial operation on Dec 15, 2018, sells power under the 26-year Power Purchase Agreement with Southern California Public Power Authority. This Phase 3 Geothermal plant is expected to generate $30 million in annual revenues.

Ormat’s Expertise in Geothermal Space

Geothermal energy is a thermal energy that is generated and stored deep inside the earth’s crust. Ormat, with its expertise and technical knowledge, has developed geothermal solutions that are sustainable, virtually emission-free and ensure that facilities blend into natural surroundings.

Ormat has built more than 2,100 MWs of geothermal capacity in more than 150 geothermal power plants worldwide. Markedly, its geothermal plants are designed to harness power and increase the lifespan of their reservoirs by re-injecting 100% of all geothermal fluids.

Future of Geothermal

Since the quest of producing emission-free electricity is rising across the globe, geothermal energy can be an important source of producing clean energy via harnessing nature’s power. Per U.S. Energy Information Administration, at the end of 2018, there were geothermal power plants in seven states, which produced about 16.7 billion kilowatthours, equal to 0.4% of total U.S. utility-scale electricity generation.

Geothermal power projects are capital intensive but these plants have very low and predictable operating costs. High investments at an initial stage are a hindrance to the mass development of geothermal projects. However, per a finding from IRENA, the cost of installing geo-thermal plants will continue to drop over the next few decades, courtesy of technological developments.

Given bright prospects in the geothermal space, companies like Berkshire Hathaway Inc. BRK.A, General Electric Company GE and Halliburton Company HAL, among others, are carrying out investment to expand geothermal operations.

Zacks Rank & Price Performance

Ormat currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Ormat have outperformed its industry in the past 12 months.

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