Ormat Technologies Inc (ORA) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ormat Technologies fourth quarter and year-end 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to Marybeth Csaby. You may begin your conference.

Thank you. and thank you, everyone. Hosting the call today are Dita Bronicki, Chief Executive Officer, Yoram Bronicki, President and Chief Operating Officer, Joseph Tenne, 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 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 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 and described in the annual report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009.

In addition, during this call, statements that may be made include financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission, such as EBITDA and adjusted EBITDA. 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 forecast 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 remind everyone that a slide presentation accompanies this call, and can be accessed on the Company's Web site at www.ormat.comunder the Events Calendar link found in the Investor Relations tab. With that said, I would like to turn the call over to Dita.

Thank you, Marybeth, and good morning, everyone. Thank you for joining us today for the presentation of the summary of 2009 and the outlook for the near future. We are pleased to report strong results for 2009 resulted from an impressive increase in revenue and a 58.4% increase in net income. As we announced this morning in our earnings release, we have allocated up two hours to the call to allow us enough time for discussion. We are also scheduling an Analyst and Shareholder Day in New York on April 9th. A "save the date" notice will be forthcoming later this week. Yoram will start with an overview of operations. Joseph will review the financials and elaborate on the 2008 restatement. And as usual, following my closing remarks, we will give time for Q&A. Let me now turn the call to Yoram. Yoram?

I would like to start with the operational highlights on slide 4. As you can see on the chart, in the past four years we increased our total generation by approximately 40%. With 2009's generation being 14% higher than 2008's, and totaling 3.4 million MW-h. The steady growth in total generation each year is a result of completing new projects and enhancement of existing plants.

In the past year, we have benefited from the first full year of generation from the expansion of the Olkaria plant, numerous enhancements to existing plants, and added to our fleet 20 MW of REG units. ThisJanuary the previous owner of the 8 MW GDL power plant in New Zealand exercised a call option, and we sold our interest. As a result, we will record a pretax gain of approximately $6 million in the first quarter of 2010.

Slide 5 reviews the status of the North Brawley and Puna power plants. As we recently disclosed, the North Brawley has been placed in service in mid-January. The decision was preceded by a series of experiments that proved that the plant can operate long term at commercial loads. Over the past months, we have seen considerable improvement in the quality of the produced geothermal fluid, especially from the longer-running wells, and we were successful in devising means to prevent the produced solids from contaminating the rest of the system. We have installed temporary filtration on all of our injection wells and identified qualified vendors for our filtration needs. We were successful in developing efficient ways to clean our injection wells, as they clog up over time.

The results of these efforts allowed us to inject treated brine at as much as 40% of the nominal flow, with the ability to generate over 17 MW. Based on our experience so far, we believe that the are production field can support the designed capacity of 50 MW, and that the main issues that have not been resolved yet are the injectivity index of -- in most of our injection wells that's too, even on what we believe are clean wells and treated brine. And, despite our effort to expedite the procurement of permanent solid-remove equipment, we are now looking at the late Q1 installation of the first unit. And we hope they will alleviate the neat to procure disposable cartridges.

We have developed a plan that will help us address these issues, and it is comprised of better solids-removal equipment, resolution of the injection capacity through well improvement or addition of wells, and modification of the surface equipment. The extent of the implementation will be determined by the success of each of the steps and may require an additional investment of $15 million to $30 million.

In our past calls and our most recent press release, we described the well field work that was performed in Puna as part the modernization of the plant and the addition of the equipment that will increase the plant's output to 38 MW. Our plan included a cleanout of one production well, a redrill with the new completion of two other production wells, and redrilling an out-of-service well to provide spare injection capacity. The drilling of the new injection well has been successful; however, both the cleanouts and the redrill of the producers provided only a short-term improvement, and within a few months, the production from the wells dropped significantly. Based on the surveys that we completed, we believe that the decline is due to scaling in the well bore. Our plan is to try to address this through chemical cleaning, which will be -- we will compliment by mechanical cleaning. However, the scaling rate indicates that, with the modified completions, the wells cannot support the flow rate that we were producing from them, and we have started to drill a new production well.

To facilitate the scale cleanout, we will source a small workover rig that will remain on site, accelerate the cleanouts when needed and perform at a fraction of the cost that our current drilling rig requires. Based on the current schedule, we expect the power plant to return to full capacity in the second half of 2010. I would like to point out that other than Puna and north Brawley, the other geothermal projects in our portfolio operated at high capacity factor with excellent result.

Turning now to an update on our future growth on slide 6. The key to growth of the geothermal industry is successful exploration of large plots of land, and in the last three years we have conducted substantial exploration activity, predominantly greenfield and mostly in the United States. As exploration involves a certain failure rate, our focus has been on reducing the costs that are associated with the process that allow to us screen the prospects prior to expensive drilling. And we are very happen with the improvement that we have seen over the past years. We are in various stages of construction and development of 11 projects that will add to our portfolio 246 MW by the end of the 2013. In addition, we plan to add 35 MW from solar photovoltaic installation, which represent our 70% ownership interest. While we may experience delays in the completion schedule, we may also be able to complete construction earlier than we have previously announced on some of the projects.

Turning to slide 7. In addition to the projects under construction and development, we have 11 sites in the US where exploration has either not started or is in very early stage. In two sites in Nevada, we completed exploration studies and started exploration drilling. The exploration process in these sites has been delayed due to the slow permitting process. In two additional sites in Nevada we competed exploration studied and are waiting for permits to start exploration drilling. In seven other sites in the US and an additional site in Guatemala we started exploration studies. We expect some of these sites will add capacity by 2013, and the others will provide growth beyond that time frame.

We continue to strengthen our land position with new leases on federal and private land in Nevada, California, and Utah. In addition, we are awarded an exploration concession to cover 26,000 acres in Chile, a country that is believed to have an untapped geothermal potential. Our land position for projects under exploration and future explorations stands at approximately 290,000 acres in 22 sites, and approximately 16,000 acres of pending leases.

Turning to slide 8 for an update on projects under construction. In the slide, you can see the status and the expected completion schedule for each project. Starting with the additional 8 MW in Puna, we are currently drafting a PPA with Hawaii Electric Light CompanyIn Jersey Valley, field development for phase one is almost complete. Engineering is in progress and power generation is in fabrication. We haven't received the permits to construct yet.

With the continued delay in getting the construction permits for East Brawley, we are now scheduling the project for 2012. The delay will enable us to implement our learning from North Brawley in the East Brawley design. Field development and power-plant engineering are proceeding for McGinness Hills, and in Carson Lake we are still waiting for permits to continue drilling. As for the recent acquisition of interest in HSS, we expect to close this quarter and plan to start field development of the first phase of Tuscarora project next quarter. Based on our current schedule, we expect to operate first phase in 2012.

