Ormat Technologies Inc

NYSE:ORA

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, everyone, and welcome to the Ormat Technologies' Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Mr. Sam Cohen with Alpha IR. Please go ahead, sir.

[Sam Cohen, Alpha IR]

Thank you, operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning and Reporting.

Before beginning, we would like to remind that 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, please see 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 reasons for presenting such information is set forth in the press release that was 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 would 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 of that said, I would now like to turn the call over to Doron Blachar. Doron, the call is yours.

[Doron Blachar, CEO]

Thank you, Sam. And good morning, everyone. Thank you for joining us today.

The fourth quarter marked a strong finish to 2022 with 10.7% top line expansion, reflecting growth across all our operating segments. 2022 was a year in which we executed successfully our strategic plan by expanding our portfolio and improving our operational performance. During 2022, we added 78 megawatts of new generating capacity to our Electricity segment operating portfolio, including our CD4 and Tungsten Phase 2 geothermal power plants as well as our Wister Solar and 2 hybrid solar projects.

In addition, we added a 5-megawatt new storage facility operating in the CAISO. Also in 2022, we signed long-term power purchase agreements, PPAs, for up to 365 megawatts, with 285 megawatts of those PPAs covering geothermal facilities and 80 megawatts for energy storage. These new agreements are expected to improve our economics in both segments.

In our Product segment, we experienced a significant recovery, delivering the highest quarterly revenue since the start of the COVID-19 pandemic. We now have a $148.1 million backlog, demonstrating the growing global demand for our geothermal products. As we look toward 2023, we expect to benefit from our portfolio expansion strategy, which has resulted in new geothermal and solar power plants in our Electricity segment that started operation in the second half of 2022. We also expect to bring 170 megawatts of new capacity online, of which 66 megawatt is in the Electricity segment and 104 megawatts are in the storage segment.

For 2023, we expect to deliver between $480 million to $510 million of adjusted EBITDA, an increase of approximately 14% at the midpoint over 2022 actual results, which is the highest growth we have seen in years in EBITDA. This growth is supported by the new capacity added during 2022 and the expected capacity we plan to add in 2023. On an annualized basis, the new assets that will be added in 2023 as well as the potential improvements in Puna and Olkaria are expected to add between $25 million to $30 million of additional adjusted EBITDA versus 2022 partial operations.

We continue to see strong tailwinds globally for renewable energy supported by the Inflation Reduction Act benefits, including the PTC for geothermal and ITC for storage. We expect these benefits will reduce our capital needs and boost our EPS in the coming year.

In addition, we are experiencing significant demand growth for geothermal energy and storage driven by the volatile fossil fuel prices and global decarbonization efforts. We remain on track with our capacity expansion plans in both the Electricity and the storage segments, with the potential to add approximately 700 megawatts by the end of 2025, which supports further top line EBITDA and net income expansion.

Now before I provide further updates on our operations and plans, I will turn the call over to Assi to review the financial results.

Assi?

[Assaf Ginzburg, CFO]

Thank you, Doron. Let me start my review of our financial highlights on Slide 5. The fourth quarter marked a strong finish to an overall excellent year in 2022. Total revenue for 2022 was $734.1 million, up 10.7% year-over-year. And revenue for the fourth quarter was $205.5 million, up 7.6% year-over-year, reflecting growth across all 3 of our operating segments.

Across the full year 2022, our adjusted EBITDA results of $435.5 million increased 8.5% compared to $401.4 million in 2021. Fourth quarter adjusted EBITDA of $124.7 million increased 7.5% compared to $116 million in the fourth quarter of last year. Year-over-year, the increase in the adjusted EBITDA was largely driven by an increase in revenue in each of our 3 operating segments. In addition, G&A expenses were lower in 2022 due to lower, reduced legal costs.

In the full year 2022, net income attributable to the company shareholders was $65.8 million or $1.17 per diluted share. This represents an increase of 6% and 6.4% versus the same period last year, respectively. On an adjusted basis, net income attributable to the company's stockholder was $92.2 million or $1.63 per diluted share, an increase of 7.3% and 7.1% versus the same period last year, respectively. The year-over-year earning growth was driven by better performance of our assets and lower effective tax rate.

