Ormat Technologies (ORA) Q1 2025: Storage Revenue Jumps 120% as Segment Mix Shifts
Ormat’s Q1 2025 saw a decisive pivot as energy storage revenue soared 120% year-over-year, offsetting electricity segment softness and highlighting the company’s evolving growth levers. Storage and product segments delivered robust expansion, while geothermal operations remained resilient despite regional curtailments. Management’s proactive supply chain and policy navigation, alongside a deepening backlog and new M&A, underpin confidence in long-term targets even amid tariff and regulatory uncertainty.
Summary
- Storage Surge Reshapes Profit Mix: Energy storage’s rapid growth and margin expansion are altering Ormat’s earnings profile.
- Geothermal Resilience Amid Curtailment: Core geothermal assets performed steadily despite transmission and wildfire disruptions.
- 2028 Capacity Roadmap Intact: Management’s supply chain and policy actions support multi-year growth targets despite tariff headwinds.
Performance Analysis
Ormat’s Q1 2025 results spotlighted a strategic shift in earnings drivers, as energy storage revenue nearly doubled and product segment sales surged, cushioning a decline in the legacy electricity segment. Total revenue grew modestly, but gross profit margin compressed to 31.7% from 35.2% last year, primarily due to lower electricity segment contribution and curtailments in California and Nevada. The storage segment’s gross margin leapt to 30.6%, up from just 7.5% a year ago, driven by new capacity and elevated merchant prices in the PJM market, while product segment margin improved to 22.3% on a strong backlog and contract profitability.
Adjusted EBITDA reached a quarterly record, with storage now contributing 10% of consolidated EBITDA versus only 3% in Q1 2024, and product at 7%. The electricity segment, though still dominant at 83% of EBITDA, saw revenues fall 5.8% due to anticipated curtailments, partially offset by the upgraded Biwawi plant. Cash flow generation remained solid, supporting $225 million in liquidity and a steady dividend, while net leverage held at 4.2x. Capex guidance increased to $597 million for the year, reflecting expanded geothermal and storage investment needs.
- Storage Margin Inflection: Segment gross margin expanded to 30.6% as new PJM assets and merchant pricing drove profitability.
- Product Backlog Strength: Backlog reached $314 million, up 142% YoY, anchored by large international EPC contracts.
- Electricity Segment Drag: Curtailments and transmission maintenance reduced revenue, but PPA pricing and new M&A offer future upside.
Ormat’s segment diversification is now materially impacting financial dynamics, shifting the risk and opportunity set for investors as the company leans into storage and product growth to offset legacy headwinds.
Executive Commentary
"This growth was driven by robust performance and significant expansion in both our storage and product segments year-over-year... We believe we will continue to see a solid performance in our storage segment throughout 2025 and 2026 due to the progress in securing safe harbor and batteries with low tariffs."
Daron Bouchard, CEO
"Adjusted EBITDA for the first quarter was $150.3 million, a 6.4% increase compared to last year. The strong year-over-year increase was driven by a better performance in our energy storage segments and improved profitability in our product segments, leading to a quarterly record adjusted EBITDA in OMAT history."
Ozzie Ginsberg, CFO
Strategic Positioning
1. Energy Storage as Growth Engine
Energy storage, battery-based grid support assets, has emerged as Ormat’s fastest-growing and highest margin segment, with revenue up 120% year-over-year and margin inflecting sharply. Management’s strategy of balancing contracted and merchant revenue—about 50% market exposure—enabled upside capture from volatile PJM pricing. Recent commissioning of East Leamington, Montague, and Bottleneck sites expanded the portfolio, while new Israeli toiling agreements (long-term service contracts) add geographic and revenue diversity. Management is actively mitigating tariff risks by diversifying suppliers and leveraging IRA incentives.
2. Geothermal Core Remains Steady
Geothermal, Ormat’s legacy baseload clean power business, delivered steady output despite regional curtailments, with new capacity (Aegean JV) and upgraded plants (Biwawi) partially offsetting lost revenue. The Blue Mountain acquisition adds 20 megawatts (with expansion potential) and positions Ormat for higher post-2029 PPA pricing. Management expects permitting reforms to accelerate greenfield development, while high utility and hyperscaler demand is driving PPA prices above $100 per megawatt-hour.
3. Product Segment Expansion and Backlog Visibility
The product segment, which provides geothermal equipment and EPC services, saw backlog surge 142% YoY to $314 million, led by large international contracts in New Zealand and Dominica. Gross margin climbed to 22.3% as contract profitability improved. This backlog will be recognized over two years, providing multi-period revenue visibility and supporting margin guidance of 19% to 21% for 2025.
