Ormat Technologies Inc (ORA) 2008 Q1 法說會逐字稿

Good morning, my name is Melissa and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ormat Technologies First Quarter 2008 Earnings Conference Call. (OPERATOR INSTRUCTIONS.) It is now my pleasure to turn this over to your host, [David Burke]. Sir, you may begin our conference.

Thank you, Elizabeth. Thank you all for joining us today. This is David Burke with KCSA Strategic Communications, investor relations consultant to Ormat Technologies. At 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, and Smadar Lavi, Vice President of 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, forecasts 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 the Company's plans, objectives and expectations for future operations and are based on 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 risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as described in the annual report on Form 10-K filed with the Securities and Exchange Commission on March 5, 2008 and the prospectus supplement filed with the Securities and Exchange Commission on October 23, 2007.

In addition, during this call, statements may be made that include a financial measure 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 used by other companies. The 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 both management and investors benefit from referring to this non-GAAP financial measure in assessing Ormat Technologies' liquidity and when planning and forecasting future periods. This non-GAAP financial measure may also facilitate management's internal comparison to the Company's historical liquidity.

Before I turn the call over to management, I would like to mention that a slide presentation accompanies this call and can be accessed on Ormat's website www.ormat.com under the Events link as found in the Investor Relations tab.

With 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 these remarks, management will be glad to answer any questions you may have. Dita, the call is yours.

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 revenue 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 the 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 the Heber complex. And we expect to add approximately 100 additional megawatts by the end of the year. On the products side of our business, we strengthened our product backlog since the beginning of the year by signing approximately $100 million of EPC contracts, of which approximately $50 million are still awaiting the notice to proceed subject to close of financing for our customer.

Additionally, the positive business environment that we outlined last--just a few short weeks ago in our fourth quarter earnings call remains today. And the growth drivers for geothermal and 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 a goal of 100 megawatt each year beyond 2010. As I've mentioned in the past, this (inaudible), which we have in the form of a large and growing development portfolio, (inaudible) to develop the land, which we also have been putting in place by adding manpower and equipment and have been actively exploring the geothermal (inaudible) [phase], (inaudible) and responding to requests for proposal and we have been very active in both areas over the last few years. And finally, the capital on hand to fund the activities, which is an ongoing activity for Ormat in an area where we recently have received an important (inaudible).

In terms of our growth drivers, two of the main growth drivers for both our products and electricity business have been the regulatory environment in the U.S. and abroad and the growing trend toward energy efficiency. And on those fronts we have been--we have seen encouraging trends in development.

As the concern for climate change continues, one trend we are noticing is increased interest in energy efficiency technology, such as our recoverable energy generation unit. Over the past few years, we have had interest from pipeline operators, but this interest seems to have increased and continues to increase.

Looking now at the regulatory environment on slide seven, the sentiment about the renewal of the Energy Bill seems to be taking on an optimistic tone in recent weeks, following the Senate vote to include an extension of the production facility for 2009. [While there is no guarantee] that the PTC will be extended as the bill still needs House approval and President approval, there is enough legislative activity to make us cautiously optimistic that some form of the PTC will pass for legislation. However, all of this said, if the PTC doesn't pass, we still have the [ITC] and [affiliated associations] as mitigating measures along with some better prices on the (inaudible) agreements in some cases.

In addition to (inaudible) portfolio (inaudible), several federal climate change proposals are being considered that will put a cap on GHG emission. Such a cap is likely to further drive interest in renewable energy, as well as in recovered energy generation as companies look to become energy efficient.

Similarly benefiting renewable energy in general is the challenge that fuel faces (inaudible) emissions by 20% by 2020. Most of this reduction hinges on increasing the (inaudible) of the capacity output and improving energy efficiency. So given that we would expect that recovered energy and geothermal in the areas that can support it, we're (inaudible) in helping to meet these goals.

And finally, on slide eight, the financing [forms]. We increased our corporate line of credit by $50 million to a total of $160 million. None of it is currently utilized. In addition, we closed the second tranche on our tax monetization agreement that we initiated last year with Morgan Stanley and Lehman Brothers. The (inaudible) in April to OPC, the company which was involved in the tax monetization transaction, and in turn Ormat (inaudible) received an amount of $64 million that we will use to fund goals.

With that said, I turn the call over to Yoram for a review of operations. Yoram?