Now let me continue with our projects under development on slide 9. In Wister, we are preparing to perform our joint exploration program with the DOEand hope to complete the consolidation of our land position. We currently plan for the first phase of the project to be 30 MW and expect commercial operation for the first phase in 2012 or 2013. We are currently developing the next phase of the Mammoth complex, in which we have a 50% ownership interest, and anticipate that the commercial operation of the 25 MW power plant will occur in 2013.

In Sarulla, the Consortium is in negotiations with the state power utility, PLN, to adjust the tariff of the PPA and introduce other amendments to satisfy lenders' requirement. The government has allowed PLN to make contract amendments, including to the tariff for the Sarulla project. And the state audit agency team shall review these contract amendments, which would also require the approval of the Ministry of Energy and Mineral Resources and the Ministry of State-owned Enterprises. From past experience, it is hard to estimate when these negotiations will be concluded. Construction is expected to start after Sarulla Consortium obtains financing, a process we expect to take approximately one year.

And in Olkaria we signed a letter of intent with Kenya Power & Lighting for further expansion of the project by up to 52 MW. Here too, the expansion will be done in two phases. First phase comprising of 36 MW within three and a half years from finalizing the amendment to the existing PPA, with an option for a second phase comprising of 16 MW within four and a half years from commercial operation of the previous phase. The amendment to the existing PPA is subject to applicable governmental approval and the consent of the lenders that provide the financing to the existing power plant.

With respect to our solar photovoltaic join venture, we have rights for the development of the eight projects of a total of about 50 MW, of which we will own 70%. The leases are comprised of agricultural and nonagricultural lands in northern and southern Israel. In some of the sites we already started the permitting process.

Let us now turn to slide 10, with an update on the product segment. As we explained in the past, 2009 was a record year in terms of the revenue from this segment, and we do not expect the next year to be as strong. However, we are pleased to announce that we have recently added approximately $42 million to our backlog in contracts signed for geothermal plants and remote power units. We expect 2010 revenues from this segment to return from 2007-2008 levels. And our current backlog stands at approximately $90 million, with approximately $20 million out of it will be effective upon receipt of down payment.

We believe that the improvement in the global economy, along with financing and regulatory incentives in the United States, will positively impact our future revenues in this segment. I should reiterate that the revenues from this segment are generally less predictable, mainly due to the long sales cycle and the impact that the global economic slowdown had on construction starts. With the operational overview complete, let me turn the call over to Joseph. Joseph?

Thank you, Yoram, and, good morning, everyone. Beginning with slide 12, for the year, total revenues were $415.2 million, or 20.4% increase from revenues of $344.8 million in the previous years-- in the previous year.

In our product segment, on slide 13, total revenues for the year were $159.4 million, a 72.2% increase over total revenues of $92.6 million in the previous year. Most of the increase in revenues was derived from three large EPC current contracts for the construction of the Blue Mountain project in Nevada, the Centennial binary plant in New Zealand and the Las Pailas project in Costa Rica. Total cost of revenues attributable to our product segment for the year was a $112.5 million, compared to $72.8 million in 2008.

On slide 14, in our electricity segment, total revenues for the year were $255.9 million, over total revenues of $252.3 million in the previous year. The increase in revenues is attributable to an increase of 14.2% in our US and international electricity generation. Despite this increase in generation, our electricity revenues increased by a modest 1.4%, due to a decline in average revenues per megawatt-hour, from $86 to $76, mainly attributable to a decrease in the energy rate in the Puna plant and added payment expiration under the Heber 2 PPA. The increase in generation is primarily attributable to commissioning of Olkaria III in Kenya, GDL in New Zealand, Galena 3 in Nevada, and generation restoration following turbine replacement in Steamboats 2 and 3, also in Nevada. This was partially offset by a temporary decrease in the generation capacity -- in the generating capacity of the Puna power plant.

Total cost of revenues attributable to our electricity segment was $180.2 million, compared to $170.1 million in the previous year, which represented a 5.9% increase. This reflects increased costs, including the depreciation as a result of new and enhanced projects placed into service, and increasing maintenance cost in ensuring higher availability during the summer, and increased repair costs of the geothermal well field in Puna. This was partially offset by a decreased royalties cost in Puna.

Moving now to the next slide, which represents combined gross margin and the -- and gross margin than for each segment for the year. The Company's combined gross margin was 29.5%, compared to 29.6% in 2008.

Now to slide 16. Net income for the year was $68.6 million, or $1.55 (sic - see Press Release or Slide) per share diluted, compared to $34.3 million (sic -- see Press Release or Slide) or $0.98 share diluted for the year ended December 31, 2008 as restated.

Now, I would like to go over a few quarterly financial highlights beginning with slide 17. For the fourth quarter, total revenues were $95.3 million, consistent with the fourth quarter of 2008. Electricity segments revenue for the quarter were $63.9 million, an increase of 2.9% compared to $62.1 million during the same quarter in 2008. Product segments revenue for the quarter was $31.4 million, a decrease of 6.1%compared to $33.4 million for the same period last year.

Now on slide 18. Net income for the fourth quarter of 2009 was $16.1 million, or $0.35 per share diluted, compared to $5.4 million or $0.12 per share diluted as restated.

As shown in the following slide, slide number 19, adjusted EBITDA for the year ended December 31, 2009, was $167 million, compared to $121.9 million for the year ended December 31, 2008. For the fourth quarter of 2009, adjusted EBITDA was $41.8 million, compared to $20.1 million for the same quarter in 2008 as restated. Reconciliation of GAAP net income to adjusted EBITDA -- reconciliation of GAAP cash flows from operations to EBITDA is set forth in slides 30 and 31.

To the next slide, as of December 31, 2009, the Company had cash and cash equivalents of $46.3 million, compared to $34.4 million, as of December 31, 2008. The increase in our cash position was mainly due to$105 million from refinancing of the Olkaria III property in Kenya, $110.8 million cash flows from operating activities, $90 million proceeds from long-term loan agrees -- and these are corporate loans --$42 million from Amatitlan financing, and $34 million from using revolving credit lines, also on the corporate basis. The increase was partially offset by funding of capital expenditures in the amount of $270.6 million, and $49.8 million of repayment of long-term debt to our parent and third parties. Our long-term debt as of the end of 30 -- of the end of the year ended December 31, 2009, and the payment schedule are presented in slide 21 in the presentation.

Slide 22 reflects our dividend policy and recent dividend declaration. On February 23, 2010, Ormat's Board of Directors approved the payment of a quarterly cash dividend of $0.12 per share to send to the Company's dividend policy, which targets an annual payout ratio of at least 20% of the Company net income, subject to Board approval. The dividend will be paid on March 21, 2010, to shareholders of record as of the close of business on March 16, 2010. The Company expects to pay a dividend of $0.05 per share in the next three quarters in 2010.

