Ormat Technologies Inc
NYSE:ORA
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Ormat Technologies Inc
Earnings Call Analysis
Q3-2023 Analysis
Ormat Technologies Inc
Despite the war's profound impact on the country and our employees, particularly in Israel, our electricity and storage segment's operations have remained unaffected. Some projects have been reprioritized to support employees called up to military reserves. While we foresee potential delays, we are confident in managing them effectively. The regional unrest continues to be monitored closely with an emphasis on flexibility and rapid adjustment to maintain our business continuity. A sincere note of appreciation was extended to our employees for their commitment during this tumultuous period. Confidence in our growth targets and business fundamentals remains firm, as we look towards closing the year strongly and growing our geothermal and energy storage portfolio.
In Hawaii, the Puna facility's capacity is on the rise, signaling an improved operational outlook. The plant has exceeded 30 megawatts of production, indicating successful drilling efforts and a stable increase in energy output. As for future prospects, an optimistic development environment hints at potential for expanding our asset base in the region. Our focus remains on optimizing our existing facilities, with further plans for Hawaiian development not currently in the pipeline.
The company's strategy of capacity expansion is expected to lift margins significantly. In Olkaria, a successful capacity test hints at higher revenue with minimal associated costs, directly benefiting gross margins. Similar results are observed at the Puna facility, where the same workforce can now produce a greater output. For Heber, the completion of the last construction phase early in September should contribute fully to the fourth quarter results. Looking at Olkaria, we anticipate additional capacity in the second half of next year, post the completion of ongoing drilling activity, which would further enhance operational efficiency and margins.
On the product side, the backlog has shown a robust increase to $192 million. It's anticipated that this backlog will convert into revenue over the next 18 months, potentially with some projects deviating from this timeline. Moreover, margins could prove to be even stronger than the previously indicated 15% to 20% range.
Lastly, the 2025 portfolio target remains unchanged at 1.9 to 2 gigawatts despite recent developments. The consistency of the company's target suggests confidence in their strategic plan and execution capabilities.
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Good morning, and welcome to the Ormat Technologies Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alec Steinberg, with Alpha IR. Please go ahead.
Thank you. Hosting the call today are Doron Blachar, Chief Executive Officer; Assaf Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning and Reporting. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as 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 and key risk factors as described in Ormat Technologies annual report on Form 10-K and quarterly reports on Form 10-Q that are 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 directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that 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 that a 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 Ron Bushar, Doron, the call is lawyers.
Thank you, Alec. Good morning, everyone, and thank you for joining us today. Ormat reported another quarter of strong financial results and achieved significant milestones that emphasized its commitment to growth and sustainability. The strong results in the third quarter are demonstrated by the company's significant ton expansion of 18.3%, which was successfully translated into 15.8% growth in adjusted EBITDA and 84.4% growth in earnings per share. All 3 of our segments showed revenue growth in the quarter. The product segment continues to impress as our backlog has consistently grown throughout the year with year-to-date revenues more than doubling versus 2022. In the storage segment, we overcame lower energy rates at PGM and Kaiser and delivered growth from the new facilities that came online in the second quarter this year. In the electricity segment, this quarter, revenues and margins were impacted by lower generation and lower energy rates at Puna compared to last year. We are making progress in our ongoing drilling efforts at Puna and Olkaria. With Puna now generating over 30 megawatts and Olkaria steadily increasing its capacity. Both are expected to support our future performance in the Electricity segment. In October, we announced the strategic acquisition of 3 geothermal and 2 solar power plants for Enel in the U.S. We expect to close this acquisition by the first quarter 2021. We are confident that this accretive acquisition will support both our short and long-term growth plan. After the end of the quarter, we raised $166 million through a combination of tax equity transactions to monetize PTC, commercial paper and the long-term corporate loan that strengthens our balance sheet and solidifies our financial position. We've achieved significant growth in 2023, adding 127 megawatts year-to-date, expanding global demand for renewable resources and established our market position as one of the largest providers of geothermal energy global. We continue to be confident in our ability to achieve our long-term capacity expansion growth and our financial targets for 2023 and beyond and expect to increase our capacity for approximately 1.9 to 2 gigawatts by year-end '25. Now before I provide further updates on our operations and future plans, I will turn the call over to Ari to review the financial results. Assi?