Thank you, Dita, and good morning, everyone. I would like to begin on slide 10. The first quarter was another quarter in our U.S. energy production, up 30--I'm sorry. The first quarter was another record quarter in our U.S. energy production. We were up 31% to close to 572,000 megawatt hours, excluding Mammoth. Our Puna plant had exceptional results and was joined by all our--all three of our California plants, all showing record generation and revenues in terms of the 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 included only short outages and will mostly--will be justly reflected in our cost and not in generation. However, late in this quarter we plan to begin the repowering of the Steamboat 2&3 plants, which will have a noticeable impact on generation.

Moving to slide 11, in our major capital projects we are on track to add an additional 174 megawatts by the end of 2009 or early 2010. Throughout the rest of 2008, we expect to add approximately 101 megawatts from four projects, 60 megawatts from the North Brawley project, 35 megawatts from phase 2 of our project in Kenya, 11 megawatts 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 at East Brawley, 11 megawatts from the remaining OREG 2 facilities, 8 megawatts from the Puna expansion, and 4 megawatts from the Peetz recovered energy project.

Now to the next slide. Our projects beyond 2009 are mostly in exploration and development stages and include work to develop between 18 and 30-megawatt plants from our Eastern Nevada prospects, Buffalo and Grass Valley, work to develop a 30 to 40-megawatt project in Carson Lake, Nevada where our share will be 50%. In addition, projects that are not in an exploration phase and can be completed by late 2010 are our 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 and remain on track to begin construction following the financing closing, which is expected to occur at the end of 2008. In addition to the projects listed in the accompanying slides, we have signed a PPA in California for a project that we expect will be between 30 and 100 megawatts 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 projects 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 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 three drilling rigs. There is a good justification to increase our own drilling fleet as in the Imperial Valley alone they're currently drilling with four drilling rigs [in parallel].

Looking out, our products segment on the next slide. Since the beginning of the year, as Dita mentioned, we announced two EPC agreements for recovery and energy generation for approximately $30 million - the first with Nevada Power Company to build a facility in the Goodsprings area, and another contract with MDU Resources Group to build a REG power plant on a northern border pipeline compressor station in North Dakota. In addition, we entered a $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?

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 revenue generated in the U.S. as a result of an increase in our generation capacity, an increase in the energy rate in the Puna project due to higher oil prices, and in our [standard offer] number four power purchase agreement in California, and 1.2 million of additional revenues coming from our international plants resulting mainly from the plant project in Guatemala.

The increase over the same period of 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 resolved. The total cost of revenue attributable to our electricity segment was $38.7 million, as compared with $39.7 million, which represented a 2.6% decrease in total cost of revenues for that segment. This increase 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 costs relating to new and enhanced projects placed into service and increasing labor and material costs in existing plants.

In our products 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 products segment revenues is mainly attributable to last year's lower products backlog and the timing of revenue recognition. It is important to mention that our manufacturing 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 products segment for the first quarter was $8.1 million as compared with $15.9 million for the same quarter last year, which represented a 49.4% decrease in total cost of revenues related to such segment. This decrease is attributable to a decrease in our product revenues as well as to a different product mix. This decrease was partially offset by increasing labor, materials, construction, and transportation costs, as well as costs resulting from the devaluation of the U.S. 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 products 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 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 increase in interest expense--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 with $13.4 million for the same quarter last year. Adjusted EBITDA includes consolidated EBITDA and the Company's share in operating, 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 later project in the Philippines, and 50% interest in the Mammoth project in California, and for 2008, only the 50% interest in the Mammoth project in California.

And moving to slide 22, as of March 31, 2008, the Company had cash and cash equivalents of--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 increase is principally due to the combination of funding for capital expenditures in the amount of $81.6 million and to 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--our registered 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 31, 2008 and December 31, 2007, respectively, as non-current assets. This classification is due to (inaudible) [auctions] in the first quarter of 2007 of certain auction rate securities in our portfolio.

On the next slide, our total long-term debt as of the end of the first quarter of 2008 is $371.1 million and it will be repaid as follows - $56.5 million in the next three quarters of 2008; $43.5 million in 2009; $36 million in 2010; and $235 million in 2011 and thereafter.

Finally, if you turn to slide 24, on May 6, 2008, Ormat's Board of Directors approved the payment of a quarterly dividend of $0.05 per share pursuant to the Company's dividend policy, which targets an annual payout ratio of at least 20% of the Company's net income, subject to Board approval. The dividends will be paid on May 27, 2008 to shareholders of record as of the close of business of May 20, 2008. The Company expects to pay dividends of $0.05 per share in the next two quarters.