Before I turn over the call to Dita, I would like to spend a few minutes to share and elaborate on the disclosure we provided in our earnings release in Form 8-K we filed this morning relating to our 2008 restatements. Through the third quarter of 2009, we accounted for exploration and development costs using an accounting method that is analogous to the full-cost method used in the oil and gas industry. Under that method, we calculate the cost incurred in connection with the exploration and the development of the [internal] resources on an area of interest basis. Each area of interest included a number of potential projects in the state of Nevada that are planned to be operated together with the same operations and maintenance team. Impairment tests were performed on an area of interest basis, rather than at a single site. Under this methodology, costs associated with the project that we have determined are not economically feasible, remain capitalized as long the area of interest was not subject to impairment.

Following a periodic review performed by the SEC staff, we concluded that this accounting treatment was inappropriate in certain respects. Accordingly, February 23, 2010, our Audit Committee and Board of Directors, based on management's recommendation, concluded that our financial statements contained in our annual report on Form 10-K for the year ended December 31, 2008, require restatement and should not be -- and should no longer be relied upon. The impact of the restatement is the increase of approximately $6.2 million in net income, or $0.14 per share, during the year ended in the fourth quarter of the year ended December 31, 2008. The decrease represents a reduction of 12.6% from our original reported net income of $49.5 million in 2008, and a reduction of 53.6% from our original reported net income of $11.6 million in the fourth quarter of 2008.

The Company's filed a report on -- this morning a company filed a report on Form 8-K, and intends to affect the above mentioned restatement in its annual report on Form 10-K for the year ended December 31, 2009. And this will be filed during the first half of March. The Company also plans to revise its financial statements as of [and for the] three and nine month periods ended December 31, 2009, to reduce net income by approximately 5 -- $1.5 million or $0.03 per share.

In connection with the filing of our annual report on Form 10-K for the year ended December 31, 2009, we will revise the third quarter and audit the financial information included in the notes to the financial statements to reflect the expenses [and costs] in that interim period. Thank you, all, and I would like now to turn the call -- to the call back to Dita for final remarks.

Thank you, Joseph. I will cover in my remarks the recent business development and update on our financing activity and capital requirements, and will conclude with the revenue guidance for 2010.

Let me start on slide 24 with two business developments that demonstrate our dedication to promote growth and to diversity in our generating portfolio. We continue to consider various opportunities in the solar energy market, in addition to our activity now in the solar field. Our roots -- sorry. Our roots in solar power, as well as potential synergies with our geothermal power plants, encouraged us to explore opportunities in this field. The declining costs of solar PV technology and attractive electricity prices that may be achieved in certain countries create an attractive opportunity.

And in October of last year, we entered as a developer to the solar PVmarket. We signed a joint venture with Sunday for 36 MW PVenergy systems in Israel where the approved feed-in tarrif an average of $0.36 per kilowatt-hour. So given our EPC and development expertise, we view this venture as a good first activity for us to undertake as we explore other opportunities and technologies in the solar market.

In parallel with our solar activity, we continue to look toward organic growth and acquisition opportunities in geothermal. The acquisition of the ownership interest in the Tuscarora project is an example of this. We have been acquiring development leases for a few year and have amassed a substantial portfolio from which we can explore and build plants literally from ground up. What made the Tuscarora project attractive is that it is a project that's already in an advanced stage of development.

Looking at our financing activity on slide 25. During the year we continued to secure our growth by providing the required financing. The Olkaria and Amatitlan project financing raised in -- sorry. The Olkaria and Amatitlan project were financed, and separately we raised $90 million in corporate loans. We continued to secure committed lines of credit and entered into an additional $15 million line with a commercial bank in the fourth quarter.

Looking forward, it is our intention to refinance North Brawley with approximately $100 million of longer-term loans with a financial institution and approximately $100 million ITC cash grant available under the Stimulus Act. We will also continue to evaluate the best approach to our projects under construction and will select the financing option that we deem most appropriate for each individual project. In the US today, it is the DOE guaranteed loans under section 1705 and in certain cases under section 1703, the innovative technologies alternatives. Out of the projects currently under construction and development, we expect 162 MW to be eligible for ARRA benefits.

Please turn to slide 26, in which we will see our CapEx requirements for 2010. We plan to invest in 2010 $276 million for construction, an additional $54 million of development of new projects. In addition our capital expenditure budget for operating power plants is approximately $15 million, and we expect to invest additional $15 million in exploration during 2010, and this number is net of DOE grants that were approved. We also expect to invest approximately $3.6 million for production facilities and the machinery. The funding of this program will come from cash from operations, unused corporate lines of credit, and expected profits from the refinancing of the cash grant -- from the refinancing and the cash grant for North Brawley. Loans under the DOE loan guarantee program are an additional source for construction financing.

As to the outlook for 2010, please turn to slide 27. We expect our 2010 electricity segment revenues to be between $275 million and $285 million. We also expect an additional $9 million of revenue from our share of electricity revenue generated by a subsidiary, which is accounted for under the equity method. An increase of 9% over the 2009 revenues.

With respect to our product segment, we expect our 2010 revenues to be between $75 and $85 million, and expected lower number than 2009. We expect that with the lower revenues and increased costs of the North Brawley and Puna plants, together with the lower level of revenue recognition in the product segment and the reduction in capitalized interest as a result of slower volume of construction in progress, we may report a net loss in the first quarter of 2010. We, however, expect to be positive for the remainder of 2010 fiscal year and believe that our business and prospects remain strong.

Slide 28 summarizes what we believe will be the driving force behind our growth. For growth beyond 2010, we continue to aid the necessary resources, which are land, drilling capabilities and capitals, so we can move forward unimpeded with our exploration and development plans. In addition, we have expanded our manufacturing facility during 2009, which we are able to scale, to support rapid growth as needed. And finally, both our electricity and product segments continue to benefit from the supportive environmental regulation in the United States, as well as the government's financial backing for clean energy.

It is important for us to emphasize that while 2009 has not been free of challenges that we will continue to experience also in the first half of 2010, such challenges are not unique to us, and any geothermal developer and operator may face similar issues. But it takes a strong company, such as Ormat, with an experienced management team, a strong technical team, and the necessary capital resources to deal with it. As one of the more mature geothermal pure-play companies operating today, we have allowed a balanced portfolio with a stable revenue flow that enables us to operate our plant responsibly and to move forward with our growth plan.

Before I open the call to questions, I want to thank you for your support, and I look forward to what should amount to a better year in many regards. Operator, at this time, I would like to open the call for questions. Operator?

(Operator Instructions). Your first question comes from Lasan Johong of RBC Capital Markets.

Thank you. Good morning, Dita. A couple -- a few questions, actually. Over the last year and a half, there seems to have been a pretty big slowdown in new geothermal projects either be announced and/or being funded. Are you seeing that starting to change? Are we getting back on track to more of an accelerated development and new project requests from utilities?

Is your question specifically for Ormat or an industry question?

Well, obviously, Ormat primarily, but, yes, industry as well.