In the fourth quarter of 2022, net income attributable to the company stockholder was $18 million or $0.32 per diluted share, in comparison to the $18.9 million or $0.34 per diluted share in the same period last year. The net income and earning per share -- diluted share were negatively impacted by an after-tax noncash write-off of related to our Brawley power plant. On an adjusted basis, net income attributable to the company stockholders was $41.2 million or $0.73 per diluted share, with an adjusted net income attributable to the stockholders up 80.3%. And diluted adjusted EPS was up 78% versus the same period last year.

The adjusted net income attributable to the company's stockholder was mainly adjusted for the write-off of the Brawley power plant. The Brawley power plant has been generating electricity at levels lower than its generating capacity of 13 megawatts due to continuous well field issues. This has historically resulted in higher-than-expected operating costs and lower-than-expected electricity revenue. We believe that we can operate the Brawley plant economically at 7 megawatt, or 6 megawatt lower than the asset's current capacity. In addition, we will get additional value from the assets through our plans to add solar plus storage facility adjacent to the geothermal project, utilizing existing interconnection at the Brawley complex.

Moving to Slide 6. We break the revenue down at the segment level. Electricity segment-level revenue increased 7.8% to $631.7 million and 0.6% to $165.2 million in the year-end -- Puna due to higher -- in the year-end and fourth quarter 2022, respectively.

This increase was driven by increased revenue at Puna due to higher generation and electricity rates for the full year, including of the Dixie and Beowawe power plants that we acquired in July 2021, the start of commercial operation of our CD4 power plant facility in July 2022 and the start of commercial operation of Tungsten Mountain 2 in April 2022. Revenue growth in the segment was partially offset by the ongoing shutdown at our Heber 1 plant, for which we expect to complete the repower during Q2 2023.

In the Product segment, revenue increased 52%, $71.4 million and 58%, $32.2 million in the full year of 2022 and in the fourth quarter, respectively. The growth in our Product segment was primarily driven due to our recognition of revenue from newly signed contracts in New Zealand, Indonesia and Nicaragua.

Energy Storage segment revenue increased 2.1% to $31 million and 27.3% to $8.1 million in the full year 2022 and in the fourth quarter, respectively. Revenue growth in 2022 as well as in the quarter was driven by -- primarily by higher rates at PJM.

Moving to Slide 7. The gross margin for the Electricity segment was 39.8% and 45.3% in 2022 and fourth quarter, down 270 and 60 basis points, respectively. The decrease was driven by $15 million in insurance proceeds received in 2021 related to our Puna operation compared to $1.7 million in 2022.

In the Product segment, gross margin was 15.3% and 22.8% in 2022 and the fourth quarter, up 350 basis points and 1,220 basis points, respectively. Margin increased significantly in the fourth quarter due to a better overall margin generated on newly signed contracts.

The Energy Storage segment, a full year 2022 gross margin of 21% compared to 33% in 2021. The reduction was mainly driven by normalization of high revenue at Rabbit Hill in 2021 due to the Texas winter storm event, which we -- did not occur in 2022. In the fourth quarter of 2022, margin was 11.7% compared to 16.4%.

Looking at Slide 8. The Electricity segment generated 95% of Ormat total consolidated adjusted EBITDA in 2022. The Product segment generated 2%. And the Energy Storage reported an EBITDA of $11.9 million, representing almost 3% of total adjusted EBITDA. Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide.

Looking at Slide 9. Our net debt as of December 31, 2022, was approximately $1.8 billion. Cash and cash equivalents and restricted cash and cash equivalents as of December 31, 2022, was approximately $227 million compared to $387 million in the end of 2021. The slide break down the use of cash for the 12 months, illustrating Ormat's ability to reinvest in the business and serve its debtor obligation while returning capital to our shareholders.

Our total debt as of December 31, 2022, was approximately $2 billion, net of deferred financing costs. And its payment schedule is represented on Slide 30, in the appendix. The average cost of debt of the company stands at 4%. We think it is important to note that nearly all of our debt liability remains fixed in nature, which we believe will help continue positioning Ormat competitively in a rising global interest rate environment.