4. Capital Allocation and Supply Chain Agility
Ormat is scaling capex to $597 million for 2025, focused on geothermal exploration, drilling, and storage build-out. Management is proactively managing tariff and supply chain risks by securing safe harbor battery inventory, pursuing domestic procurement, and sharing risk with customers. Most debt is fixed-rate, insulating against interest rate volatility, and liquidity remains robust for ongoing investment and shareholder returns.
5. Organizational Realignment to Support Growth
Leadership restructured the electricity segment, splitting operational oversight and exploration/drilling into separate EVP roles to better support asset performance and accelerate new project development, including Enhanced Geothermal Systems (EGS) technology. This aligns management focus with the company’s dual-pronged growth strategy.
Key Considerations
Q1 2025 marked a turning point for Ormat’s segment mix and operational priorities, with storage and product lines driving incremental value and management doubling down on risk mitigation and growth enablement.
Key Considerations:
- Storage-Driven Profit Mix Evolution: Storage’s EBITDA contribution more than tripled YoY, altering Ormat’s earnings base and risk profile.
- Tariff and Policy Navigation: Management’s proactive safe harbor and supplier diversification strategies aim to shield near-term growth from U.S.-China tariff volatility.
- Geothermal PPA Repricing Upside: High PPA demand from utilities and hyperscalers sets up potential for margin expansion post-2029 as legacy contracts roll off.
- Backlog and Capex Visibility: Record product backlog and increased geothermal/storage capex underpin multi-year revenue and capacity growth.
- Organizational Focus on Exploration: New management structure prioritizes both operational excellence and aggressive greenfield development.
Risks
Key risks for Ormat include further tariff escalation impacting storage economics, regulatory delays in project permitting, and potential IRA tax credit changes. While management has secured safe harbor for near-term projects, uncertainty remains for later vintages. Electricity segment exposure to curtailment and transmission disruptions could persist, and execution on EGS technology is still unproven, with technical hurdles noted by management. Investors should monitor the balance between contracted and merchant storage exposure as market dynamics evolve.
Forward Outlook
For Q2 2025, Ormat expects:
- Temporary decline in electricity segment revenue and EBITDA due to Kona plant maintenance and ongoing Nevada curtailments (estimated $4 million revenue, $3 million net profit impact).
- Offsetting gains from Blue Mountain acquisition and continued strength in storage and product segments.
For full-year 2025, management maintained guidance:
- Total revenue: $935 million to $975 million
- Adjusted EBITDA: $563 million to $593 million
Management emphasized:
- Confidence in achieving 2.6 to 2.8 GW capacity by 2028, supported by geothermal and storage expansion.
- Ongoing supply chain and policy actions to secure IRA benefits and mitigate tariff risk.
Takeaways
Ormat’s Q1 2025 results underscore a business in transition, with storage and product segments now driving incremental growth and margin leverage. Geothermal remains a stable foundation, but future upside will depend on successful execution of new project development and capitalizing on PPA repricing as legacy contracts expire.
- Storage and Product Segments Now Central to Growth: Storage’s margin and profit contribution signal a new phase for Ormat’s business model.
- Geothermal and Backlog Provide Stability: High PPA pricing and record backlog underpin near-term earnings visibility despite legacy headwinds.
- Watch for Execution on Expansion and Policy Navigation: Investors should focus on storage project delivery, tariff mitigation, and progress on EGS and greenfield geothermal development.
Conclusion
Ormat’s Q1 2025 results reveal a business increasingly defined by its storage and product growth engines, with proactive management actions positioning the company to navigate near-term policy and supply chain challenges. The evolving segment mix and capital deployment strategy set the stage for multi-year capacity and earnings expansion, but execution and regulatory agility will be critical to realizing the full potential.
Industry Read-Through
Ormat’s storage-driven profit surge and margin expansion highlight a broader industry pivot as energy storage economics improve and merchant market exposure becomes a key lever for renewables players. Geothermal’s steady demand and rising PPA pricing underscore the value of baseload renewables in an AI and data center-fueled grid. The company’s supply chain agility and safe harbor strategy offer a template for peers navigating tariff and IRA uncertainty. Record product backlogs and international EPC wins signal continued global appetite for geothermal solutions, while organizational realignment around exploration and drilling reflects the growing premium on resource development expertise.