Ormat Technologies, Inc.
Q1 2008 Earnings Call Transcript

Published: 7 May 2008

[Operator:]

Good morning. My name is Melissa and I’ll your conference operator today. At this time I would like to welcome everyone to the Ormat Technologies first quarter 2008 Earnings Call. (Operator Instructions) It is now my pleasure to turn the call over to your host David Burke. Sir, you may begin your conference.

[David Burke:]

Thank you, Melissa. Thank you all for joining us today. This is David Burke with KCSA Strategic Communications, Investors Relations Consultant to Ormat Technologies. This point you should have all received the first quarter 2008 earnings press release. If you have not received the release, please refer to Ormat’s corporate website at www.ormat.com. Hosting the call today are Dita Bronicki, Chief Executive Officer, Yoram Bronicki, President and Chief Operating Officer, Joseph Tenne, Ormat’s Chief Financial Officer, Smadar Lavi, Vice President, Corporate Finance and Investor Relations. Before beginning we would like to remind you that information provided during this call may contain statements relating to current expectations, estimates, forecast and projections about future events that are forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward looking statements generally relate to company’s trend, projectors and expectations for future operations and to meet the management’s current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risk and uncertainties. For discussion of such risk and uncertainties please see Risk Factors as described in the Annual Report on Form 10-K filed with the Securities and Exchange Commission March 5th, 2008 and prospectus supplement filed with the Securities and Exchange Commission on October 23rd, 2007. In addition, during this call, statements made that include the financial measured defined as non-GAAP financial measures by the Securities and Exchange Commission such as adjusted EBITDA. This measure may be different from non-GAAP financial measures viewed by other companies. Presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management of Ormat Technologies believes that adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurement that management investors benefit from referring to this non-GAAP financial measures in assessing Ormat Technologies liquidity and when planning forecasting future periods. This non-GAAP financial information measure may also facilitate management’s interpretation in company’s historical liquidity. Before I turn the call over to management I would like to mention that a slide presentation accompanying this call via Ormat’s website www.ormat.com under the event link as show in the Investor Relations tab. That said, I would like to now turn the call over to Dita, Yoram and Joseph who would like to make some formal remarks and review the financials. Following this remarks management will be glad to answer any questions you many have. Dita, call is yours.

[Dita Bronicki:]

Thank you, David and good morning everyone. It was another strong quarter for Ormat, as the expansion plans that we started implementing a few years back, continue to yield strong growth. Let us begin on slide four. In the first quarter revenues increased 12.4% from the same period last year, but the important number is the revenues in the electricity segment increased by 36.3%. Net income was $10.1 million this quarter and was considerably better than last year’s period, which experienced accumulation of operational issues. Turning to slide five. We remain on track with our construction activities. We recently reached commercial operation of Heber South project, which added 10 megawatts to Heber Complex. And we expect to add approximately 100 additional megawatts by the end of the year. On product side of our business we strengthen our product backlog since the beginning of the year by signing approximately $100 million of EPC contract, of which approximately $50 million are still awaiting the notice to proceed subject to the close of financing before our customer. Additionally, the projected business environment that we outlined last, just a few short weeks ago now, for quarterly earnings call remains today and the growth driver for Geothermal renewable energy continue to head in an encouraging direction. Let’s move to slide six and let me begin by saying that our priorities continue to focus on putting necessary pieces in place to achieve the goal of 100 megawatt each year beyond 2010. As I have mentioned in the past tax land, which we have in the form of a large renewal development portfolio, putting resources to develop the land, which we also have been putting in place by adding manpower and equipment and have been actively exploring the geothermal resources from Greenfield. It will also (inaudible) and responding towards great proposal and we have been really exceeding both areas over the last few years. And finally, the capital on hand to fund our activities, which is an ongoing activity for Ormat in an area where we recently have achieved an important margin build. In term of our growth drivers, two of the main growth drivers for both our products and liquidity business have been the regulatory environment in the US and abroad and a growing trend toward energy efficiency. On both forms we have seen encouraging trends and development. As the concerns for climate change continue, one client we are noticing is great interesting energy efficiency technology such as our recovered energy generation unit. Over the past few years we have interest from pipeline operators, but this interest seems to have been increased and continue to increase. Looking now at the regulatory environment on slide seven. The sentiment renewal of the energy bill seems have taken on a more optimistic term in there recent week, following the Senate growth to include an extension of the production subscribing for 2009. While now guaranteeing that the PTC will be extended and that we still need house approval and President approval, there is enough legislative activity to make us cautiously optimistic that some form of PTC will pass through legislation. And as I have already said, if the PTC doesn’t pass we still have the ITC and accelerated depreciation mitigating the measures along with some better prices on the power projects agreement in some cases. In addition to renewable portfolio standout, several federal climate change proposal were being considered that will put a cap on GHG emission. Such a cap is likely to further drive into renewable energy as we as in recoverable energy generation as companies look to become energy efficient. Similarly benefiting the renewable energy in general is a challenge that Europe faces to reduce its greenhouse emission by 20% by 2020. Most of this reduction hinges on increasing renewable energy capacity output and improving energy efficiency. So given this we would expect that the recovered energy in geothermal in the areas that’s since approved will play a role in helping to meet these goals. And finally on slide eight, the financing front. We increased our corporate lines of credit by $50 million to a total of $160 million, none of which is currently utilized. In addition, we closed the second trans on our Tax Monetization agreement, which we initiated last year with Morgan Stanley and Lehman Brothers. The Galena 3 geothermal project was transferred successfully to OPC, the company which was involved in the Tax Monetization Transaction and in turn Ormat Nevada received an amount of $64 million that was used to fund both. With this said, I turn the call over to Yoram for review of operations. Yoram?