Moving to Slide 10. We have approximately $690 million of total liquidity. Our total expected capital for 2023 is approximately $589 million for capital expenditures, as detailed in Slide 31, in the appendix. In 2023, we are planning to invest approximately $180 million in our storage assets compared to approximately $80 million in 2022. The increase is mainly related to the 80 megawatt, 320 megawatt hour Bottleneck storage assets, the largest project under development in the Energy Storage segment.

Overall, Ormat is very well positioned to execute our strategic growth plan from a capital resource perspective with excellent liquidity and ample access to additional capital as well as cash we expect to receive from the IRA benefit. We expect that each project that will reach commercial operation in the next 2 years in the U.S. will be entitled to between 30% to 50% of funding supporting by the new IRA benefit.

On February 22, 2023, our Board of Directors declared, approved and authorized a payment of a quarterly dividend of $0.12 per share to all holders of the company's issued and outstanding shares common stock as of March 8, 2023, payable on March 22, 2023. In addition, we expect to pay a quarterly dividend of $0.12 per share in each of the next 3 quarters.

That concludes my financial overview. I would like now to turn the call over to Doron to discuss some of our recent developments.

[Doron Blachar, CEO]

Thank you, Assi. Turning to Slide 13 for a look at our operating portfolio. Generating growth was positively supported by inclusion of CD4, Tungsten Phase 2 and Wister Solar; as well as higher capacity at Puna. The generation was partially offset by the shutdown at Heber 1 following the fire early in 2022 and by lower generation at our OREG facilities due to lower availability of the heat source.

As you can see, our generating capacity was updated to 1,070 megawatts in the Electricity segment compared to 1,012 megawatts in 2021. We added 73 megawatts of new geothermal and solar power plants, which will slightly offset by adjustment to the generating capacity reflecting changes in the well field performance.

As noted on Slide 14, in the fourth quarter, our Puna geothermal power plant operated at a level between 23 and 25 megawatts. In 2022, we received higher energy rates at the plant as a result of the global elevated oil prices. We are currently negotiating new amendments to the fixed-price PPA we signed with HELCO that would allow us to continue with our plans to repower the Puna complex and increase its capacity to a total of 46 megawatts.

At our Olkaria power plant in Kenya, the lower performance of the well fields limited its generation of the power plant that is currently generating 125 megawatts. We are currently performing a drilling campaign and expect to increase its capacity during the year.

With respect to Heber 1. As you know, Heber 1 is experiencing a partial outage due to a fire in early '22. And it's operating at 20 megawatts, less than half of its capacity. We have decided not to rebuild the Heber power plant. And we settled the insurance claim related to the fire event, including all business interruption and property damages claim. We are currently optimizing the Heber complex through a repowering project, which is expected to be completed in the second quarter of 2023. Turning to Slide 15. Our product backlog stands at $148 million and includes the recently signed $32 million contract for the Ijen power plant in Indonesia in which we hold a minority equity position of 49%. The backlog is improving. And we see a pickup in demand and slowdown in raw material cost increases, which should result in better pricing and drive higher margins. Moving to Slide 16 for an update on our Energy Storage segment. The segment delivered another strong quarter, supported by higher rates at PJM. Our 2023 revenue guidance for the storage segment assume that energy rates at PJM will not remain as elevated as 2022 level.

Before I move to discuss our long-term growth, please turn to Slide 17 to discuss the 2 main drivers for our growth in the U.S. This will improve both the economics in the Electricity and the storage segment and reduce our capital needs in the U.S. even further than anticipated. We see continued increase in the demand for geothermal energy. Both California and Nevada, which employ a massive amount of intermittent power, recognize the importance of geothermal as a zero-emission high-capacity energy source. The recognition will translate into the known CPUC decision to adapt the portfolio that resulted in an acceleration of new geothermal development and for Ormat enabled us to sign during 2022 new long-term PPAs in California and in Nevada at improved economics.

Also, the IRA, which was signed on August 16, 2022, as discussed previously, had a significant positive impact on our ability to develop geothermal and storage assets in the U.S. at higher economics due to lower capital needs. We are planning to continue to claim the PTC for our new geothermal power plants and enter into new tax equity transactions, which can fund over 40% of our capital needs for new geothermal plants. For our new storage assets, for the first time, we'll have the ability to claim between 30% to 50% ITC and sell them to third parties, enabling us to capture potentially higher value of the tax benefit. We expect that the ITC full storage will reduce our tax expense and boost our EPS for the coming years.