Because I think that there's really many factors, and they are different. I would say that the biggest roadblock that we were facing is how slow the regulatory process has been, and as I think that this is the probably the first time that we actually give the numbers, but with 22 prospects, where we could do exploration, we are generally unable to leave the start line just because of the slowness in getting the permits. And this, of course, flies in the opposite direction from both very intensive solicitation from the different IOUs in the West for additional power, all the incentive programs, whether the ITC cash grant 1703, the 1705. But there's no way to take -- either use your own money or enjoy that -- those incentives if you can't get the permits to do the exploration. That really starts the project, and in some places, as we described on East Brawley, we have done the exploration, but because of the regulatory cycle, we can't get the permit to construct.

And so when you analyze Ormat, I would say that these are -- that the factors that affected us are mostly external factors and not internal factors. And we're -- I have to say that we remain optimistic, since there's all of this goodwill and everybody is interested in doing more renewable projects, we remain optimistic that there would be a way to open this bottleneck.

So if the regulatory bottleneck is kind of taken out of the equation, then is it fair to say that you are seeing more requests for projects than you did a year ago, let's say?

Yes, I mean, again there's -- we have -- and you have to recognize the difference between us and some of the other players.

Sure.

The method that we prepare -- that we prefer to operate is, first we explore a site. We conclude what the size is and then we sign a PPA. Rather than do it the other way around, because people don't always recognize how far -- how big is the gap between encouraging signs on the surface that the geothermal reservoir underneath and actually producing hot brine from it. And sofor us, we'd like to bring our land position to a certain area and at that point sign the PPAs. And this is what you should expect from us.

All right. I think that's conservative. I think that's a good way of doing it. On the projects that you currently have under construction, how much of the -- I'm assuming that the ITC grant money is what you will tap. How much of that construction cost would you eventually get back? And does that then negate the need for any future equity issues?

The ability to leverage new construction under today's program is in excess of 80% -- maybe 78%, but around this, because the DOE guaranteed loan is for 80%. The ITC grant reduces it a bit, so in the order of 80%. Depending, of course, how fast we grow, is one element which will go into it. And the other is how much we can still leverage our balance sheet today. With paying back some of the loans, we've been having several projects which are not financed on our balance sheet, like all the recovered energy generation projects or not financed on our balance sheet.

We do have a debt capacity on our balance sheet. So we don't see a need to go back to the equity market in the near future, in order to finance our growth as we plan it now. Depending, of course, how fast the process of the DOE loan guarantees will be implemented. We believe that with the regulations out since October of last year the process is now going to be a smooth and fast. But, of course, time will tell.

Okay. So near-term meaning at least over the next 12 months?

Pardon me?

You said you don't expect to tap the equity markets in the near term. I'm assuming that's at least in the next 12 months.

But, but Lasan, everything that I say is based on what we know today.

Oh, yes, yes, yes. Of course, of course.

If (multiple voices) acquisition opportunity comes up, this may change totally.

Of course. Of course.

From what we have today, we think that -- from the 260 MW or so that we have today under construction and development, at least 160 are available for stimulus money. And that's a big part of it.

That is exactly what I needed to know. Okay. And then the -- I was a little confused about the backlog situation. Yoram had mentioned -- Yoram, you mentioned that upon receipt of down payment of $20 million of backlog that it would become effective. Was that $20 million included in the $90 million backlog you currently have or is it excluded.

No, it's included.

Oh, it's included. Okay. And then on a yearly basis, it seemed like the monetization of the backlog is very, very bumpy, meaning some years it's -- like this year, you are expecting to get 70% or so, or 80% or so of that backlog monetized. whereas last year I think it was significantly less than that. Is there any way you can give us a rule of thumb of how much of your backlog you can monetize in a given year?

I'm afraid that it's hard to do. It's even hard to ask. If you look at the changes that we had to do, to give in our expected revenues from the product segment over the year, you can see that it was even difficult for us to predict it. Not to say that we cannot share all of them. It depends on timing of progress that is literally out of our control. If a supplier that has promised a four-month delivery is late and he is delivering it only after six months, there is a delay in income recognition. If the supplier promised a four-month delivery is doing better and delivering after three months, there's an increase in income recognition. It is nothing to do with final completion of the project. It's just a timing for the -- of income recognition, and unfortunately, it is very hard to predict.

Okay. Thank you. That was it for me.

Thank you.

Your next question comes from Gregg Orrill of Barclays Capital.

Hi. Thanks a lot. I was wondering if you could talk about the injections that you are doing at North Brawley. And what it is you are injecting there, and how that complies with environmental regulations.

Yes, there's -- we are not injecting anything other than geothermal brine. What I refer to is, there's a measure that is called an injectivity index, which is a way to normalize an individual well's capacity to take fluid, and that's really -- you calculate this by how many gallons per minute can you inject for every one PSI of pumping pressure. So -- and theoretically the wells could take a very large amount of geothermal brine into them; however, a poor-injectivity well would require high pressure, which then translates into higher parasitic loads.

And we had a certain plan for our injection wells, which was in our design basis and is based on our experience in similar plants in Heber and Ormesa. And the majority of our injection wells have been providing us with a lower injectivity index, which is really the reason why at this point we are -- we can inject only 40% or 45% of our -- of the amount of brine that we can actually produce from the production wells. But in terms of the materials -- the material itself that is being injected, it's just the brine.

Okay. And then, I think it was mentioned earlier, that -- I think Dita mentioned that the first quarter would be a loss. Does that come as a result of the treatment of capitalized interest related to the North Brawley project? Or what's really causing that?

It's certainly, Gregg, a very important factor in it. As we have placed Brawley in service in the middle of January, we cannot capitalize anymore the interest related to the investment in Brawley. We are starting to depreciate the full amount of the investment, but our revenues have been 17 MW, and I don't want to take it away from Yoram, but we are already at 20 MW every --21 MW, Yoram corrects me. So it's ramping up, but it's ramping up slowly. And as a result of it, during first quarter, the big -- the high level of expenses of Brawley are one element. The other element is lower product revenues, but Brawley -- and the third element is the low income level in Puna, which is operating at 17 MW, rather than 25 MW or 30 MW. So these three factors may -- we said may -- create a loss in the first quarter. Maybe a break even.

Okay. And coming back to the accounting change, what's a decent rule of thumb going forward in terms of looking at your exploration spending? How much of that should be considered capitalized versus expensed?

I -- it's a good question, and of course the answers are an estimate, and we are not guiding related to it or anything. If we have a budgeted for this year a $15 million of exploration expenses, and it's lower this year because we have participation of the Department of Energy in the exploration expenses, and if the success rate is going to be as similar to 2009, which wasn't bad, and we have also improved in the costs of unsuccessful projects. We incur today less costs in a project until we know it is successful or not, and this is all a result of a learning curve over the years. You could think of a couple of million dollars.

Okay. Thank you.

Your next question comes from Michael Lapides of Goldman Sachs.

Hey, guys. Two questions. One kind of big picture in terms of just financing and cash flows from individual projects. In general, are you likely to more -- I mean, generally take the ITC rather than the production tax credits on new geothermal projects built herein the US?