[Yoram Bronicki:]

Thank you Dita and good morning everyone. I would like to begin on slide 10. First quarter was another record quarter in our US energy production. We were up 31% to close to 572,000 megawatt hour excluding maintenance. Our Puna plant did exceptional results and was joined by all three of our California plants, all showing record generation and revenues in terms of first quarter. During the first quarter we have performed some major maintenance activity in preparation for summer peak, however, the bulk of this activity will occur during the second quarter. Unlike last year, most of our maintenance activity, including only short outages and will be mostly reflected in our cost in energy generation. However, late in this quarter we planned to begin the re-borrowing of the steamboat tow and three plants, which will have a noticeable impact on generation. Moving to slide 11. In our major capital projects we are on track to add additional 174 megawatt by the end of 2009 or early 2010. Throughout the rest of 2008 we expect to add approximately 101 megawatt from four projects, 50 megawatts from the North Brawley project, 35 megawatts from Phase II of our project in Kenya, 11 megawatt from OREG 2 and 5 megawatts from the GDL project in New Zealand. For 2009 and early 2010, we expect to add 73 megawatts in generating capacity from the following projects, 15 in East Brawley, 11 megawatt from the remaining OREG 2 facilities, 8 megawatt from the Puna expansion and 4 megawatt from the Peetz recovered energy project. Now to the next slide. Projects beyond 2009 are mostly in exploration and development stages. It includes work developed between 18 megawatt and 30 megawatt plants from our Eastern Nevada prospects Buffalo and Grass Valley. We are to develop a 30 megawatt to 40 Megawatt project in Carson Lake Nevada where our share will be 50%. In addition project that are not in an exploration stage and can be completed by late 2010, are 43 megawatt share of the Sarulla project will be completed in phases between 2010 and 2012, and a 5.3 megawatt REG facility called GRE with Great River Energy. While there are no new updates regarding the Sarulla project we continue to make progress with the project, so we may now try to begin construction following the financing closing, which is expected to occur at the end of 2008. In addition to the project listed in the accompanying slides, we have signed a PPA in California for a project that we expect will be between 30 megawatt and a 100 megawatt and is expected to be completed by 2012. Our CapEx requirements are explained on slide 13. Our requirements through the remainder of 2008 for the construction of the project that I mentioned are approximately $281 million. In addition, our operating projects have capital expenditure budgets of approximately $26 million for the remainder of the year. We have budgeted approximately $45 million in CapEx for exploration through to 2009 and approximately $17 million budgeted to invest in machinery and equipment through the balance of 2008. This program includes two additional drilling rigs to add to our current ownership of 3 drilling rigs. There is a good justification to increase our own drilling fleet as in the Imperial Valley alone we are currently drilling with 4 drilling rigs in parallel. Looking at our product segment on the next slide. Since the beginning of the year, as Dita mentioned, we announced two EPC agreements for recovered energy generation for approximately $30 million. So first with the Nevada Power Company to build a facility in the Goodsprings area and another contract with MDU Resources Group to build the REG Power plant on the Northern Border Pipeline Compressor station in North Dakota. In addition, we entered the $76 million EPC contract with Nevada Geothermal Power for the supply and construction of the Blue Mountain geothermal power plant. From total EPC contract value we received a $26 million limited notice to proceed. Thank you and I will now turn the call to our CFO Joseph Tenne. Joseph?