In 2023, we expect to receive approximately $150 million in cash related to the PTC and ITC benefits. This source of cash enable us to significantly reduce our overall capital needs.

Moving to Slides 19 and 20. As we have communicated, 2022 was a significant buildup year comprised mainly of geothermal and hybrid Solar PV projects in development. This buildup supports our robust growth plan despite some delays mainly from the permitting processes. We expect to increase our total electricity portfolio generation to approximately 1.3 gigawatts by the end of 2025, adding between 230 and 250 megawatts of new capacity. In 2022, our energy storage portfolio was impacted by supply chain delays and limited accessibility of raw materials as well as longer-than-expected process for connecting these assets to the grid. This caused delays in the commercial operation dates for some of our facilities. Despite these headwinds, we remain on track with our growth plan and expect to bring online 6 new assets in 2023 and reach between 500 to 520 megawatts and over 1 gigawatt hour by the end of 2025.

Slides 21 and 22 display the geothermal and the hybrid Solar PV projects currently underway. We are on track with the commercial operation of North Valley, Heber 1 and Dixie Valley, all of which we expect to bring online during the first half of 2023; as well as Zunil in the second half of the year.

Moving to Slides 23 and 24. The third layer of our growth plan comes from the Energy Storage segment. Slide 23 demonstrates the energy storage facilities that have started construction. We have 8 projects under development that will add 104 megawatts, which is 124 megawatt hours, to our storage portfolio by the end of 2023; and an additional 100 megawatts, which are 340 megawatt hours in 2024.

Please turn to Slide 25 for a discussion of our 2023 guidance. We expect total revenues to increase by 14% year-over-year at the midpoint and to be between $823 million and $858 million, with the Electricity segment's revenues between $670 million and $685 million, an increase of 7% compared to 2022. We expect an approximately 79% increase in the Product segment, with revenues between $120 million and $135 million. And Energy Storage revenues are expected to be between $33 million and $38 million.

We expect adjusted EBITDA to increase by approximately 14% at the midpoint, the highest growth we have experienced in the last few years, and to be between $480 million and $510 million. We expect annual adjusted EBITDA attributable to minority interests to be approximately $36 million.

On an annualized basis, the new assets that will be added in 2023 as well as the potential improvements in Puna and Olkaria are expected to add between $25 million to $30 million of additional adjusted EBITDA versus 2023 partial operations.

I will end our prepared remarks on Slide 26. This was a strong quarter, demonstrated by continued financial and operating momentum, with significant progress against our long-term goals. Looking ahead to 2023, we expect to add 170 megawatts combined new capacity at both our Electricity and the storage segments, which represent a significant progress towards our target of over 1.8 gigawatts by end of 2025. As discussed earlier, the new capacity will benefit from the IRA. And benefits will reduce our capital needs in 2023.

We strongly believe that the regulatory tailwinds and the increased PPA prices we are seeing in the market, combined with our strategy, our assets and our advantages, cost structure, position Ormat for success; and will result in meaningful shareholder value in 2023 and beyond.

This concludes our prepared remarks. Now I'd like to open the call for questions. Operator, please.

[Operator]

[Operator Instructions]. We'll take our first question this morning from Noah Kaye of Oppenheimer.

[Noah Kaye, Oppenheimer]

Maybe we could start with the $150 million cash tax benefit you're expecting from IRA. Can we compare that to pre-IRA? Obviously the geothermal PTC had lapsed at the beginning of 2022, but I assume you had some projects that already met -- commenced construction, so how much of the $150 million is really incremental post-IRA? And then just on a housekeeping matter, how should we be modeling those benefits flowing through the P&L and cash flow statements that treated as reduction in tax expense, income from sales tax benefits? Any color you can provide there would be helpful.