Thank you, Doron. Let me start my review of our financial highlights on Slide 5. Total revenue for the third quarter was $208 million, up 18.3% year-over-year, reflecting strong growth demonstrated across each of our operating segments with notable revenue growth in our product segment during this period. Third quarter 2023 total gross profit was $60 million versus $51.1 million. This resulted in a gross margin of 28.8%, down approximately 600 basis points from a very strong gross margin of 34.7% in the third quarter of 2022. In 2022, gross margin included $4 million of business interruption income related to Heber 1 and was impacted by a better performance of our Puna Power Plant that generated $5.6 million higher revenue than in Q3 2023. In addition, during the third quarter of 2023, our product segment delivered significantly higher revenue versus last year, which due to the lower overall margin of this segment is negatively impact our combined reported gross margin. Since the end of the quarter, we improved performance at our Puna Power Plant, following a successful drilling campaign. And in general, with a higher backlog of the product segment, we expect to see improvement in margins going forward. Net income attributable to the company's stockholders was $35.5 million or $0.59 per diluted share in the quarter compared to $18.1 million or $0.42 per diluted share delivered in the third quarter of the prior year. The increase was driven by higher contribution of our product segment as well as higher benefits within the IRA, including PTC benefits recorded an income attributed to [Indiscernible] benefit and ITC benefit recorded under income tax provision. In addition, we recorded a $9.4 million tax income related to a recent change in the Kenya tax force. On an adjusted basis, net income attributable to the company's stockholders was $28.2 million or $0.47 per diluted share, with adjusted net income maturity to the stockholders, up 5.4% and diluted adjusted EPS up 42.4% versus the same period last year. Net income attributable to the company's stockholders and diluted EPS, we adjusted to exclude a $9.4 million onetime benefit associated with changes in the Kenya Finance at 2023 and a $1.8 million after-tax write-off and successful exploration activity. Adjusted EBITDA of $118.3 million increased 15.8% in the third quarter compared to $102.2 million in the third quarter of last year. The double-digit increase was largely driven by the product segment recovery as well as higher tax equity contribution from PTC grid and a lower G&A expense versus the prior period. Moving to Slide 6. Bridging the revenue down at the segment level. The revenues in our electricity segment increased 2.9% to $157.2 million compared to the prior year period. The increase was driven by the COD at the North Value facility and the resumption of operation Heber 1. The increase in revenue was partially offset by lower electricity prices and generation at pool. In the Products segment, revenue decreased 18.2% to $38.8 million, representing over 19% of our total consolidated revenue in the third quarter compared to only 8% in the same period during 2022. The growth in the product segment revenue was primarily due to new signed contracts we successfully secured, which also increased our product by 2. Energy Storage segment revenue increased by 24.5% to $11 million. This increase was driven primarily by the start-up operation of 5 new facilities since the beginning of the year, including Pomona 2, which came online this quarter, coupled with a very strong prices, credit yield and our new Upton facility in Texas. This increase was partially offset by lower energy rate received with our Cardinal and PGM facility. Moving to Slide 7. The gross margin of the licit segment was 31.8%. Electricity gross margin were impacted mainly by the lower revenue at Puna and the absence of business adoption at Heber 1 this quarter I discussed earlier. In the product segment, gross margin was 18.7% this quarter compared to 18% in the same period last year. The energy storage segment reported a gross margin of 22.9% compared to a gross margin of 31.5% in the same period last year. The decline in margin compared to the prior year period was mainly due to a significantly higher energy rates seen on the East Coast last year. However, this year, we saw a more normalized rate environment with higher prices in ARCO.Looking at Slide 8. Electricity segment generated 90% of our total consolidated adjusted EBITDA in the third quarter. The product segment generated 6%. In the Energy segment, we reported adjusted EBITDA of $5 million, representing almost 4% of total adjusted EBITDA. Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide. Moving to Slide 9. In the third quarter, we recorded $14.9 million in income related to tax benefit, of which $12.5 million was income related to 5 active tax equity transactions, while the remaining $2.4 million is related to transferable PTC, which were recorded in 2023 under the provision of the inflation reduction. Also, in the third quarter, we reported $6.6 million ITC benefit in the income tax line, mainly related to the Pomona 2 storage facility that came online in July and is eligible to 40% ITC. We don't anticipate additional ITC benefits during Q4 2023. But as we said before, in the next 2 years, in line with our growth plan to increase our energy storage portfolio, we expect to continue reporting a lower tax rate overall. Looking at Slide 10. Our net debt as of September 30, 2023, was approximately $1.8 billion. Cash and cash equivalents and restricted cash and cash equivalents as of September 30, 2023, was approximately $186 million compared to $227 million as of December 31, 2022. The slide breaks down the use of cash for the 9 months, illustrating the ability to reinvest in the business and service our debt. We note that these uses of cash have been funded from our equity offering, cash generated by operation and a strong liquidity profile we maintain. Our total debt as of September 30, 2023, was approximately $2 billion, net of deferred finance income, and its payment schedule is presented on Slide 33 in the appendix. The average cost of our debt portfolio stands at 4.15% with all of our debt liabilities carry fixed rate, which we believe will help continue position on competitively in a rising lower interest rate environment. Moving to Slide 11. As Doron mentioned, in October, we raised $166 million, which includes a $42 million sale of tax benefit related to the North Valley through a tax equity transaction. $73 million short-term commercial paper and $50 million long-term capital. The proceeds from these sources will enable us to finance the newly announced acquisition as well as support our CapEx requirements to continue with our growth plan. With respect to the new acquisition, we are planning to raise additional long-term corporate debt by the closing of the transaction. Use-to-date in 2023, we invested $450 million in CapEx. To advance our growth initiatives, we have $673 million available of liquidity to our cash and available undrawn lines of credit. Our total expected capital expenditure for the last quarter of 2023 is $110 million and invisible on Slide 34 attending. Overall, Ormat is well positioned from a capital lease perspective with actions to capital liquid resources and additional capital to opportunistically find accelerated growth. On November 8, 2022, our Board of Directors declared approved and authorized payment of the quarterly dividend of $0.12 per share to all holders of the company's issued and outstanding shares of common stock on November 22, 2022, favor on December 6, 2022. That concludes my financial of view. I would like now to turn the call over to Doron to discuss some of our recent developments.
Thank you, Assi. Turning to Slide 13 for a look at our electricity segment operating portfolio. Generation growth was positively supported by the inclusion of North Valley, the higher generation in our Guadalupe power plant and the resumption of operations at Heber 1. This increased generation was partially offset by lower generation at Puna. We added 45 megawatts since the beginning of the year to the electricity segment portfolio, reflecting a 4% increase in total generation capacity. Moving to Slide 14 and 15. In October, we signed the accretive acquisition of Panel assets in the U.S. Upon closing, we will acquire the Cove Fort Geothermal power plant in Utah, the Salt Well geothermal power plant in Nevada and the Stillwater triple hybrid geothermal, solar PV and solar thermal power plant in Nevada. These 3 power plants sell approximately 43 megawatts to digress. In addition, we will acquire 2 solar assets with a total nameplate capacity of 40 megawatts and 2 greenfield development assets. For all of these ads, we impair approximately $271 million. That position is expected to close by the first quarter of 2024, subject to regulatory approvals and customary closing conditions. These assets have collectively generated an annual revenue of approximately $35 million and an annual EBITDA of approximately $24 million for the year 2020 to 2022. Our immediate plan is to enhance and optimize the 3 geothermal assets by installing or mannequin. We expect that the planned on service upgrade, which will require approximately $55 million CapEx will add approximately 17 megawatts and generate an additional 15 megawatts of EBITDA by the end of 2025. In the long term, our plans are to expand the cohort power plant by 20 megawatts and to explore and potentially develop another greenfield project. Turning to Slide 16 for an update on our product segment backlog that is currently standing at $192 million. The backlog increased 60% compared to the second quarter of this year and 40% compared to the third quarter of 2022. We were able to sign contracts and orders totaling approximately $150 million since the beginning of the year, including a large contract for the Ngatamariki project in New Zealand, bringing our backlog pre-COVID levels, a testament to the resilience and adaptability of our business. Moving to Slide 17. The Energy Storage segment delivered another strong quarter, supported by the new facilities that came online during the year. This quarter, we commenced the operation of Pomona 2 in 3n. We currently have 6 projects under construction that will contribute 275 megawatts or 740 megawatt hour. This quarter, we also signed a multiyear battery supply agreement with Goshen