[Joseph Tenne:]

Thank you Yoram and good morning. Beginning with slide 16, for the first quarter of 2008 total revenues were $69.4 million, a 12.4% increase from revenues of $61.7 million in the same quarter of 2007. On to slide 17. In our electricity segment total revenues were $59.5 million, a 36.3% increase over total revenues of $43.7 million in the first quarter of 2007. This increase is primarily attributable to $40.6 million additional revenues generated in the US as a result of an increase in our generating capacity and increasing the energy rates in the Puna project due to higher oil prices and in our Standard Offer number 4 power purchase agreements in California and $1.2 million of additional revenues coming from our international plains resulting mainly from our Amatitlan project in Guatemala. The increase over the same period last year also reflects the weak first quarter of 2007 that resulted from accumulation of operational issues in certain projects most of which have been reserved. Total cost of revenue attributable to our electricity segment was $38.7 million, as compared to the $39.7 million, which represented a 2.6% decrease in total cost of revenues for such segment. This decrease is primarily due to heightened major maintenance costs that we experienced during the first quarter of 2007. The decrease in our costs in this segment was partially offset by cost relating to new and enhanced project placed into service and an increase in labor and material cost in existing place. In our product segment in the next slide total revenues for the first quarter of 2008 were $9.9 million as compared to total revenues of $18.1 million, which represents a 45.4% decrease. The decrease in our product segment revenues is mainly attributable to last years lower product backlog and the timing of revenue recognition. It is important to mention that our restructuring and construction activities were not reduced, as we increased the amount of our manufacturing and construction activities for our own projects. Total cost of revenues attributable to our product segment for the first quarter was $8.1 million, as compared to $15.9 million for the same quarter last year, which represented a 49.4% decrease in total cost of revenues related to such segments. This decrease is attributable to decrease in our product revenues, as well as to a different product mix. This decrease was partially offset by an increase in labor, material construction and transportation costs, as well as costs resulting from the devaluation of the US dollar. Turning now to slide 19. The company’s gross margin was 32.7% compared to 9.9% in the same quarter last year. Gross margin for the electricity segment was 35% for the first quarter compared to 9% in the same period last year. In the product segment, gross margin was 18.4% compared to 12% for the same quarter last year. On slide 20. Net income for the first quarter was $10.1 million or $0.24 per share basic and diluted as compared to a net loss of $5.8 million or $0.15 per share basic and diluted for the first quarter of 2007. Such increase in net income was principally attributable to an increase in our operating income of $14.8 million, a $4.2 million decrease in interest expense and $2.2 million increase in minority interest. This was partially offset by an increase of $4.1 million in income tax provision. Net income for the first quarter of 2008 reflects stock-based compensation related to stock options of $1.1 million as compared with $600,000 for the same quarter last year. As shown in the following slide adjusted EBITDA for the first quarter of 2008 was $27.5 million as compared to $13.4 million for the same quarter last year. Adjusted EBITDA includes consolidated EBITDA and the company's share in operating income and depreciation and amortization, totaling $1.5 million for the first quarter of 2008 and $4.1 million in the same quarter last year related to the company's unconsolidated investment for 2007 in the Leyte Project in the Philippines and 50% interest in the Mammoth Project in California, and for 2008 only the 50% interest in the Mammoth's Spread Project in California. And moving to slide 22, as of March 31st 2008 the company has cash and cash equivalents of $30.7 million, compared to $60.7 million of cash, cash equivalents and marketable securities as of December 31, 2007. This decrease in principally due to the combination of funding of capital expenditures in the amount of $81.6 million and through repayment of long-term debt to our parent and to third parties in the amount of $9.2 million, offset by $33 million net proceeds from our unregistered sale of shares to our parent and $33.8 million of cash flows from operating activities. In addition, we have $3.2 million and $2.8 million of marketable securities classified as of March 31st, 2008 and December 31st, 2007, respectively, as non-current assets. This classification is due to failed auctions in the first quarter of 2007 of certain auction rate securities in our portfolio. On the next slide, our total outstanding debt as of the end of the first quarter of 2008 is $371.1 million and it will be repaid as follow as