[Assaf Ginzburg, CFO]

There are a few elements to the IRA that's going to impact us. And as you rightfully say, in the past, we also had, I will say, tax equity transactions we have done on the geothermal. We expect in 2023 approximately $125 million of the $150 million to come from 2 new tax equity transaction that we plan to do in the U.S.

One of them will be for the Heber combined operations. So it will be 3 when you combine the 2 Hebers. I will say that, if you look before that, that amount is probably lower by 10% because, as you remember it, ITC -- the PTC is up from 25% to 27.5%. So instead of $125 million, that number would have been probably closer to somewhere $110 million. The other piece will be PTCs that we will be able to sell, through the year, to third party. And those will be showing up either as other income or as part of the tax equity income.

And the last piece, which is around $15 million, should flow through the tax line item. These are ITCs related to a new storage project. Now when you look at the CapEx that we're spending in 2023 and you look in 2024, we will see a much bigger amount coming from the ITC part because, as we see it, in 2024 we have the COD of Bottleneck which is around $100 million and $105 million project, in addition to Montague which is another large project. So we will receive anywhere from 30% to 40% on those in form of a tax return. And those should flow through the tax line item, so we will see a boost in earning per share, especially in 2024, because of the Bottleneck project and the Montague project.

[Noah Kaye, Oppenheimer]

Very helpful, Assi. And maybe just to follow up on that just to help us with the simple math on expected funding mix for '23 CapEx. You've got this $150 million benefit plus the cash from operations. We assume you would need to raise additional project debt. Maybe talk through that and where you would expect project debt to pencil out on new projects.

[Assaf Ginzburg, CFO]

So as you rightfully so say, that the funding requirement next year will include project debt, tax equity transaction and maybe other form of financing. Right now, based on our best estimate, the project debt will fall in the -- around 6% debt. That's the last quote that we got. This will be a long-term debt fully secured. If you look at bank debt format, we are in the 6-plus, I will say, anywhere from 20 to 45 basis point. It depends on the mood of the market and the date.

[Noah Kaye, Oppenheimer]

Okay, if I could sneak one last one in, just on the guide for '23, including some improvements at Puna and Olkaria with some rollover benefits. Just what incremental improvement in capacity do you expect to get for those projects? And what's the rough timing on when you think they reach those capacity targets?

[Doron Blachar, CEO]

Noah, it's Doron. So thank you for the question. These are 2 additional items. In Puna, we finished an important part of our campaign. And we are in the process of connecting the wells that we finished drilling, production and injection oil rigs. We expect to connect them toward the beginning of Q2, and we expect to see the benefits impacting starting in Q2 going forward. And we -- following that, we plan another, to drill another well over there; and to see an additional increase somewhere toward the second half of the year. So we do expect a larger impact starting Q2 and then another one toward the second half.

Olkaria, we are in the middle of the drilling campaign over there. And we expect a gradual increase in capacity as we connect each well that we drill over there. We finished one well that we plan to connect these days actually, so we do see -- we do expect to see an increase over there. And the other well fields, in Olkaria, the wells are very deep. The timing to drill takes a bit longer than in other places, so we expect that to happen -- to increase mainly in the second half of the year.

[Operator]

We'll go next now to Justin Clare at ROTH MKM.

[Justin Clare, ROTH MKM]

So I guess, first off here, I just wanted to ask also on the $150 million in tax credit expected in 2023. Are there any assumptions for getting bonus adders within that $150 million such as the energy community adder? And then is -- if not, is that possible? And do you need to see treasury guidance before you can fully figure out exactly what the tax credit benefit will be?

[Assaf Ginzburg, CFO]

For 2023, the numbers do not include any adder because we are not in these that you mentioned. With that being said, there is a potential that for 2024 some of our storage assets are in these areas. And that's why we expect to get almost, in those cases, 40%. And when we look at 2025, we are also looking for options to buy batteries in the U.S. in order to try and qualify to anywhere between 40% to 50% on the storage.

On the geothermal, right now we are assuming the basic $27.5 of PTC. With that being said, as you mentioned rightfully so, we are looking at the actual guidance to see if we can take that number higher [indiscernible] 10% because there is not available equipment similar in the U.S. of geothermal. So the question is will we be able to claim local manufacturing? Because the drilling is in the U.S. The construction is in the U.S. So that's a question we will ask course going forward, but we are still waiting for the guidance. Many of the guidance are still up in the air, but the things that we are claiming for in 2023 are the base -- and when I say the base, I mean the, 5x the base. The base is $5.50, for example. We are claiming $27.5 because we're getting 5x the base.

