Ormat Technologies, Inc. (NYSE:ORA) Q3 2023 Earnings Conference Call November 9, 2023 10:00 AM ET
Company Participants
Alec Steinberg – Investor Relations, Alpha IR
Doron Blachar – Chief Executive Officer
Assi Ginzburg – Chief Financial Officer
Conference Call Participants
Noah Kaye – Oppenheimer
Justin Clare – ROTH MKM
Mark Strouse – JPMorgan
Julien Dumoulin-Smith – Bank of America
Jon Windham – UBS
Jeff Osborne – TD Cowen
Ryan Levine – Citi
Operator
Good morning, and welcome to the Ormat Technologies’ Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [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.
Alec Steinberg
Thank you. 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’d 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, see risk factors as described in Ormat Technologies’ annual reports 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 in the Investor Relations tab.
With all that said, I would now like to turn the call over to Doron Blachar. Doron, the call is all yours.
Doron Blachar
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 top line expansion of 18.3%, which was successfully translated into 15.8% growth in adjusted EBITDA and 84.4% growth in earnings per share. All three 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 store segment, we overcame lower energy rates at PJM 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 a strategic acquisition of three geothermal and two solar power plants for Enel in the US. We expect to close this acquisition by the first quarter 2024. 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 DTC, 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 our 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 by approximately 1.9 to 2 gigawatts by year-end 2025.
Now before I provide further updates on our operations and future plans, I will turn the call over to Assi to review the financial results. Assi?
Assi Ginzburg
Thank you, Doron. Let me start my review of our financial highlights on slide five. Total revenue for the third quarter was $208 million ’21, 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 Q1 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 the segment is negatively impacted 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 the 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 $0.32 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 a higher benefit within the IRA, including PTC benefits recorded an income attributed to the sale of tax benefits and ITC benefits recorded under income tax provision. In addition, we recorded a $9.4 million tax income related to a recent change in the Kenya tax law.
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 attributable to the stockholders up 16.4% 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 the changes in the Kenya Finance Act 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 and a lower G&A expense versus the prior year period.
Moving to slide 6 breaking the revenue down at the segment level. The revenues in our electricity segment increased 2.9% to $167.2 million compared to the prior year period. The increase was driven by the COD at the North Valley facility and the resumption of operations in C1. The increase in revenue was partially offset by lower electricity prices and generation at pool.
In the Products segment, revenues increased 180.2% to $38.8 million, representing over 19% of our total consolidated revenue in the third quarter compared to only 8% and 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 base.
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 at Credit Hill and our new Optum facility in Texas. This increase was partially offset by lower energy rates received at our cargo and PGM facility.
Moving to Slide 7, the gross margin of the electricity segment was 31.8%. Electricity gross margin were impacted mainly by the lower revenue at Puna and the absence of business interruption at even this quarter as 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 than on the East Coast last year. However, this year, we saw a more normalized rate environment with higher prices in April.
Looking at Slide 8. Electricity segment generated 90% of OMA 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 five active tax equity transaction, while the remaining $2.4 million is related to transferable PTC, which were recorded in 2023 under the provision of the Inflation Reduction Act. 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 few years, in line with our growth plan to increase our energy storage portfolio we expect to continue reporting a lower tax rate other one.
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 nine months, illustrating mass 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 our operations and the strong liquidity profile we maintain.
Our total debt as of September 30, 2023, was approximately $2 billion, net of deferred financing cost, 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 at competitively in the rising global interest rate environment.
Moving to slide 11. As Doron mentioned, in October we raised $166 million, which includes a $43 million, sale of tax benefits related to the North Valley through a tax equity transaction. $73 million short-term commercial paper and $50 million long-term corporate loan. 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 trend.
With respect to the new acquisition, we are planning to raise additional long-term corporate debt by the closing of the transaction. Year-to-date in 2023, we invested $450 million in profit 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 is given on slide 34 of the appendix. Overall, Ormat is well-positioned from a capital resource perspective with access to capital liquid resources and additional capital to opportunistically fund accelerated growth.
On November 8th, 2023, our Board of Directors declared, approved, and authorized payment of a quarterly dividend of $0.12 per share to all holders of the company’s issued and outstanding shares of common stock on November 22nd, 2023, payable on December 6th, 2022.
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
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 Guadeloupe 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 through 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 Enel assets in the US. Upon closing, we will acquire the Cove Fort geothermal power plant in Utah, the Salt Well geothermal power plant in Nevada, and Stillwater triple hybrid geothermal, solar PV and solar thermal power plant in Nevada. These three power plants sell approximately 43 megawatts to the grid.
In addition, we will acquire two solar assets with a total nameplate capacity of 40 megawatts and two greenfield development. For all of these assets, we will pay approximately $271 million.