to secure batteries for up to 750 megawatt hour. This contract solidifies our supply chain and gives us confidence in our ability to successfully advance our projects, including the projects that are currently under construction and achieve our long-term capacity growth. Moving to Slide 19 and 20. The demand outlook for our electricity and storage segments remain strong, and we are well positioned to achieve our multiyear goal plan. We still expect to increase our total electricity portfolio generation by roughly 69% year-over-year. Additionally, our approximately 1.9 to 2 gigawatt portfolio target for the year end of 2025 is well on track. Slide 21 and 22 displays the fix geothermal and 6 solar PV projects currently underway. We completed the repower of the Heber complex that currently is running at 89 megawatts. We are progressing with the [Indiscernible], an agent that will come online next year. In our solar PV portfolio, we expect Steamboat and Steamboat solar facilities to come online by the end of the year, and the North Valley Solar is now expected in the first half of 2024. Moving to Slide 23 and 24. The sale day of our growth plan comes from the energy storage segment. Slide 23 demonstrates the energy storage facilities that have started construction. Please turn to Slide 25 for a discussion of our 2023 guidance. In the first 9 months of 2023, Ormat has delivered meaningful year-over-year growth across our revenue and adjusted EBITDA. Heading into the close of the year, we are narrowing our guidance ranges to reflect our performance through 3 quarters and expectations for the fourth quarter. We now expect full year revenue to range between $825 million to $838 million. Electricity segment revenue is expected to be between $670 million to $675 million, following Puna running at lower capacities and lower energy rates in Q2 and Q3 this year. Product segment revenues are expected to be between $125 million to $130 million and storage revenues between $30 million to $33 million. We are also slightly narrowing adjusted EBITDA guidance with the previous communicated range, anticipating results to be between $480 million to $495 million. We remain confident in our ability to manage our business and assets to deliver on our guidance and to drive further growth in 2024 and beyond as we execute our integrated business model. Moving to Slide 27 to 29. We are proud to announce the release of this quarter of our 2022 sustainability report. In 2022, our renewable energy portfolio effectively prevented a 2.2 million metric tons of CO2 emission. This number of avoided emissions is expected to increase every year as we plan to add new clean power plants. Noteworthy is the impressive 19% reduction in our annual average coastal to greenhouse gas emissions when compared to our 2019 base. We have also initiated a comprehensive climate risk analysis and the task force on climate-related financial disclosures, GAAP analysis process. Our aim is to identify and address material climate-related risk creating mitigation strategies for each. Simultaneously, we are formalizing an action plan and expect to fully align with the TCFD recommendation. This strategic approach underscores our commitment to responsible client management. We invite you to explore our complete sustainability report that is readily available on our website. Moving to Slide 31. While the global markets are experiencing some economic challenges, we continue to benefit from the acceleration in demand for renewables in the U.S. and global. We are encouraged to see growth throughout -- to all our businesses, and we are confident in our ability to use EBITDA growth, strong returns and a healthy balance sheet to fund potential and highly accretive acquisitions. Now before I close, I want to briefly touch upon the work currently taking place in us. As you all know, while the majority of our revenues and EBITDA are outside Israel, we do have approximately 550 employees in Israel and our main product segment manufacturing facility and engineering department. While the war has had a profound impact on everyone living in the country, including our employees, I want to assure you that we currently see no impact to the operations of our electricity and storage segment operating assets. We have risk prioritize some of our projects to accommodate our employees in Israel who have been pulled up to military reserve, primarily in our engineering department. But we believe any resulting delays will be met. The situation in the region is unsettled and we will continue to monitor closely and adjust as necessary. I do want to publicly acknowledge and thank our employees in Israel all around the world for their tremendously hard work during this month in time. In closing, we remain confident in our business and our growth. Our focus for the remainder of the year and beyond will be to execute against our capacity target goal, deliver strong results to close out the year and further expand our geothermal and energy storage portfolio. We are confident we will achieve each of these goals. This concludes our prepared remarks. Now I would like to open the call for questions.
[Operator Instructions] Your first question is from the line of Noah Kaye, with Oppenheimer.