[Dita Bronicki:]

If you turn to the final slide, there is no change in our revenue guidance for 2008. We expect our Electricity segment revenues to be $245 million. We also expect an additional $9 million of revenues from our share of electricity revenues generated by a subsidiary which is accounted for under the equity method. With respect to our products segment, we currently expect that our 2008 revenues will be between $70 million and $80 million. I would like to thank you for your continued support to Ormat, and I hope to conclude my remark by reiterating how committed and confident we are that our selected goal that we have set for the company will be achieve in the years to come. Thank you and I will open now the call for questions. Operator, please.

[Operator:]

(Operator Instruction) Our first question is coming from [Ben Calo] with Stanford Group. Please go ahead.

[Ben Calo:]

Hi, my question is on the gross margins. You had some improvement in Products segment, and above that you have talked about including price escalations in some of your contracts. And I just wondered to see with new recovered energy generation contracts you won, then also the contract in the Gethermal. Are those price escalations included in there and if so, if not do you expect to have the same kind of margins here or we are going to see margins above 20% in the Products segment?

[Dita Bronicki:]

When we were talking in the prior call, Ben, about including price escalations in contract, we were meaning, and I think that's what we said, that the price escalation will go until it was noticeable that it was safe for the contract. Not beyond the contracting execution. So, it should be clear that we are now planning the issues we had last year of contract which had no price escalations, but the price escalation stopped at the time we started manufacturing, or we had the signal to proceed, and of course we are trying to look as much as we can at this point our costs, but we cannot look at all the costs. So the pressure that the market is still seeing on course may impact the contract. We still believe that this new contract will hit gross margins as we announced in the first quarter, we see about 20% on that order.

[Ben Calo:]

Okay, great. And then on the Electricity side of the business, you mentioned next quarter is when you are going to do the Steamboat and bring power down, so that would affect both the cost side and the revenue side. But then also you talked -- earlier on, I think talked about some normal maintenance. I am just wondering if you give us some details on where that maintenance was going to occur with complexes.

[Joseph Tenne:]

I am sorry Ben, what did you want to know about the maintenance?

[Ben Calo:]

Just what complexes you are going to be perform in maintenance on, in the second quarter?

[Joseph Tenne:]

The reality is that we do pre-peak maintenance in all of our facilities, so facilities that have peak season are Ormesa, Mammoth and Heber with other individual plants and we perform pre-peak maintenance on everywhere there as well as a semi-annual shutdown of the Puna plant that happens in the spring and in the fall. So this activity went through most of these facilities. Some of it is still ongoing.

[Ben Calo:]

So you guys have already performed some of it in the first part of the second quarter?

[Yoram Bronicki:]

Yeah. There have been…

[Ben Calo:]

Kind of like, (inaudible).