The acquisition 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 three geothermal assets by installing Ormat equipment. We expect that the planned on-surface 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 Cove Fort 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 Mercury project in New Zealand, bringing our backlog pre-COVID levels, a testament to the resilience and adaptivity 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 California. We currently have six projects under construction that will contribute 275 megawatts or 740 megawatt-hour.
This quarter, we also signed a multi-year battery supply agreement with Gotion 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 growth 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 six geothermal and six 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 Brawley an agent that will come online next year. In our solar PV portfolio, we expect Steamboat and Steamboat Hills 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 third layer 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 nine 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 three 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 capacity 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 lowering 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 on.
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 emissions. 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 Scope 1 and Scope 2 greenhouse gas emissions when, compared to our 2019 baseline. We have also initiated a comprehensive climate risk analysis and TCFD, Task Force on Climate-Related Financial disclosures, GAAP analysis process. Our aim is to identify and address material climate-related risks, creating mitigation strategies for which. Simultaneously, we are formalizing an action plan and expect to fully align with the TCFD recommendation.
This strategic approach underscores our commitment to responsible climate 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 through — 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 Israel. 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 is in Israel.
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 reprioritized some of our projects to accommodate our employees in Israel were being full up to military reserves, 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 and 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 target. 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.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is from the line of Noah Kaye with Oppenheimer,
Noah Kaye
Great. Thanks for taking the question. 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 a increasingly constructive environment for development of additional assets in Hawaii. Can you comment on the development environment there? Thank you.
Doron Blachar
Thank you, Noah. Hawaii, as we said, had a lower Q2 and Q3, we finished drilling the last Welder 2022. 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 ways to see how it is going forward. These days, we are working on the work plan for next year. And obviously, dealing with Puna’s part of that and what kind of workover or dealing we need to do with the work. 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 try to develop another one in Hawaii at this time.
Noah Kaye
Okay. Thanks. Wanted to switch gears and talk a little bit about tax credit transferability. 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. Thank you.
Assi Ginzburg
So Noah, this is Assi. Good morning. When we look at this quarter, we see the benefit on the tax transferability in two places. One is on the income attributable to tax equity transaction where we generated PTCs that we — later on, we already signed and entered them into a 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 ITCs. Right now, we are in final negotiation to sell them and collect money before 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 Hebron [ph] 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 benefits 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 bids that we see, because we basically offered it to a few places. I think bottom line, in the past tax benefits with Ormat, 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, Ormat Storage brought us close to $20 million. Next year, it should bring us over $40 million, just the storage benefit. So bottom line, the ITC benefits are bringing us cash and improve net income. And the PTC just allows us to continue and develop assets at much better return than otherwise. So IRS France is quite big.
Noah Kaye
Very helpful. I’ll leave it there. Thank you.
Doron Blachar
Thank you.
Operator
Your next question is from the line of Justin Clare with ROTH MKM
Justin Clare
Yeah. Thanks for taking the questions. So just wondering the follow-up on the improvement you’re seeing at Puna, as well as the capacity expansion at Heber, and then 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 run rate basis, what kind of uplift is possible as a result of the improvements here?
Doron Blachar
Hi. So I will touch each one of them separately. So Olkaria, we have been steadily increasing the capacity in the generation of the — we’ve done a new capacity test in Olkaria, the PPA there is split between capacity and energy as time passes, we are able to increase revenue. And as you can expect, we increase 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-and-plus megawatts, and that’s what we’re seeing today. We are almost in the middle of the quarter, and Puna is performing very well.
Heber, the 89 megawatts that we mentioned, so the last part of the construction in Heber came online at the beginning of September. So we expect to enjoy a Q4, full benefit at Heber.
Justin Clare
Got it. Okay. And then just on Olkaria, I think earlier in the year, it was at 127 megawatts. Can you share 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?
Doron Blachar
Olkaria has been delivering over the last few weeks between 130 to 135, 136 megawatt depends on the temperature and others, but this is where it is moving along. We are drilling today unlike Puna that we finished the drilling campaign, in Olkaria we’re still drilling another well that we plan to finish in Q1 of next year, then it needs to be heated up and connected.
So it should come online sometime in Q2 and we have a third well that here 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.
Q – Justin Clare
Okay. Okay. Got it. 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.
Assi Ginzburg
In general, I would say that the backlog should translate to revenue over 18 months there might be some projects that 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.
Q – Justin Clare
Okay. Thank you.
Operator
Your next question is from the line of Mark Strouse with JPMorgan.
Q – Mark Strouse
Yes. Thank you very much for taking our question I just had one kind of a 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 I just wanted to make sure that’s the case and something else hasn’t slipped out maybe.
Doron Blachar
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 tribute guidance on the megawatt that we will have. So in Feb, we will update. I hope that by that time, we’ve already closed the Enel acquisition. So the numbers will give you in February, we will include the impact of Enel.
