Ormat Looks Beyond Geothermal and America for Growth

The company aims to expand into solar and other renewable technologies while finding new markets and customers.

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Ormat's geothermal station in Kenya.
Ormat's geothermal station in Kenya.

Exactly one year after Ormat Technologies’ cofounder and long-serving CEO Yehudit Bronicki stepped down, the maker and operator of geothermal power turbines unveiled its growth strategy. At an investor conference in New York at the end of March, CEO Isaac Angel said Ormat was widening its portfolio of technologies and the number of countries in which it operates, and expanding its customer base.

Over the last five decades, Ormat focused on geothermal projects, which use the heat generated from the earth to generate electricity. More than three-quarters of its capacity was located in the United States, and nearly all its technology was based on innovation developed in-house at its headquarters in Yavneh near Tel Aviv. Its customers have been government and utilities.

But for most of the past year, Ormat’s Nasdaq-traded shares have lagged the S&P 500 index. Only in the last two months has the stock powered higher. Since the second week of February, Ormat has climbed almost 40% versus a 1.6% gain by the S&P. On Tuesday, Ormat shares were up 0.3% at 38.31 in early afternoon trading.

For Ormat the strategy had its advantages as it developed deep expertise in geothermal technology. It reaped higher profit margins from controlling every stage of the process from manufacturing equipment to building and operating the stations. The company owns and operates 18 power stations around the world, including in Kenya and Guatemala, that generate a combined 647 megawatts.

But the strategy also limited how quickly the company could grow because geothermal energy remains a niche market even in the world of renewable energy where solar and even wind power are the dominant technologies.

Angel’s goal is to increase revenues from non-geothermal technology to 25% of the total from 10% today. He wants to line up customers outside the company’s traditional base so that big industrial users account for a quarter of the total. And geographically, Angel aims to generate half the company’s business outside the United States, up from 30% in 2014.

To move quickly into other segments of the renewable energy business, Ormat plans to develop technology in-house and make acquisitions. The company is eyeing opportunities in solar power as well as hybrid renewable energy and what it describes as “the next big wave in renewable energy” — energy storage.

Developing technology to store energy so it can be available whenever needed would represent a major breakthrough in electricity distribution, especially in the case of renewable energy sources such as wind and solar that generate power intermittently.

Widening its technology portfolio will enable Ormat to offer power combining geothermal and solar technology, as it has done on a trial basis at its station at Heber, California.

Ormat sees new geographical markets opening to it in places like Mexico, Ethiopia, Indonesia and the Philippines. Much of Africa suffers double-digit energy shortages — the percentage of the population without access to sufficient power. In Latin America and Asia the gap is only slightly narrower.

Instead of relying on private and state-owned power companies as its customers, Ormet aims to begin negotiating long-term agreements with big industrial users looking to reduce their energy costs and energy footprint, the latter to improve their public image.

Angel insists that Ormat won’t sacrifice profitability in its quest for growth. He has already demonstrated his ability squeeze out profit: Ormat increasd its earnings before interest, tax, depreciation and amortization to $48 per megawatt hour last year from $39 two years ago.

Ormat has earned those extra margins by expanding its power stations; for instance, Olkaria III in Kenya, whose capacity has jumped from 12 megawatts in 2000 to 110 today. There’s more to do by reducing on-site manpower in favor of remote monitoring.

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