The answer is, if we have to say, generally yes, as long as the ITC is provided as a cash grant, which means projects that are going to be -- to start construction until the end of 2010 under current regulations are eligible for ITC cash grants, and on those more likely than not, we will take the cash grant. Even though -- even though there might be, depending what happens with the [tax] equity market, if comes back or it doesn't come, and at what price it comes back. It as always been, even in 2009, it was there, but the prices didn't make sense to do a transaction.

But I think that as a rule of thumb we should think that as long as ITC cash grant is available, we will take the ITC cash grant. When the ITC cash grant goes away, and we will have to make a choice between PPC and ITC, then an analysis has to be made on a project-by-project basis. Some projects it may be more advantageous to take the ITC, and for other projects it may be more advantageous to do a PPC.

Okay. One other question on the product side. I mean, I think the backlog items have been beaten to death. But I want to talk about margins a little bit, because gross margins in the fourth quarter are kind of coming in right around, just under maybe 20%. Your run rate historically has been a bit above that. I'm curious how you are thinking about competition in the product segment and what that does, if anything to margins, or what might be creating downward pressure on gross margins there.

We -- I think we have spoken about it in several -- during several calls during the year that the margins of 2009 were higher than what we expect average margins to be. We explained the reasons for it, and we expect margins to go back in, as of the later part of 2010, to more historical numbers, which have been between 20% and 25%.

Okay. And the only reason that I ask is because the fourth quarter came in at the low end of that range that you just gave.

Right.

I'm trying to figure out if there's risk to the downside to that.

It's -- like everything which relates to the product segment, it's bumpy.

Understood. Understood. Thank you, Dita. Much appreciated.

Thank you.

Your next question comes from Dan Mannes from Avondale.

A couple of questions of quick follow-up questions. First, briefly, on Blue Mountain, which I think is done. It sounds like maybe there were some warranty issues there on the side. Can you give us a frame of reference on what your potential exposure is there?

Well, there has been a warranty problem on Blue Mountain, and actually a big warranty problem. The exposure is for the warranties fully provided for in our results. That's probably one of the reasons for the lower margin in the first quarter, because we have fully provided for the warranty problem. And the it's a -- it has to do with installation of cable. There were some workmanship by our subcontractor issues. There were some design errors by ourself. We are not free from responsibility, and that's why we had to provide for it in our financial statement.

Got it. And then just real briefly, the incremental $40 million of product wins. Are you going to disclose who that is with? I mean, are those domestic geothermal, international, et cetera?

That's no problem to answer. There is no domestic geothermal yet in this number. The domestic geothermal projects we expect to come later on, and that's the slowness -- I think Yoram talked about it -- the slowness at which the stimulus money is coming to the market. It is not yet in the market, and that's why we don't see it yet in our backlog -- in our strong backlog. It's international and it's [in power units] as well. It's not only geothermal.

Got it. Two more quick ones. On the Hot Sulphur Springs or Tuscarora, can you give us a little bit of color around how we should think about what you paid for it? And what's the difference in return profile for you buying an advanced development project versus doing it yourself?And what made this one unique uniquely attractive to you?

I will not answer the first question, but I will answer the second and the third.

Okay.

We are a potential buyer for any geothermal asset in the United States, but we are potential buyer when it is at the right price. There were assets in 2008 and 2009 that have been sold to a private equity participants at prices that we didn't find economical, and therefore we didn't participate. When it is economical we are a buyer, because as we said more than once, the limiting factor of our goal is the ability to explore projects and improve them fast enough to bring them from the exploration phase to the construction phase. And you cannot jump start it. I mean, we take -- it takes the time, whether it's because of permitting or whether it's because of exploration. If you have an opportunity to jump a step and start from a -- immediately from the construction phase, after the exploration is done, and the early development is done, it's an advantage and we took that advantage.

Is it fair to say -- I mean, especially given the higher relative risk profile of drilling, versus the actual construction and operation -- and you have experience in all three -- is it acceptable to you guys to get a lower overall return just to avoid that high-risk -- that higher-risk step?

I'm not sure that it has really direct impact on the overall return.

Okay.

But maybe.

Okay. Two last questions. One of them, on the Q1 potential for a loss, is that after taking into account the gain on sale of GDL? Or is that before that item?

We have taken it into account and, we are cautious. It may happen. It may not happen, but, yes, it's after.

Got it. And then the final one, as you look at your -- as you look at the capital profile for 2010, between cash on hand and the availability under lines, et cetera, and plus being able to extract the money out of Brawley, 2010 looks pretty well covered. But as you look to '11, you don't have, other than Jersey Valley, anything else coming on in '10, and none of the other projects come on in 2012. So how much are you, in your thought process, leaning on the loan guarantees or potential monetization of the ITC before the plants come online, to fund 2011 in your head? Or do you have another plan that you haven't really aid out yet?

First of all, we are always attentive to market opportunities [first of all] on the financing structures and the financing side. And we are watching the market development, and there may be other opportunities than DOE loan guarantee. But in between the DOE loan guarantee, ITC -- and don't forget cash from operating activity. In 2009, our cash from operating activity was more than $100 million. It's not a negligible number.

Understood. Got it. Thanks for the color.

Your next question comes from Ben Kallo of Baird.

Hi, good morning. I wanted to start on guidance and maybe get some assumptions around 2010 guidance. First on the electricity side, what are your assumptions around Brawley and then also Puna, and how they ramp up over the year? And then have you included any solar revenue in the electricity segment guidance?

No solar revenues. We don't think the solar projects are going to be online in 2010, so that's easy. What we have assumed both on the -- on Puna and Brawley is in line with the press release that we issued a couple of weeks ago. Brawley will ramp up gradually but will not reach the full capacity before the end of the year. And these are our assumptions in the revenue. And Puna will take to about the middle of the year until we reach full production. Of course, if we are able to do better, it will improve, but these are the assumptions.

Okay. So although there are -- is a possible downside if it doesn't ramp up like that, like you mentioned earlier, Brawley is producing at 20 MW. Is that ahead of expectations so that could be some upside to the guidance there?

I think that there could be upside to the guidance, but it's a long way to go. And since you have been following us for quite a while, you know that there's always the unexpected. So there's -- we would rather stay with this number.

Okay. And then on the product side, a similar question. I know the last call you mentioned a couple of deals you were following. Is that the $40 million that you mentioned in the presentation there, or is there still some potential wins out there that could affect 2010 to the up side in the back half? Or even early in 2011. (Multiple voices.) What?

The truth is that the large order that we mentioned in the November call, which was the Brazilian [oil bill], still didn't come in. So the answer is yes, there could be additional orders. That if they are released, if they are finalized soon enough, we still have an impact on the product segment in 2010.

Okay. And then have you seen any changes to the pipeline outside of what's going to affect 2010 and outside Sarulla, because I'll get to that in a minute. But outside of that, have you seen changes to your pipeline since our last call here? Has it improved?