[Justin Clare, ROTH MKM]

Got it. Okay. that's really helpful. And then just on storage, we've heard that the supply chain could be improving in terms of the availability for batteries. This might be in part due to some demand softening for electric vehicles, but could you just update us on what you're seeing in terms of the supply chain? Do you have all the batteries that you need? And is there any potential to pull projects forward if batteries are more freely flowing these days?

[Doron Blachar, CEO]

Yes. Thank you. So I will say the project -- the 8 projects that we listed in the presentation, all of them have secured batteries from different vendors. So on them, the supply chain issue is mainly delivery issues and things like that. We have seen in the last couple of weeks a reduction in the battery prices, a small reduction, which follows what you've said, a bit of a weakening in that market due to the EV market. I can say that we have between 3 to 6 projects that are looking for batteries. And once we have the batteries at the right price, it's a question mainly of price and timing. We will be able to release them going forward. And these are part of our plans and targets for the over 1 gigawatt hour generation at the end of 2025 for the storage.

So we have projects in the storage. We have the site control. We're in a very, very advanced interconnection and permitting process. And I think the last block is the batteries, and we are happy that the market is softening a little bit. And hopefully, once we are able to secure the battery, we'll be able to release the projects.

[Justin Clare, ROTH MKM]

Great, okay. And then maybe just one more. Your guidance for the Product segment suggests that quarterly revenues could be $30 million or maybe a little bit above that in 2023. At that level of revenue, could you get back to a gross margin range of 24% to 28%? And is that assumed in your guidance, that kind of level for margins?

[Assaf Ginzburg, CFO]

So we had a very good Q4 with margins are being better. And there is no doubt that the contract that we signed in 2022 and the one that will impact 2023 are already at an improved margin. We are still in the sub 20%, I will say, in our guidance, somewhere between 18% to 20%. We think that it might be better, but at this point, supply chain can still be an issue for 2023, so like always, we are being, I will say, a little bit making sure that we're going to meet the numbers. We think it's going to be somewhere around the sub-20%, maybe 18%.

[Operator]

We'll go next now to Jeff Osborne with Cowen and Company.

[Jeffrey Osborne, Cowen and Company]

A couple of quick ones on my side. I was wondering if we could get an update on the Bottleneck project. I think in the third quarter call you had talked about getting CPUC approval by the end of the year. I don't think that happened. And then I noticed in the investor presentation that moved to Q1 of '24 versus the end of '23, so can you give us an update on where that is?

[Assaf Ginzburg, CFO]

Yes. Thanks. It's, the Bottleneck CPUC, we got approval at the beginning of January. So the contract is fully approved by the CPUC and we're running on it. Moving between Q4 '23 to Q1 of '24, it's mainly issues of potential slow-up supply of batteries but mainly the connection to the grid and the process it takes from you -- when you finish construction until you can actually generate revenue. So we do expect to finish construction in 2023, but then the connection itself might take us into 2024.

[Jeffrey Osborne, Cowen and Company]

Got it. That's helpful. 2 other quick ones just following up on Noah's question around taxes and the ITC. What tax rate should we assume for Ormat in '23 and '24? Is that a number you have handy?

[Assaf Ginzburg, CFO]

When you look at 2024, I will say there definitely should be a much lower tax rate because we expect extremely large ICC benefits that will impact us. For 2023, you can assume, I will say -- if our normal tax rate is around 32%, you can assume at maybe 10% less than that.

[Jeffrey Osborne, Cowen and Company]

So 22%. Or take off 3.2%...

[Assaf Ginzburg, CFO]

No, no -- somewhere between 25% to 30%.

[Jeffrey Osborne, Cowen and Company]

25% to 30%, okay, got it. And then the last one I had is just on the North Brawley facility. I might have missed that, but I think, going back to like 2010, that originally was a 50-megawatt resource. Then it went to 17 and then 13, and now it's 7. Is that all due to the sand and salinity issues that, that site has had for years? Or is there something else going on there?