[Yoram Bronicki:]

When you compare it to the three-week five year outage of Heber 1 last year where roughly 40% of the facility or 50% of the facility where the complex was shutdown for three weeks, this is much more noticeable than the type of mandates we do on our binary unit. It's a very short maintenance and when it's back running, it's one unit after the other and so on. So, there are some advantages to it. This will translate into O&M cost, but not huge impact on generation. As for the Steamboat side, it's repowering. It's a capital project. So, the costs themselves may not be very visible immediately, just the extent of time that it would take to do the surgery.

[Ben Calo:]

Do you have the turbines there onsite there for Steamboat through and through, it’s a new turbine?

[Yoram Bronicki:]

I am sorry there is some knocking here. (inaudible).

[Ben Calo:]

There is a new turbine that you've installed in Steamboat through and through. Are those on site now?

[Yoram Bronicki:]

I am not sure. I mean they have been. They are on their way. I am not sure if they have arrived yet or not.

[Ben Calo:]

Okay.

[Yoram Bronicki:]

We still don’t have it back of mind.

[Ben Calo:]

Okay. And then there was a pick-up and recovery energy generation sales in the first quarter. Maybe could you talk about what's driving that? There is a renewable portfolio status or is it just that you guys have been out there in the field for a while? And then also, could you actually just walk us through how many sales people you have going after that market? Are they the same sales people that are selling geothermal power plants?

[Dita Bronicki:]

The sales people who are dedicated to recovered energy in the United States are separate for geothermal. In the rest of the world it's the same team. The fact that we did get this quarter more order than prior had more to do with how the product segment behaved. The product segment doesn't behave evenly over time, on a project-by-project basis, and when the project occurs, it occurs. So, you cannot have a small fair projection of when the orders are coming, but we do see an increase interest, and I think that what's driving the increased interest is more the concept of energy efficiency than on your business before you stand up. It is the awareness and some guidance by the sales people with whose help that energy efficiency should be taken care of.

[Ben Calo:]

Great. Thank you so much. Good quarter.

[Operator:]

Thank you. Your next question is coming from Dan Mannes with Avondale Partners. Please go ahead.

[Dan Mannes:]

Just a couple of quick follow-up questions. First of all, just on Sarulla. I think you mentioned you are still looking for financing at year end. I just wanted to ask a little bit. My understanding was that the PPA there was already locked in at a fairly low level given the robustness of the resource. Is there any issue there on sort of the capital side? Is that a bit of a hold-up or is that not an issue?

[Dita Bronicki:]

It will not be right to say that it is not an issue, because the rates had been low three years ago, and cost escalation is hurting. But this is not what is holding it up; it's just the slowness of the process in Indonesia. Until now the increase in cost were offset by lower interest rate coming from the sources of financing that we now expected for the quarter as opposed to what we have assumed originally. But that is what I would say pressure that we will try to deal with. You are right.

[Dan Mannes:]

But generally speaking potential returns on the project are still acceptable from your standpoint?

[Dita Bronicki:]

They are still acceptable, but they've certainly been eroded in the last three years, no doubt.

[Dan Mannes:]

Understood. Switching topics quickly, on the REG business, it looks like an acceleration three orders, two on the product sales side, one on the power side in the last three months event and a lot of that it looks like you really have been able to penetrate for instance the northern border pipeline. Can you talk at all about your success, and once you get a couple of units on a pipeline, your ability to really grow that out or maybe what the barriers are once you've already sort of proven on a pipe?

[Dita Bronicki:]

I think that what we are seeing now is the result of the long work that we have done on recovered energy. We started to market recovered energy probably in 2004 aggressively, but it wasn't until we have had some federal projects up and running that the market understood the solution, the technical solution, the operational solution and it is moving forward. The regulatory environment, the awareness for climate change is another driver. In certain states, it is contributed start of the outlier, but not in all of them and actually the order that we got in Nevada, it is start of the outlier. In then new project, it is not start of the outlier but it's driven by the general atmosphere to work on renewable energy.

[Dan Mannes:]

I guess more generically are you finding, especially once you have sort of proven one, on a given pipe, are you finding that pipe is more willing to talk about putting on incremental units or is it more of an issue, because of the different state regulatory situations more than the relationship between pipe owner?