Oh, yes. All the $40 million that we got are all new orders since our last call, and these are not the orders that we expected.

Okay.

Actually one of them is. All the others not. So, yes, I mean, we do see a start of movement.

Okay. And then --

Not yet in the US.

Okay. In your prepared remarks on Sarulla, you mentioned -- it sounded like there was some movement since last call, and then I think everyone out there has been reading that the price has been finalized. So how do you see that progressing, if you can give us any more detail on that?

But then the price has not been finalized. They -- what was finalized is a committee was to negotiate with us and approve the price. So it's a very small step forward. It's not really the breakthrough. Once the price is finalized, this is going to be the breakthrough, but we are not yet there. We are at least in a structured process that the result of which can be finalization of the price. But the price is not yet finalized, and we have been reading the same probably newspaper clipping, and the Indonesian press was much more optimistic about this happening. The reality is that it is probably at least two months away. But being Indonesia, I'm not sure about that even about that.

Okay. Great. And then as far as the timing of the financing of Brawley, could you give us some more detail on that? Because it is -- it does contribute to your CapEx there for the year. So how do we think about that?

We to take a decision when to apply for that ITC grant. And that's actually an internal decision. It has an impact on how much the ITC cash grant is going to be. As Yoram said, CapEx budget for Brawley is not defined yet. It's a range between $15 million and $30 million. Once this is going to be defined and well advanced, it would be the right time to submit the ITC grant application, because you can submit an ITC grant application only once. And all the CapEx, it was not incurred by the time you submit your application, is not eligible to the ITCgrant anymore. So if you are not under pressure, and we are not under pressure, you should manage the time that you submit your application. So I think that -- and as for the project financing, that's another $100 million in our financing plan. I think a good assumption should be the fourth quarter.

Okay. Is there a certain threshold that you have to meet to get that project financed? From -- as far as megawatts of production?

It's not yet defined with the lenders.

Okay.

There is going to be one, but we didn't define it yet.

Okay. And then my last question is more of a high-level question, as far as what you guys think over -- we talked about this before, but as far as a replacement value for your current assets. I know every asset is different, but if you guys could give a range or some type of replacement valuation for -- per megawatt for your assets.

Replacement value? You mean how much would a third party pay for them, or how much it would cost to build new capacity?

More of what the market's valuing assets right now.

I don't know what the market -- I don't know that there were any geothermaltransactions closed recently, soI don't know that we have a number. Smadar, do you know?

No, not for operating power plants. I mean, I -- we can estimate, but I'm not sure it will be in line with the market. We can estimate our estimation for replacement cost, but not the market.

Okay. Thank you very much.

Your next question comes from [Elaine Kwei] of Piper Jaffray.

Good morning. This is [Connie Wing] for Elaine Kwei. Thank you for taking my question. Going back to East Brawley, can you speak a bit about what is the difference between the permitting process from -- for East Brawley from your previous experience? That is, are you seeing the regulatory environment becoming more difficult?

Yes, specifically East Brawley, I would say that it's more a local issue than the regulatory environment by itself. [This], as we described in the past, we were caught in a controversy between some of the users of irrigation water, and those would have to allocate the water. And therefore, we cannot get -- although the quantity of water that we use compared to the agricultural use and others is not that significant, we cannot get a commitment from the agency or the co-op that sells the water, we cannot get a commitment from them to supply the water, and therefore, the county is not willing to give us a permit to construct. So that -- and in both cases, they don't want this to be used against them in that political fight. And so we are stuck in the middle.

We think that our use of the water makes a lot of sense in terms of the economic development of the area, and that good sense would prevail, because it does serve everybody's interest. And in the meantime, we are not willing to move to a technical solution that's less optimal, just because we're caught there in the middle. So it is really a county issue. It does give an indication on the long term issues around water in the west, and so there is a global aspect there, but for us there, it's very site specific and county specific.

All right. Any more insight on timing on that?

We think that we're in a process -- that we are now following a process that would allow us to get the right commitment. And basically it's a process where all the parties involved would be comfortable that they have no exposure from us building the plant and using water. And our hope is that this will be completed in about -- somewhere towards the middle or the end of the second quarter, which would then release the next steps in the permitting. And this is why we think that we would take 2011 for the construction of the plant. and we will be up sometime in 2012.

Okay. Got it. Let's see, do you hedge PPA selling prices at Puna?

I'm sorry, can you repeat that?

Do you hedge PPA selling prices at Puna?

No.

No. Okay. Will you consider doing it in the future?

Can't say that, no, but it's not in our plan at this point.

Okay. Are any existing PPAs at risk of being renegotiated at this time?

No, we don't see this as a risk and not -- and we're not planning to renegotiate our -- the PPAs that are in effect. As PPAs come to maturity, and we do have some -- not this year, but we do have some that will expire --we will negotiate them. But it's not --there is nothing that is coming for negotiation this year.

All right. Thank you.

The next question comes from Paul Clegg of Jefferies.

Hi, thanks for taking my question. Some questions for Joseph, actually. How much of the quarter-over-quarter decline in gross margins and electricity revenues in 4Q was due to Puna versus other issues like seasonality or you also mentioned warranty expense, I think in there?I'm just trying to get a sense of a more normalized gross margin for the electricity business.

For electricity, a big part of it, and we said it in the call, is coming from a decrease in the rates in Puna, and the performance. And also the seasonality. Third quarter is always better. As to the product segment, of course, as Dita said before, the impact on the third quarter is because of the issue mentionedon the Blue Mountain issue. But going forward in 2010, we said that we would not repeat the level of 30% gross margins in the product segment.

No, I understood. Really more on the electricity segment, I guess, was my concern, and trying to kind of quantify the Puna effect. So once we see Puna come back online, I want to get a sense of what level of potential positive impact that could have on the gross margin, outside of potential seasonality issues or warranty issues that may have affected the fourth quarter otherwise.

It [mostly] depends on prices in Puna, and also if you see we've said that the average rate decreased from 86 to 76. So this reflects only the impact of the pricing, not the generation -- not the generating [capacity].

(Multiple voices.) So capacity utilization didn't really have much of an impact on the margin?

The percentage of Puna is going down when more projects are coming online. So this is something that should be taken into account.

Okay. And I guess another question on Puna, how much of the CapEx budget that you laid out is related to issues at Puna also?

We have the CapEx -- total CapEx of operating plants was approximately $15 million. So it's -- I mean, all in all, it's not a major number.

Okay. I just wanted to talk -- revisit the methodology on the 2008 restatement, and the impact. Did it have any impact on the December quarter? In other words, if you anticipated -- if you were to have used the same accounting methodology, was there any negative effect in the fourth quarter? And then as we extrapolate that into 2010, is it having any effect on the guidance? And if so, can you help quantify it?