And I should start by acknowledging that in a very challenging operating environment in many respects. You guys have executed really well. So congrats on the strong quarter, the M&A and some of the other initiatives you have going. I wanted to actually start with Puna and Hawaii. So good to see that capacity is increasing there. Can you, a, remind us where you think that can get to over coming quarters in terms of total output and what time frame? And then, b, it looks like there is an increasingly constructive environment for development of additional assets in Hawaii. Can you comment on the development environment there?
As we said, had a lower Q2 and Q3, we finished drilling the last well [Indiscernible] 22. And today, we're generating about 30 megawatts. We have finished the drilling campaign at this stage, and we are monitoring the resource and the way to see how it is going forward. These days, we are working on the work plan for next year. And obviously, dealing with Puna is part of that and what kind of workover or dealing we need to do with the well. So at this stage, we are very happy that we passed the 30-megawatt mark, and we hope that we'll be able to maintain it over time. Other projects in Hawaii, at this stage, we are mainly focusing on our facility. We haven't tried to develop another one in Hawaii this time.
I wanted to switch gears and talk a little bit about tax credit traceability. You had a nice slide there on the benefits this quarter. Can you talk a bit more about the benefits that tax credit transferability has brought you in terms of financing and capital recycling and what you might expect to see in coming quarters and perhaps next year in terms of additional proceeds from the credit transfers?
When we look at this quarter, we see the benefit on the tax transferability in 2 places. One is on the income attributed to tax equity transaction where we generated PTC that we later on, we already signed and entered the inter tax equity transaction. But at this point, we can sell them. And as I told you before, we are recording them at $0.90 per dollar. And this quarter, it was slightly over $2 million of benefit. The bigger benefit is coming through the impact on the tax rate. This quarter, we recorded $6.6 million of ITC benefit. All of those transferable IT sales. Right now, we are in final negotiation to sell them and collect money for year-end. If we do so, we'll collect somewhere around $25 million of ITC and PTC that are transferable. In addition to the tax equity proceeds that we already have in Q4. When we look at Q4 through the P&L, we expect not to have any ITC benefit because there is no new storage facilities coming online. We do expect to have additional PTC transferable benefit of approximately $2 million as a result of Heber 1 operation. When we look at the next year 2024, the biggest project that is coming online is the bottleneck project that has a total cost of over $100 million. We're still looking today to see what the better usage of the tax benefit under this asset. Is it better to enter into a tax equity transaction? Or is it better to do an ITC to as favorable. It depends on the business we see because we basically offer it to a few places. I think bottom line, in the past, tax benefits that math, we could not utilize them, unless it was a tax equity transaction and storage had no tax benefit at all. And as we look at it now, this year, only the store brought us close to $20 million. Next year, it should bring us over $40 million, just the storage benefit. So bottom line, the ITC benefit bringing us cash and improved net income. And the PTC just allow us to continue and develop assets at much better return than otherwise. So IRS once is quite big.
Your next question is from the line of Justin Clare from ROTH MKM.
So I just wanted to follow up on the improvement you're seeing at Puna as well as the capacity expansion at Heber, and it sounds like you're increasing the capacity at Olkaria as well. Can you give us a sense for how this could impact the margin profile, whether in Q4 or just on a kind of run rate basis, what kind of uplift is possible as a result of the improvements here.
So I will touch each one of them purposely. So Olkaria, we have been steadily increasing the capacity in the generation of the -- we've done a new capacity testing in Olkaria, the PPA there is split between capacity and energy as time passes, we're able to increase revenue. And as you can expect, we treat revenues, the costs associated with the marginal revenue increase are very low. So the impact to gross margin is very high. And the same goes with Puna. So the same amount of people can generate 20 megawatts or 30-plus megawatts, and that's what we're seeing today. We're almost in the middle of the quarter and Puna is performing very well. Even the 89 megawatts as we mentioned, so the last part of the construction in Heber came online at the beginning of September. So we expect to enjoy a positive benefit in Heber.
And then just on Olkaria, I think earlier in the year, it was at 127 megawatts. Can you hear where the capacity stands today? And then based on your drilling campaign, where do you think the capacity could go for Olkaria and over what time frame?