[Doron Blachar, CEO]

No, nothing new going on there. It's mainly the same issues. Over the years, in various points in time, we had idea on how to solve it. We've invest the -- into different technologies and different structures in order to bring it back to higher generating capacity, but at this stage, we don't think that we can do it. But what I would say is that the North Brawley facility has a larger interconnection that is not going to be utilized through the geothermal. And we are in advanced discussions with a CCA there to build a storage facility and, by that, actually take the benefit of the interconnection that North Brawley has. And once this will be finalized, we will update you exactly on the project.

[Operator]

We take our next question now from Julien Dumoulin-Smith of Bank of America.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Listen. Just with respect to some of the impacts here, some of the operational issues on some of the geothermal assets, can you elaborate a little bit? I mean, how much of this is going to be made up, if you will, in '24? I don't know if it's exactly a fair question to ask, but in totality, whether we're looking at Heber or Brawley, obviously there have been some specific issues. But in totality, is there a good way to think about kind of the shift in value that you had previously contemplated in '23, moving into kind of more of a run rate '24 as a way to think about it across each of the discrete issues that you described earlier, maybe in EBITDA terms?

[Assaf Ginzburg, CFO]

Julien, great questions. So as you know, many of the storage segment assets' CODs moved from 2022 to during the year 2023. And also we decided to take a closer look at our drilling campaigns in Olkaria and in Puna, which now look very, I will say, on track to perform this year. So these 2 items, in addition to the on the geothermal, which is like you mentioned rightfully so -- Heber and North Valley should rate on a run rate base additional $25 million to $30 million of EBITDA in the following year.

So if everything would have gone right in 2022 and things would have been on time, everything, you're right. Our guidance for 2023 would have been $25 million to $30 million higher, which will put us probably at record EBITDA for the company growth. I will say that we are long-term marathon runners. And for us, if something will start operation in January or April, it does make a difference. And we want it as early as we can, but we want it right, so when we look at 2024, not including assets that we will add in, in 2024, we are seeing a pickup in EBITDA on those assets of $25 million to $30 million, with almost -- all of it also coming from a top line growth of storage and geothermal assets.

So I will say, when you combine this, I think there's a lot of value in what we have done over the last 2 years. And maybe there's a little bit more patience that is needed, but I think that $25 million to $30 million on top of what we gave guidance for 2023 are very good numbers for the company.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Indeed. And just sorry just to clarify that, if I can. And hopefully, it's a fair question. That $25 million to $30 million is incremental versus projects that were previously contemplated for in service in '24, right? i.e., this is just the shift that you're announcing here in time line in...

[Assaf Ginzburg, CFO]

Yes. It's assets that were supposed to start online mostly in end of 2022. They will start operation in 2023. They will contribute some amount in 2023, but on top of it, on an annual base when you look at 2024, they will add additional $25 million to $30 million of adjusted EBITDA.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Right. It's the of your catch-up for some of the assets reaching through the year in '23 as well as some of the operational issues really getting fully resolved here.

[Assaf Ginzburg, CFO]

Yes.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Exactly. Sorry. I don't mean to belabor that too much. And then just on the Product side, super quick: Obviously pretty incredible developments and re-acceleration, backlog largely contemplated to be consumed seemingly this year. How do you think about adding more to that backlog? It's been a pretty impressive recovery trajectory here in the last couple of years and obviously looking to '23. Can you talk a little bit about expectations on adding backlog here over the next few months to continue this momentum? Or is this the new run rate, if you will?

[Doron Blachar, CEO]

We -- thanks, Julien. So on the Product backlog, as we said, we see a change in the demand not only in the U.S. but globally. We are competing today on multiple projects that we expect to win some of them, we would say the largest opportunities in New Zealand, which is a big part of our backlog today, but the potential there is huge. And we do hope that Turkey, and we've seen some indications from our customers that Turkey might wake up again. And assuming the economy will be a little bit better in Turkey, the potential there is very, very big, so we do expect the backlog to continue. It's not something that you can measure it by quarter, but we definitely expect the backlog over time to increase.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Okay, excellent. And then -- but maybe related to that, the product level here. Just in terms of this new level that you've got for this year, call it, , do you think that we're going to see that as being a new run rate? Or we're going to continue to accelerate. It sounds like further acceleration is possible, but you're not ready to articulate it yet.