On Q4, 2009, there was to impact. That's the question. In 2009, we are talking about one project. In 2008, we are talking about two projects. And you see the numbers -- there was a separate line item in the P&L so you can see the numbers. And as Dita & Yoram said, we spend less on each project exploration, and that's why the 2009 number is lower than the 2008 number.

Okay.

Let me add to the last part of your question, whether has an impact on guidance. We are giving guidance of revenue. This has impact on costs, so no, it has no impact on guiding.

Right. Right. No. That makes sense. And --

And it's not a drive for the anticipated loss. It's not expected.

It's not. (Multiple voices.)Okay. Okay. Very good. And that loss, it sounds like -- if I understood correctly, it sounds like you still think you have a chance of being profitable, so in terms of magnitude of the loss, it doesn't sound like we are talking about something that large for the first quarter.

That's true.

Okay. And then final question, do you anticipate -- there's been a lot of disruption in the currency markets. How does that affect your business model in 2010, and if you could just talk about hedging strategies on currency?

We have -- until this [year], we have, if you want, three currencies. The US currency, of course, and then some New Zealand and the Israeli shekel. The New Zealand uncertainty, if you want, has gone by the fact that the GDL project was sold. So the only currency uncertainty is the Israeli shekel, and we have policy to hedge about 50% of our exposure,sometimes a larger portion for the next six months or so, so we are trying to avoid fluctuations resulting from currency fluctuation.

Paul, let me add to what Dita said. As we say in our -- in [achieving] our 10-K, even if we hedge our foreign currency operations, we do not implement hedge accounting. So if you see a loss on exchange difference, that means we gained on the operating income. So you have to look at it that way. So these fluctuations do not represent a real loss. Or a gain on the other side, so [to be] better.

I said last question, but maybe one more detail question. In terms of the tax-rate outlook in 2010, would you expect it to be significantly different than 2009 in any way?

Look, the tax rate is impacted by the pretax income. Because the amounts [PTC] that we enjoy is relatively stable. So any decrease in net income will decrease the tax rate and increasing -- I'm sorry, the pretax income. And increase the pretax income will increase the rates.

I'm sorry, will increase the percent -- oh, because of the PTC.

(Multiple voices.) Increase the effective tax rate. (Multiple voices.)

Right. Understood. Thanks very much.

You're welcome.

Next question comes from [John Segrich] at Gabelli.

Just a couple more questions. One, I didn't catch the amount of revenues that you generated in the US. I know you end up giving it in the K, but could you end up giving it to us now?

How much of the revenues were in the US?

Yes. Yes.

Joseph will find it.

In electricity?

Yes. The electricity.

About 185, as I recall.

For the full year.

Let's move on to the next question, and we'll find --

Okay. If I could, then just following on that then. I guess I'm just trying to understand, back to the electricity margin question. You've got some plants that are really running well below optimal capacity, and there's some remediation work that's being done. So maybe could you just give us a sense of what you think the electricity margins will be, kind of a range in 2010? And clearly they've got to be down from 2009.

They are going to be down. I don't know that we are prepared to give a range.

I mean, do you think it's a 24%, 25% level, or --

We cannot give it.

Okay. If I can ask it a different way then. You have given pretty good revenue guidance for explicit -- we have talked about some of these costs and overruns. You got less capitalized interest coming through, right, on the P&L. Your OpEx, I assume is going to be up in 2010, versus 2009?

Our OpEx in 2010 compared to 2009?

Yes.

Was that the question?

Yes.

I think that if you ignore the fact that Brawley costs were not part of the OpEx in 2009, and they will be in 2010, then we don't expect dramatic changes to the numbers. Certainly not on a -- not when it's normalized to generation. So there's -- there has been constant growth of our operating expenses as we added more megawatt to our fleet, but generally speaking, on a dollars per megawatt-hour sold, we are not seeing a dramatic increase. And I just -- I only qualify this with the impact of the depreciation of Brawley, which is not insignificant. This may actually modify the picture temporarily.

Right, but that's in the gross margin, right?

No, cost. We're actually becoming more efficient as time goes by and our fleet grows.

Right, but the OpEx, whether it's in R&D or sales and marking, you should show some growth in the dollar value on a year-on-year basis, right?

It -- I think that R&D and sales and marking, not necessarily. We are not -- we don't expect huge changes in our operating method. We have been fairly active.

By the way, let me just clarify that sales and marketing are a function of volume of sales in the product segment, so they are related to the volume. G&A, we don't expect to go up in the next year substantially. Maybe slightly.

Okay.

R&D depends on the programs that we have. We have currently a program of a REG for LNG. We've spoken about it several years ago. We didn't mention much about it in the last probably year or two. We have are currently under -- and you will see when you look at the R&D explanations in the 10K, if we didn't say it today -- if it didn't say it in the prepared remarks. But we have a $10 million program of building a better site, you will need in the LNG installation in Spain. It will be recorded. It was recorded in the fourth quarter, and it will continue to be recorded in the early quarters of 2010, as R&D. And once the better site is successful, it will -- it may be moved into income. So you may see some, but these are small numbers. These are not big numbers. But they may have some impact on the results.

Right. Okay. I guess what I'm trying to understand is, you have been very clear on margins coming down in both segments of business now. We talked about the OpEx. Can you give us any range of what you think EPS might come in for 2010? Or order of magnitude that you think it will be down.

No. We can not do it.

I mean, do you think you will earn more than a dollar?

We cannot do it.

Okay.

To give you an answer on your question, the exact number, and this is the 182.

182. Okay. Thank you.

The question on revenues in the US in 2009, electricity revenues it was $182 million. And that would be included in our 10-K.

Okay. Perfect. Thanks.

The next question comes from [Peter Christiansen] of Merrill Lynch.

Good morning. Almost good afternoon. Thanks for taking my question. Just go going back to the Faulkner 1 issue, is there a potential for Ormat to be anyway financially responsible for the lost output, either to the developer or the off-taker on that project? And additionally, do you have any -- do you carry any EPC or warranty insurance for these types of issues?

Contractually, the answer is very clear. The warranty ability does not include loss of revenues, and the warranty -- and our warranty is not insured. We have the products liability, but there is no product liability claim here. It is a warranty issue and not a liability issue. What we have decided is to do first what we have to do, and this is to bring the project back online as quickly as possible. And that was what we have been concentrating on doing, and we are in the process of bringing the power plant back online. (Inaudible) I believe, [will have] started at yesterday. I'm not sure. Everything else will be dealt with our customer later on.

Okay. Thank you. I know it might be a little bit too early to tell, but is there any way -- from what you guys have seen, is there any difference in the characteristics of the resource of East Brawley from North Brawley. Is it to -- does it have difficulties of a higher degree or lesser degree from what you can tell so far?

Our expectation is that it would be identical. There's always variability within the wells. Even in North Brawley, some wells are easier, both on the production or on the injection side. But it seems that it's generally a research of the same kind, and the things that we should have -- or that we have done or should have done in North Brawley would apply to East Brawley as well.