There has been delivering over the last few weeks between 130 to 135, 136 megawatts depend on the temperature and other static where it is moving along. We are drilling today unlike Puna that we finished the drilling campaign in Ohio [Indiscernible], another one that we plan to finish in Q1 of next year. Then it needs to be heated up and connected. So it should come online some time in Q2. And we have a third well that in that we are also in the process of drilling. I believe that in the second half of next year, we'll see another improvement on top of what we see already now.
And then maybe one more just on the product segment. The backlog moved up meaningfully here to $192 million. I was wondering if you could just give us a sense for what is the time frame in which you could deliver that backlog and recognize the revenues? And then is the margin profile there in a 15% to 20% range, I think that's what you've previously talked about, but I wanted to check in there.
In general, I would say that the backlog should translate to revenue over 18 months. There might be some projects a bit shorter or later, but in general, it should be over 18 months. And margins can be a bit higher than the 15 to 20 that you alluded to.
Your next question is from the line of Mark Strouse, with JPMorgan.
I just had one kind of clarification question. The 1.9 to 2 gig 2025 portfolio target that didn't increase from last quarter despite the acquisition. I would assume that that's just a function of the acquisition not closing yet, but just wanted to make sure that's the case and something else hasn't slipped out maybe?
Obviously, as you said, until the acquisition doesn't close, it's not counted in any of our numbers. And we usually update unless something changes in figure guidance on the megawatt that we will have. So in February, we will update. I hope by that time, we've already closed the Enel acquisition. So the numbers will give you will include the impact of Enel.
[Indiscernible] Just to clarify this, when you think about the opportunity created there, are you rethinking how you think about leverage and appropriate leverage? We've seen some of the folks in the renewable space kind of capitalizing on the credit rating agency latitude, but I'm not sure it's necessarily the same direction for you guys. Love to hear your thoughts on that in terms of rethinking leverage, a. And then b, just as you think about the backdrop of the market on financing, how do you think about financing the latest acquisition here, just obviously, with the cash balance at quarter end, the latest acquisition and the projections of the next few months, just how do you think about just the timing of capital raises here? And how do you think about the leverage?
I'll start with the second part of the question. Since the end of the quarter, we already raised $166 million of which $73 million, which is the commercial paper at the rate of around just over 6%. We raised $50 million of commercial or corporate loan at a rate of around 7%. And we also closed a tax equity transaction for $43 million. Basically, we sold the PTCs of North Valley facilities. So basically, out of the $270 million, $166 million was already financed. The remaining will be done to 2 corporate loans that we planned to take before closing of the transaction. And those will be at similar rates to the loans that I spoke before. I think because of the lower leverage versus many of our U.S. peers that are currently at 5 and 6x debt-to-EBITDA. And the fact that our future cash flow, the next 14 to 15 years is already tied to a non-PPA allow us to be very aggressive on the financing of the acquisition and do the financing even before year-end, if we close the deal before year-end. With respect to your first question, when we sell and do tax equity transaction, it does reduce our leverage as it was before. On the other hand, the ITCs that we sell to ITCs, those are basically reducing our overall debt. They are not part of our EBITDA. We have seen some of our peers adding ITC benefit to the EBITDA calculation. We did not do it so far. We are looking into it, but that's not part of what we're doing so far. That's why we don't have any disagreement with the rating agencies because we never included ITC benefit as part of our EBITDA. So overall, we have lower leverage. The financing for the acquisition is -- most of it is already done, and the remaining is on track, and we will still be in the 4x leverage which is significantly below our U.S. peers. [Audio Gap].
Indeed, I get your lower leverage. That's why I ask if any of this matters, right? You guys just been maintaining leverage. Now with that said, just to clarify, on the acquisitions, it sounds like you're going to do this fully levered. There's not necessarily an expectation for kind of to rebuild the equity balance for the time being from what I hear in your response, right?
Correct. As you see, our EBITDA this year is up significantly over last year, which allow us to continue and borrow under the current business. And that's why the earlier equity raise that we did already this year allow us to do the transaction without any additional equity plan.
If I could just squeeze one more in on contracted storage just real quickly. I mean we're seeing some of your peers in the West really pushing forward on the strategy of co-located Geothermal and storage like close of the other day. How do you think about potential opportunities to expand interconnect and add storage at existing sites? Just obviously, very, very robust contracting environment in the West. And do you have any comments around that?