[Doron Blachar, CEO]

I couldn't answer you better than the question.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

All right, fair enough. We'll leave it there.

[Operator]

[Operator Instructions]. We go next now to Ryan Levine at Citi.

[Ryan Levine, Citigroup]

I'm hoping to start off with the power market exposure. You highlighted some of the duration in the PJM forwards and some other markets. Can you quantify the materiality of that movement to your '23 outlook? And are you looking to change any of your hedging profiles on a go-forward basis?

[Doron Blachar, CEO]

Thanks. On the -- I'll start with we are not doing today any hedging within the storage market. And we have -- most of our contracts are merchant, apart from the RA contracts that we have in California. In 2024, we'll have Bottleneck with a tolling agreement, but we are not hedging any contracts. We are playing in the merchant market. PJM prices in 2022 were very, very high. They were above $50. Today, they are in the range of $20, $25, so that's a big decline in the PJM, but again it's a merchant market, so it depends quite a lot of the weather and the demand. PJM is related a lot to the gas price -- natural gas pricing, so if natural gas pricing are going up, the PJM prices will go up. So this is a merchant play.

[Assaf Ginzburg, CFO]

Ryan, let me add one thing. We have roughly a 40 megawatt now operation in the East Coast in PJM. If we will see a pickup in prices towards what we saw in 2022, we expect revenue in the storage to be higher by $6 million to $8 million. So we are already taking into consideration the fact that prices are slightly lower. And if there will be a pickup in prices back to the $40, $50, then we should see roughly another $6 million to $8 million. I will say that this thing is very volatile. December started very slow, for example. And then over one weekend, we generated $2 million of revenue. So overall, we like some of our assets to be in these areas. And we believe that even at $25, $30 per megawatt we still have a very good return on our investments over there.

[Ryan Levine, Citigroup]

Okay, great. And then in terms of your dividend policy with the incremental $150 million of capital offsets from the federal policy and some of these moving pieces with time lines of implementation and movements in power curves. How are you thinking about your dividend policy on a go-forward basis? And could that be something that gets reevaluated in light of some of these moving pieces?

[Doron Blachar, CEO]

So the dividend policy is reevaluated between the management and the Board every quarter and every year when we do our work plan. However, as we discussed, there is such a large demand for geothermal assets and storage assets in the U.S. and globally that the view of the company is to invest in capital as much as we can and not to go and increase the dividend. We see the big upside in growing the business. We have in 2023 a 14% increase in EBITDA, which is the highest we had for many, many years, highest growth in EBITDA for many, many years. And this is where the focus that we're putting on.

[Ryan Levine, Citigroup]

Okay. And then last question for me. In terms of the CapEx outlook on a per-megawatt basis, are you seeing any movement there given some of the components costs evolving?

[Doron Blachar, CEO]

Over the last year or so, 2 years basically, prices did -- for raw materials did go up, and drilling costs, due to the boom in the oil industry. Drilling costs went up a bit. Now they are going down a little bit more. Shipment pricing went very high. Now they are going down, so all in all I think this is -- balances. And the reality is that, since we are a vertically integrated company and we do actually everything that is required to build a facility, we are able to manage between these. And costs to build the facility might go up or down by 5%, but in general it's the same area.

[Operator]

Thank you. And gentlemen, it appears we have no further questions this morning. Mr. Blachar, I'll hand things back to you for any closing comments.

[Doron Blachar, CEO]

Okay, thank you. Thank you, everyone, for joining us. 2022 was a very strong year. And we're looking at 2023 with a 14% increase in revenue and EBITDA, adjusted EBITDA; and continuing to invest and build our portfolio. And I'm confident that, as the year passes, we'll be able to give you more and more insight on the growth plan that we have and making them. So thank you very much.

[Operator]

Thank you. Again, ladies and gentlemen, that will conclude Ormat Technologies' fourth quarter and full year 2022 earnings call. And I like to thank you all so much for joining us and wish you all a great day. Good bye.