[Dita Bronicki:]

It's not penetrating pipeline-by-pipeline, I think so.

[Dan Mannes:]

I am sorry, say that again.

[Dita Bronicki:]

Penetrating pipeline-by-pipeline.

[Dan Mannes:]

Okay.

[Dita Bronicki:]

On the land pipeline, we had one unit and then we had a follow on order position us unique. So, this is the way it seems to develop. I don't know with two examples we can say that it is certain, but it seems like this.

[Dan Mannes:]

Okay. Can you touch briefly on Europe as an option? Is this more on the geothermal side or on the REG side when you talk about potentially moving into that market?

[Dita Bronicki:]

Europe is more on the REG side, because there are very few (inaudible) which has the geothermal potential. Whereas in Iceland there is a huge potential but it is not necessarily suitable for our technology because it's a very a smallest incremental market in Iceland. Germany the little geothermal that they have is little and a small recovered energy.

[Dan Mannes:]

I wanted to bring up Germany specifically, because we have heard there was a lot of activity there on the geothermal, but potentially on small units. It sounded like they are digging very deep, but the incentive plans are fairly attractive. Is that a market you plan to spend a lot of time in or is that a little bit small for you?

[Dita Bronicki:]

You are absolutely right that it's driven by incentive, we’ve got a huge incentive that Germany is going to renewable energy. I don’t think that it would be a viable economy state project. We have delivered in 2007 one unit to Germany, which is a project which is now complete and we will respond to opportunities, but if it's a too small unit, then we may not do it.

[Dan Mannes:]

Understood. And then lastly, I know there was a prior question on the product side, but on the power segment side, as you are constructing new plants, are you finding the cost pressures there at all, especially given that you walk up the power purchase agreement before the plant goes under construction. Are you seeing any erosion of returns on your own projects?

[Dita Bronicki:]

Yes, we do. If we entered into a power purchase agreement then, three years ago and the quarters will come online only a year from now. I think that cost increase were more than what we assumed, but the total interest because it is divided over a certain period is not substantial

[Dan Mannes:]

But you are not currently, looking at the capital numbers you laid out, it didn’t look like you were changing the capital numbers through year end ’08 materially, but as you look out to ’00 and ’10 has that changed at all?

[Dita Bronicki:]

Well, if you look at our typical or averagely quarter megawatt installed here, it has increased.

[Dan Mannes:]

Can you give some sort of range or?

[Dita Bronicki:]

It will in June summer because it depends on the location of the (inaudible) et cetera, but the numbers that we say are between $3000 and $4000 range kilowatt installed.

[Dan Mannes:]

Just one last question, on OPC the number that came in was significantly higher than you had previously estimated at your $64 million, was there any change in the underlying agreement or how are you able to extract more capital there?

[Dita Bronicki:]

Two elements, one the revenues were a little higher than was assumed in the basic model. And the second is pull up of the basic model which was done.

[Dan Mannes:]

Great, thank you very much.

[Dita Bronicki:]

You are welcome.

[Operator:]

Thank you. Your next question is coming from Greg Orrell with Lehman Brothers. Please go ahead.

[Greg Orrell:]

Hi.

[Operator:]

I am sorry Mr. Orrell, your line is live.

[Dita Bronicki:]

We can't hear…operator, we didn't hear Greg.

[Operator:]

We'll move on to our next caller, Michael Lapides with Goldman Sachs. Please go ahead.

[Michael Lapides:]

Just in general on financial markets, can you talk a little bit about how some of the turmoil in the credit market impacts your ability to pioneer some of the projects, not just the tax equity financing but the actual any new debt that you might take out? And also can you talk a little bit about your plans for the debt that matures during 2008?

[Dita Bronicki:]

Michael the way we look at the markets, we did not have any, say, substantial plans to go into the debt market in 2008. We were planning to do tax monetization in 2008. And this market has not changed, may be people are looking at a little higher terms than a year ago. But there was no substantive change in debt market. Also the debt market is available and what happens on the debt market is that rates went down and the margins went up and in total if there is an increasing cost, it's an modest increasing cost, and for good projects, there is money available, we just did not plan on doing it -- on tapping it this year that corporate line of credit-- we have been able to secure -- let say into the sales point of view.