With that said, I would like to turn the call back to Dita.

If you'll turn to the finance slide, there is no change in our revenue guidance for 2008 with (inaudible) electricity segment revenues to be $245 million. We also expect an additional $9 million of revenue from our (inaudible) revenue generated by a subsidiary, which is (inaudible). With respect to our products segment, we currently expect that the 2008 revenue will be between $17 and $18 million.

I would like to thank you for your continued support of Ormat. And I want to conclude my remarks by reiterating how committed and confident we are that (inaudible) goals that we have set for the Company will be achieved in the year to come.

Thank you, and I will open now the call for questions. Operator, please?

Thank you. (OPERATOR INSTRUCTIONS.) Our first question is coming from Ben Kallo with Stanford Group. Please go ahead.

Hello. My question is on the gross margins. I'll start there. You had some improvement in the products segment and a lot of that you have talked about, including price escalations in some of your contracts. And I just wanted to see with the new recovery energy generation contracts you won, and then also the contract with Nevada Geothermal, are those price escalations included in there? And if so, or if not, do you expect to have the same kind of margins here or are we going to see margins above 20% in the products segment?

I--when we were talking about including--when we were talking in prior calls, Ben, about including price escalations in contracts, we were meaning--and I think that's what we said--that the price escalation will go until the notice to proceed is [safe] for the contract, not during the contract execution. So it should be clear that we are not (inaudible) for the issues we had last year of contracts which had no price escalation. But the price escalation stops at the time we start manufacturing or we receive notice 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 costs may affect the contract. We still believe that these new contracts will help those margins, as we announced in the first quarter, to achieve about 20% or on that order.

Okay, great. And then, on the electricity side of the business, you mentioned next quarter is when you're going to do the Steamboat 2&3 power down. So that would affect both the cost side and revenue side. But then also you talked--Yoram, I think, talked about some normal maintenance. And I was just wondering if you could give us some details on where that maintenance was going to occur, in what complexes?

I'm sorry, Ben. What did you want to know about the maintenance?

Just what complexes you're going to be performing maintenance on in the second quarter.

We--the reality is that we do pre-peak maintenance in all of our facilities. So the facilities that have peak season are Ormesa, Mammoth, and Heber, with all their individual plants and we perform pre-peak maintenance all--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.

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

Yes. There is (inaudible).

Okay.

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 or the complex was shut down for three weeks, this is much more noticeable than the type of maintenance that we do on our binary units that are--it's a very short maintenance and it's--then it's back running. It's one (inaudible) or the other and so on. So there are some advantages. It's not--well, this will translate into a line item cost, but not a huge impact on generation. As far as the Steamboat side, it is a [repowering]. It's a capital project. So the costs themselves may not be very visible immediately. It's just the extent of time that it would take to do the surgery.

Do you have the turbines there--onsite there for Steamboat 2&3? It's a new turbine, isn't it?

I'm sorry, there is some knocking here. You--the--?

--Is there a new--there's a new turbine that you're installing in Steamboat 2&3. Are those onsite now?

I'm not sure. I mean, they've been--they're on their way. I'm not sure if they arrived yet or not.

Okay.

We still have about a month.

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

The salespeople is dedicated to recovered energy in the United States, especially for geothermal, in the rest of the world, it's the same team. What--the fact that we did get this quarter more orders than prior has more to do with how the products segment behaved. The products segment doesn't behave evenly over time. It's on a project-by-project basis. And when the project occurs, it occurs. So you cannot have a (inaudible) prediction of when the orders are coming. But we do see an increased interest. And I think that what's driving the increased interest is more the concept of energy efficiency than of (inaudible). They--it's the (inaudible) and some [guidance] by the (inaudible), which doesn't help, if energy efficiency should be taken care of.

Great. Thank you so much. Good quarter.

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

Just a couple quick follow-up questions. First of all, just on Sarulla. I think you mentioned you're still looking for financing at year-end. I just wanted to ask a little bit, is there any--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 holdup or is that not an issue?

It would not be wise to say that it is not an issue, because the rates have been locked three years ago and the cost escalation is helping. But this is not really what is holding it up. It's that the slowness of the [forces] in Indonesia. We--until now, they increased the cost offset by lower interest rates coming from the (inaudible) that we now expect for the project as opposed to what we had assumed originally. But there is a (inaudible) that we would try to (inaudible). You are right.