I would say this thing, one, there's definitely a very, very strong demand for renewable and specifically geothermal assets in the West. Today, all of our assets are 100% contracted. Whatever electricity were able to generate common geothermal facilities; we are able to sell under our existing TPA. So effectively, there's no benefit to store and then to sell later. So this is something that we haven't combined it to. It's something that is always some place on the table to look into, but so far, economic-wise, we haven't seen the benefit if we can sell whatever we generate and playing between the hours with storage doesn't seem to us very economic. I would say that what we do see on the energy storage in the West are many RFPs for tolling agreements or PPA agreements for storage facilities like the bottleneck that we signed the PPA, and we are building into these RFPs, and I hope and we plan to win some of them. And once we win, we'll obviously update about it.
Your next question is from the line of Jon Windham, with UBS.
Maybe a question would be, I'd be really interested to just get your thoughts on how ongoing conversations are going with incremental PPAs, both on the geothermal and storage side, basically trying to get out the willingness of off-takers to take on higher rates given the higher financing environment. I appreciate that.
What we see today is exactly what you said. There's 2 factors, 2 vessels operating in the same direction. On one hand, the demand for renewable energy and the requirement by the CPUC in California, to add geothermal energy and to bring energy store that on one hand, on the other hand, increased interest rates are pushing all developers to go with higher to build higher pricing. And that's what exactly what we see today. We see the tolling agreement or the PPP agreement for storage. We see higher numbers in the business that we compete in, in the business we have shortlisted some of the onshore business, but we see the different numbers, which are higher than what has been over the last year or so. And in the geothermal -- there aren't any new facilities coming online. So where has a new facility, it can actually make a reserve bid and be the facility between the different utilities to get very high pricing. I believe that 80% is low numbers today, you have the new geothermal facility.
Your next question is from the line of Jeff Osborne, with TD Cowen.
Most of the questions have been addressed so far, but 2 that I wanted to dig into was one on the Goshen supply arrangement. I think there's certainly been some controversy around the Michigan factory for them. I think in the recent election this week; the entire board of the town was removed. I'm just curious, is the output that you will be receiving from that facility? Or is there other backup plans in the event that the controversy around that site in rural Michigan were not to be built?
So as far as we know, Goshen is planning to have a facility operating at the end of '24, we are planning our site to be operating earlier or during the beginning of '25. So all the projects that we released for construction that are listed on our presentation will be supplied from Goshen facility in Mexico. I hope that once -- they will get the relevant approval and finish building the facility in the U.S. The future projects will be from the U.S. and will be entitled to an additional 10% ITC. But this is, as I said, it's infrastructure. So we don't have the facility there. But the current ones are not from there.
So for '24 and '25, you wouldn't get the 10% out or for domestic batteries, but you could get it for energy communities. Is that the right way to think about the storage business?
Yes, definitely.
And lastly, are you folks testing or have any thoughts on some of the new drilling techniques that are out there that might expand the addressable market for geothermal?
We follow very closely all of these new drilling techniques. It is something that every few years come back into play. People are looking into investing money into it. At this stage, we haven't seen the right technology that can expand significantly the geothermal market without other limitations that they have. But we're definitely looking closely. We hope it will -- one of them will be successful. We are in discussions, obviously, in meeting with all of them in the different conferences. And if any of them will be successful, we'll be very happy to utilize it in our product, in our future development project as well as in our product segment.
The next question is from the line of Ryan Levine, with Citi.
A couple of more specific questions. In terms of the West Coast generation in terms of the capacity or utilization factor, are you not seeing any trends in terms of what that capacity factor is over time or what that will be on a go-forward basis?
As we said, we are operating our assets at 24/7, and the main times the downtime is through some maintenance in that we have -- and these are big power plants, a lot of mechanical items. We do issue every year on our 10-K the specific availability of each region. Heber just came online, will increase obviously, the generation that we will show this year because it was up almost all of last year. But per specific facility, we don't see any difference this year compared to previous year.
At this time, there are no further questions. I will now hand the presentation back over to presenters for any closing remarks.
Thank you all for joining us today. Q3 was a very strong quarter for us with significant growth in the revenue, the adjusted EBITDA and our earnings. And we look forward to deliver on our growth targets as the year passes to go into 24 and onwards. Thank you.
This was today’s call. Thank you for joining. You may now disconnect your lines.