[Michael Lapides:]

Okay. And just to make sure I understand correctly your plans for the debt coming due this year?

[Dita Bronicki:]

It's just part of the same cost that could (inaudible) uses, no any specific plans.

[Michael Lapides:]

Okay, thank you.

[Dita Bronicki:]

You're welcome.

[Operator:]

Thank you. Your next question is coming from Greg Orrell with Lehman Brothers. Please go ahead.

[Greg Orrell:]

Thanks, can you hear me Dita?

[Dita Bronicki:]

Yes, now I can.

[Greg Orrell:]

Hi. I wanted to ask about Sarulla and sort of what were transpire in terms of going from 25% projected ownership to 12.75% is there a negotiation or is that, a monetization?

[Dita Bronicki:]

It's not a monetization, we are reducing our ownership, but we are not selling it for a field, development field anything. We are reducing it, because we will feel more comfortable in this project to hold the lower position, the negotiations is done that the party who is going to come in and as a result of it we will reduce our ownership. We choose to do it like this has been announced this summer, following that they are planning to come into this project and we are holding it up as to get the final approval of the Indonesian authorities to lend power company and resource company to the change of the ownership, which we expect any day now like you say in Indonesia but any day now in Indonesia no one knows when it is.

[Greg Orrell:]

Fair enough. How much of the $76 million EPC contract with Nevada Geothermal is in your guidance?

[Dita Bronicki:]

The 26 that we had notice to proceed from.

[Greg Orrell:]

Okay. And I know it's difficult but any…

[Dita Bronicki:]

It's not just to explain, it's not, we don't think that we will get well into feet, but the well into feet is probably going to be into 2009, and nothing 2008. So, it's now that the full contrast will be released, on the contrary from what we know they are close to closing the financing. But it's just as reducing of the contract is over the two year period, '08 and '09.

[Greg Orrell:]

Okay. And then lastly, just talking around margins, you gave some guidance on the products business gross margin on the Electricity business either versus what we saw last year or otherwise?

[Dita Bronicki:]

We are planning not to give guidance. But what we say I think in the last earning call is that level that we saw in the second half of 2006 what we believe to be at the level for the company.

[Greg Orrell:]

Okay. Thank you.

[Operator:]

Thank you. Your next question is coming from [Emily Christie] with RBC Capital Markets. Please go ahead. Emily Christie - RBC Capital Markets Good morning. Most of my questions have been answered but I just have one follow-up on the recovered energy? What are your capabilities in terms of how many of those units, you can construct per year?

[Dita Bronicki:]

Emily I couldn't hear you, what is the question? Emily Christie - RBC Capital Markets Sorry, could you hear me now?

[Dita Bronicki:]

Yes. Emily Christie - RBC Capital Markets In terms of the recovered energy units how many of those are you able to construct per year in terms of workforce and equipment that sort of thing?

[Dita Bronicki:]

You know, from a manufacturing point of view, I don't think we have a limitation, we are lucky to have sustainability to sub-construct more or less depending on the volume, and this is not a limiting sector. A number of EPC may be a limiting factor. We can not do entire EPC contracts, we don't take, but if the market will be well up to that level we will just often to do it as well. Right now, we don't see need for it. Emily Christie - RBC Capital Markets Okay, alright. Thanks very much.

[Dita Bronicki:]

Alright.

[Operator:]

Thank you. Your next question is coming from [Brian Yager with Joseph Loman]. Please go ahead.

[Brian Yager:]

Thank you, good afternoon. Thanks for taking my question. On the proactive maintenance and Steamboat replacements for Q2, you had mentioned it's not going to be a large impact on Electricity revenues, could you give us, I know the last question you are trying to talk to much about gross margins could you give us a little bit more color on how these maintenance issues are going to impact gross margins for Q2 this year, and in general on a forward basis, I mean, is it just a large impact on gross margins every, let say Q1 and Q2, or how do you view that?