Q – Mark Strouse
Okay. Yes, that makes sense. Okay. I’ll take the rest offline. Thank you.
Doron Blachar
Thank you.
Operator
Your next question is from the line of Julien Dumoulin-Smith with Bank of America.
Q – Julien Dumoulin-Smith
Hi. Good morning. Thank you, guys very much for the opportunity. Just following up a couple of different questions here. First off, tax — transferability. 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. I’d love to hear your thoughts on that in terms of rethinking leverage, a. And then b, just as you think about the backdrop for 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 over the next few months, just — how do you think about just the timing of capital raises here? And how do you think about the levers, if you will, in the 6 months?
Assi Ginzburg
Julien, this is Assi. 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 to corporate loan at a rate of around 7%. And we also closed the 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 through two corporate loans that we planned to take before closing of the net transaction. And those will be a similar rate the loans that I spoke before. I think because of the lower leverage versus many of our US peers that are currently at five and six 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 – ITC those are basically reducing our overall debt. They are not part of our EBITDA. We have seen some of our peers adding ITC’s 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 four time leverage, which is significantly below our US peers.
Julien Dumoulin-Smith
Indeed, I get your lower leverage strategy. That’s why I ask if any of this matters, right? You guys just 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?
Assi Ginzburg
Correct. Correct. As you see, our EBITDA this year is up significantly over last year, which allow us to continue and borrow under the coring business. And that’s why the earlier equity raise that we did already this year allow us to do this transaction without any additional equity plan.
Julien Dumoulin-Smith
Excellent. 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 – like COSO 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?
Doron Blachar
Julien. It’s Doron. I will 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 from our geothermal facilities, we are able to sell under our existing PPA 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 someplace on the table to look into, but so far economic-wise we haven’t seen the benefit if we cancel 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 from 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 will obviously update the balance.
Julien Dumoulin-Smith
Thank you guys. I get what you’re saying.
Operator
Your next question is from the line of Jon Windham with UBS.
Jon Windham
Perfect. Thanks for taking the questions, and I hope you and your team are doing well. 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. Appreciate it. Be well.
Doron Blachar
What we see today is exactly what you said. There’s two factors, two 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 storage. That’s on one hand. On the other hand, the increased interest rates are pushing all developers to go with higher, to bid higher pricing. And that’s what exactly what we see today. We see the tolling agreement or the PPA agreement for storage.
We see higher numbers in the bid that we compete in, in the bid that we are shortlisted or some that we are not shortlisted, 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 whoever has a new facility, it can actually make a reverse bid and bid the facility between the different utilities to get very high pricing. I believe that 80 is a low number today if you have a new geothermal facility.
Jon Windham
Appreciate it.
Operator
Your next question is from the line of Jeff Osborne with TD Cowen.
Jeff Osborne
Yeah, good afternoon. Most of the questions have been addressed so far, but two 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’ll 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?
Doron Blachar
No. As far as we know, Goshen is planning to have its facility operating at the end of 2024. We are planning our site to be operating earlier or during the beginning of 2025. So all the projects that we release 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 US future projects will be from the US and will be tied to an additional 10% ITC. But this is, as you said, it’s in construction. So we don’t have the facility there. But the current ones are not from there.
Jeff Osborne
So for 2024 and 2025, you wouldn’t get the 10% adder for domestic batteries, but you could get it for energy communities. Is that the right way to think about the storage business?
Doron Blachar
Yes. Definitely.
Jeff Osborne
Got it. 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?
Doron Blachar
Look, 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 be — one of them will be successful. We are in discussions, obviously, in meeting with all of them in the different constances and if any of them will be successful, we’ll be very happy to utilize it in our product and our future development projects as well as in our product segment.
Jeff Osborne
Perfect. Appreciate the thoughts. That’s all I had.
Doron Blachar
Thank you.
Operator
[Operator Instructions] The next question is from the line of Ryan Levine with Citi.
Ryan Levine
Hey, everybody. A couple of more specific questions. In terms of the West Coast generation in terms of the capacity or utilization factor, are you noticing any trends in terms of what that capacity factor is over time or what that will be on a go-forward basis
Doron Blachar
As we said, we’re operating our assets at 24/7. The main time that the downtime is through some maintenance thing that we have, these are big power plants, a lot of mechanical items. We do issue every year on our 10-K specific availability of each region.
Either this game online you know, increase, obviously, the generation that we’ve been — we will show this year, because it was up almost all of last year. But for specific facility, we don’t see anything different this year compared to previous year.
Ryan Levine
Okay. That’s it for me today.
Operator
At this time, there are no further questions. I will now hand the presentation back over to presenters for any closing remarks.
Doron Blachar
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 target as the year passes to go into 2024 and onwards. Thank you.
Operator
This concludes call. Thank you for joining. You may now disconnect your lines.