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

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

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

I think that what we are seeing now is the result of the long work that we have done on recovered energy. We have started to market recovered energy (inaudible). But it wasn't until certain projects were up and running, the [amount] is understood, the solution--the technical solution, the operational solution and--is moving forward. The regulatory involvement (inaudible) for climate change is another driver. In certain states it is considered as part of the (inaudible), but not in all of them. And it's really the (inaudible). In Nevada it is part of (inaudible). In the (inaudible) project, it's not part of the (inaudible). But it's driven by the general atmosphere to (inaudible) renewable energy.

I mean, I guess more generically, are you finding--especially once you've 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 with the pipe owner?

It's mostly (inaudible) pipeline with pipeline. I think so.

I'm sorry. Say that again.

(Inaudible) pipeline by pipeline.

Okay.

[On the land] pipeline, we had one unit, and then we had the following of the traditional [three units]. So that's the way it seems to develop. I don't know if (inaudible) we can say that (inaudible), but it seems like that.

Okay. You touched 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?

Europe is more on the REG side because there are very few complexes in Europe which have a geothermal potential. So Iceland was a huge potential, which is not necessarily suitable for our technology, because we have a very--it's more (inaudible) market in Iceland. Germany (inaudible) geothermal that they have is little and a smaller [cost] of energy.

Okay. I wanted to bring up Germany specifically, because we'd heard there was a lot of activity there on the geothermal, but potentially on small units. It sounded like they're digging very, 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?

You're absolutely right that it's driven by incentive. (Inaudible) huge incentive with Germany (inaudible) renewable energy. I don't think that it would be a viable economic project. We have delivered in 2007 one unit to Germany, which is a project which is now complete. And we will (inaudible) opportunities. But if it's too small units we may not do them.

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

Yes, we do. If we entered into a power purchase agreement, again, three years ago, and we thought it would come online only a year from now, I think that the cost increase will be more than what we assumed. But the (inaudible), because it is divided over a 30-year period, is not substantial.

But you're not currently--I mean, looking at the capital numbers you laid out, it did look like you were changing the capital numbers through year-end '08 materially. But as you look out to '09 and '10 has that changed at all?

Well, if you look at our typical (inaudible) cost of megawatt installed, yes, it has increased.

Can you give some sort of range or--?

--It's--it will (inaudible) somewhat because it depends on the location of the (inaudible), but the numbers that we see are between 3,000 and 4,000 (inaudible) kilowatt installed.

Okay. That's helpful. Just one last question. On OPC, the number that came in was significantly higher than you had previously estimated. I think it was 64 million. Was there any change to the underlying agreement or how were you able to extract more value--more capital there?

Two elements. One, the revenues were a little higher than what was assumed in the basic model, and the second is a true-up of the basic model which was done.

Great. Thank you very much.

You're welcome.

Thank you. Your next question is coming from Greg Orrill with Lehman Brothers. Please go ahead. I'm sorry, Mr. Orrill, your line is open.

We can't hear Greg. Operator, we didn't hear Greg.

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

Just in general on the financial markets, can you talk a little bit about how kind of some of the turmoil in the credit market impacts your ability to finance 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?

Michael, the way we look at the market, we did not have actually any plans to go into--any plans, I'm exaggerating. We didn't have--we did not have potential plans to go into the debt market in 2008. We were planning to do tax monetizations in 2008. And this market has not changed. Maybe people are looking at a little higher return than a year ago, but there was no substantive change in that market. The truth is that also the debt market is available. And what's happened on the debt market is that the rates went down and the margin went up, and in total if there is an increase in cost, it's a modest increase in cost. And for (inaudible) project there is money available. We just did not plan on doing it--on tapping into it this year. The corporate line of credit that we have been able to secure is really attractive for me from a rate--interest rate point of view.

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

It's just part of the same (inaudible) source as any others. No any specific plans.

Okay, thank you.

You're welcome.

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

Thanks. Can you hear me, Dita?

Yes, now I can.

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

No, it's not a monetization. We are not--we are reducing our ownership, but we are not selling it for a fee or a development fee or anything. We are reducing this because we would feel more comfortable in this project to hold the lower position. The negotiation is done. The party was going to come in (inaudible) reduce our ownership. It's [Kusher Electric]. This has been announced since (inaudible) already that they are planning to come into this project. And what's holding it up is to get the final approval of the Indonesian authorities (inaudible) Power Company and the (inaudible) company to the change of the ownership, which we expect any day now, like you're saying in Indonesia, but any day now in Indonesia. No one knows when it is.