[Joseph Tenne:]

We don't see a huge impact if you compare our results in -- or expected results when you compare the results previous years. So, the preventive maintenance are scheduled maintenance is not going to be material. The impact on the Steamboat complex is, you know, would be material depending on what base line you comparative since this complex have been played by turbine players in last two years. And again, when you look at, you will look at the complex, and compare it even when we do the preventive shutdown to electric turbines it will not do that material because we have been problems there. So, I think, if I have to guess and based on what we know now, it will not be that noticeable but it would be much, much better after the end of this.

[Brian Yager:]

Okay, great. So essentially the Q1 of '07 was an anomaly, in terms of maintenance and outages?

[Joseph Tenne:]

Yeah, it wasn't anomaly, it's not to be the dead horse but the issue there was that the way that the Heber I project is structured. When we do the five-year maintenance on the turbine there it takes everything down. And it's a long maintenance cycle, we have the complex down for it, I think it was 23 days but it may reserve having half of generation down for all that time is very significant. Beyond that we had turbine issues the different plans with we had some pretty mature shut down of the Steamboat Hills plant because of an adjacent project construction and all these things are accumulated to both high cost and low generation. We should not see that this year and not on a typical year for sure.

[Brian Yager:]

Okay, great. And so that Heber 1 project shutdown, you don’t see that for any other of your large projects that would impact a quarter downward?

[Yoram Bronicki:]

Correct, all of our other projects or the units are segregated enough that a measurement in some one unit does not require a more complete shutdown. Next time we will have to shut Heber 1 down is about 4 years from now or something big happens.

[Brian Yager:]

Thanks a lot.

[Operator:]

Thank you. Your next question is coming from Dan Mannes with Avondale Partners. Please go ahead.

[Dan Mannes:]

Sorry just one follow-up. You had mentioned during the last quarter that you are actually going to sell potentially a portion of the Carson Lake plant this year specific. And I know historically on small projects, you haven’t normally liked using partners. Can you talk a little bit of this strategic move, because this is a little bit difference in the way you structured plant before?

[Dita Bronicki:]

You are absolutely right. It's not a partner, it’s a joint venture with the affiliate which is a major customer and it is certainly different than just letting being a partner into the project. We view specific interest in don’t say joint venturing with that it's strategic because it reflects the utility change of sentiments towards geothermal and their desire to have ownership of geothermal power plant, which they didn’t have until now.

[Dan Mannes:]

And admittedly this is the first one of it’s kind, does this change potentially dynamic at all, you told this will tend to have a little bit lower cost to capital, they would given the difficulties in sighting fossil fuel generation in Nevada, does this bring the potential that they would be an equity partner in multiple plants going forward maybe you wouldn’t move more to more of a development role rather than just being an owner of the projects?

[Dita Bronicki:]

It may be with respect to field specific, but I can not say for sure that it will be.

[Dan Mannes:]

Okay. Great thank you.

[Dita Bronicki:]

You are welcome.

[Operator:]

Thank you. Our final question is coming from Michael Lapides with Goldman Sachs. Please go ahead.

[Michael Lapides:]

Hi, Dita. Just a quick question on the contract view for the recovered energy projects. How do we think about what the contract pricing for the recovered energy projects are in general versus kind of typical geothermal projects?

[Dita Bronicki:]

The recovered energy pricing is by definition lower than geothermal, because we don’t have to do the investment in the resource. So we are saving about (inaudible) cost. There is an additional element in the recovered energy, which is device which transforms the hot oil into a working heat for the unit, which is a little higher. But generally speaking I think we can think about $2 million or maybe little more.

[Michael Lapides:]

Okay, great, thank you.

[Operator:]

Thank you. I would like to turn the floor back over to management for any closing comments.

[Dita Bronicki:]

My only additional comment to you is the big thank you for the support of the company. Thank you.

[Operator:]

Thank you. This does concludes today’s Ormat Technologies first quarter 2008 earnings conference call. You may now disconnect.