Fair enough. The--how much of the 76 million EPC contract with Nevada Geothermal is in your guidance?

The 76 that we have (inaudible).

Okay. And I know it's difficult, but any--.

--It's not really--just to explain. It's not really that we don't think that we will get the balance of it, but the balance of it is only going to be in 2009 and not in 2008. So it's not that we don't trust that the full contracts will be released from the (inaudible). From what we know they are close to closing the financing. But it's just that the execution of the contract is over a two-year period, '08 and '09.

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

We are trying not to give guidance. But what we said I think in the last earnings call is that the (inaudible) that we saw in the second half of 2006 are what we believe to be (inaudible) [delivery] for the Company.

Okay. Thank you.

Thank you. Your next question is coming from [Emily Christy] with RBC Capital Markets. Please go ahead.

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 could construct per year?

Emily, I couldn't hear you. What is the question?

Sorry about that. Can you hear me now?

Yes.

In terms of the recovered energy units, how many of those are you able to construct per year in terms of workforce and equipment and that sort of thing?

From a manufacturing (inaudible) point of view, I don't think we have very limitations. We are lucky to have the flexibility to subcontract more or less depending on the volume, and this is not a limiting factor. (Inaudible) may be a limiting factor. We cannot do (inaudible) contracts. We don't have--but if the market would develop to that level, we would just (inaudible) to do it as well. Right now, we don't see a need for it.

Okay. All right. Thanks very much.

You're welcome.

Thank you. Your next question is coming from Brian Yerger with Jesup Lamont. Please go ahead.

Thank you. Good afternoon, and 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 were trying not to talk too 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 this a large impact on gross margins every let's say Q1 and Q2, or how do you view that?

We don't see a huge impact, if you compare our results in--or the expected results when you compare the results of previous years. So the preventive maintenance or scheduled maintenance is not going to be material. The impact on the Steamboat complexes would be material depending on what baseline you compare it to since this complex has been plagued by turbine failures in the last two years. Then again, when you look at--if you will look at the complex and compare it even when we do the preemptive shutdown to replace the turbines, it will not be that material, because we have been having 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 will be much, much better after the end of this.

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

Yes, it was an anomaly. Not to beat a dead horse, but the issue there was the way that the Heber 1 project is structured. When we do the five-year maintenance on a turbine there, it takes everything down. And it's a long maintenance cycle. We had the complex down for I think it was 23 days, if memory serves. Having half of our generation down for all that time is very significant. Beyond that, we had turbine issues at different plants. We had some premature shutdown at the Steamboat Hill plant because of an adjacent product disruption. And all of these things accumulated to both high cost and low generation. We should not see that this year, and not in a typical year for sure.

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 down the road?

Correct. The only--all of our other projects are--the units are segregated enough that major maintenance on one unit does not require the whole complex to shutdown. Next time we'll have to shut Heber 1 down is about four years from now unless something big happens.

Thanks a lot.

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

Sorry. Just one follow-up. You mentioned in the last quarter--or during the last quarter that you were actually going to sell potentially a portion of the Carson Lake plant to Sierra Pacific. And I know historically on small projects you haven't normally liked using partners. Can you talk a little bit--is this a strategic move? Because this is a little bit different than the way you've structured plants before.

You are absolutely right. It's not a partner. It's a joint venture with the facility, which is a major customer. And it's certainly different than just a (inaudible) partner into the project. We view the Sierra Pacific interest in joint venturing with us as strategic, because it reflects the utility's change of sentiment towards geothermal and they'll be (inaudible) to have ownership of geothermal power plant, which they didn't have until now.

And this--I mean, and admittedly, this is the first one of its kind. Does this change potentially the dynamic at all? I mean, utilities will tend to have a little bit lower cost of capital. They would--given the difficulties inciting fossil fuel generation in Nevada does this sort of bring the potential that they would be an equity partner in multiple plants going forward and maybe you'd move more--to more of a development role than just being an owner of the projects?

It may be with respect to Sierra Pacific, but I cannot say for sure that it will be.

Okay, great. Thank you.

You're welcome.

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

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

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

Okay, great. Thank you.

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

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

Thank you. This does concludes today's Ormat Technologies First Quarter 2008 Earnings Conference Call. You may now disconnect.