Okay. Good. With the new area of interest basis that you are using, of the write-downs, I guess, so far, I was wondering if you would break that -- are you going to break that down in terms of what percentage was exploration? What percentage was dealing with the lease? Can you give us any color on that?

Let me try to clarify, because maybe it wasn't clear. Unfortunately the area-of-interest concept for testing impairment of exploration was not accepted, and the reason from the restatement is that we are doing the review for impairment on a project-by-project basis and not on an area-of-interest basis. So whatever was written off is a specific project that was be determined to be not commercially viable, and therefore it was written off.

Okay. Thank you. Just one last question. We heard -- we've heard of a private developer who has developed an interesting technology by extracting lithium from geothermal brine, and I was wondering if you were aware of the technology. Is this something that Ormat has looked into, given the potential that lithium ion batteries have for electric vehicles across the world. This sounds like it could be interesting.

Yes, you are right. It could be interesting. The lithium is not -- is not present in all brines. The composition of brines do different between sites. The same concept could be applied not only to lithium but to other elements that are sometimes present in the brine. And it's true that for some elements, recovering them from the brine is actually a short cut compared to what needs to be done when they are produced, where they need to be extracted from ore or from solids. So it could be very interesting, but the things with such technology is that first it needs to work and then you need to see whether the numbers actually work. It's -- at this point, it's not a business objective for us. There could be cooperation like this sometime in the future, and we may even as such do something on our own, but our focus at this point is really making power.

Great. Thank you for taking my questions.

Your next question comes from Thomas Daniels of Thomas Weisel partners.

Hi, everyone. Good morning. Thank you very much for taking my question. I just wanted to kind of rehash the ITC cash grants question. I guess when you look at your guys projects, you have a lot of potential projects to come online before year-end 2013, but kind of a gray area for us is what the DOE means by breaking ground by year-end 2010. Could you clarify what that means, and then maybe talk what specific projects you guys expect to file ITC applications for, aside from North Brawley?

I can share with you what the common understanding is of what it means to start construction. There are expectations that specific guidelines will come out soon, but until the guidelines come out, there is a general definition of site -- substantial site construction. And it's totally gray and totally undefined what substantial site construction means. But certainly, it includes the requirement that all the permits in place, so that you can do a substantial site construction. But there is an alternative method that the people are calling the Safe Harbor method, and this is to incur fully nonrefundable commitment of at least 5% of total project costs, and this can be implemented by ordering equipment. It doesn't have necessarily to be site construction. I believe that some site work has to be done, but I would say, specifically, it can exclude actual construction and be replaced by 5% of project costs. So at least it's quantifiable and easy to implement and to know that you are there or not there.

We believe that a number of our projects will be eligible for ITC cash grants, in addition to North Brawley. North Brawley, we can already apply. All the other projects, we are not yet there, but we will be before the end of 2010. And this will include Jersey Valley, which is in construction. It would include Puna (inaudible) megawattage. It will include East Brawley, it will include McGinness and maybe projects that are still in exploration and may still reach a construction by -- a status of construction by that time. [Constantly to skew] our additional projects that are -- that may reach that point.

Okay. Great. And your REG projects, they don't qualify for ITC cash grants do they?

No, they don't.

Okay. Next question would just be, I know North Brawley is going to have cost overruns. I think it's around maybe, for CapEx, around $6.5 million per megawatt. I know we have kind of been using $5 million per megawatt in capital expenditures. Is that still a good run rate? If we were to add up all of your projects and megawatts you are going to bring online and expected, how much that will cost you, around 5 million per megawatt?

That's on the high side if you exclude North Brawley.

Okay. So that's on the high side. Great. And then just one final one. On the loan guarantee and the loan programs under 1705 and 1703, I know there's a set sum of money. Is there any time requirements on those? Do you think -- how much of these projectsdo you think you will be able to access low-cost government loans or loan guarantees.

The loan guarantees are available for projects that start construction by September 2011, so it's nine months later than the ICT. cash grant.

Okay.

They need to be completed by 2013. This is why we are talking about what we think we'll have by 2013.

Perfect. Thank you very much. That's it for me.

Your next question comes from [Justin Cable] of Global Hunter Securities.

Thanks. Most of my questions have been answered, but I was curious about the dividend payment. Why the jump up this quarter and then falling back down the next three quarters?

The development policy is 20% of net income. So because the net income -- and the way we are doing it is that we are announcing the first three quarters number at the beginning of the year and doing a true up based on the first quarter. So the beginning of the year we announce $0.06 per share. And did the true up and got to total for the year of $0.30 per share. For next year, we are announcing $0.05 a quarter. $0.01 less than what we announced the beginning of this year, because we expect next year to be weaker than this year. And we will do the true up in the fourth quarter.

That $0.05 ashare. Can we just -- can we then not extrapolate? Or can we extrapolate that as kind of giving direction for EPS?

You cannot.

Okay. For 2010 CapEx, how much of this is for solar?

Almost nothing. Most of the solar activity is going to be in 2010, it's not -- it's a permitting, planning, zoning. I mean, the big issue is to get the zoning approval, so solar is not a big portion of it.

Last question I have is just on any kind of one-time gains or write-downs that we should anticipate for 2010. I think there's already been mention of a gain for Q1, but maybe you can give us if there's anything else that we should expect for 2010 as a whole.

I mean, we have the GDL, the $6 million of GDL, and we are not aware of anything else.

Okay. Great. Thank you.

The next question comes from Brian Yerger of ARDA.

Thanks for taking my question. I just had a -- I got on the call late. I'm just wondering on the product segment, did you give any visibility? I know you don't do quarterly guidance, but do you anything in terms of first half, second half in terms of product revenue?

No. We have not done it, and we cannot do it now.

Okay. So you don't know if it's going to be more distributed fairly evening throughout the quarters or just not sure?

We know that the first quarter is going to be weaker than the others.

Okay. So Q1 is going to be weak for 2010 on the product side?

Yes.

Okay. All right, thanks. That's all I had.

Thank you.

Your next question comes from [Carter Driscoll] of Capstone Investments.

Good afternoon. Thanks for taking my call. I wanted to just take a step back and readdress in the state of the US geothermal market. Obviously with your [banded] presence domestically, you know probably what stage a lot of these projects are in, and maybe you could help us look at the landscape a little differently from your perspective, as it affects obviously the product segment. Are there specific things you can do to accelerate engagements with some of these potential customers by using your expertise in terms of pulling some of the potential EPC or equipment sales forward? Or do you really just have to wait until kind of a proposal is put out there and go through the bidding process?

So the answer is that with some developers we have a more intimate relationship. With some of them, it's a more formal one. So we certainly hope that in some cases we could work a process that's much better to all parties. But what you have to recognize is that the issue is really -- without not only good exploration results but without the confirmation of the well field, it is a very tough. Especially for a single project developer or developer that has just a few projects, it is very hard for that developer to release the construction of the power plant. And since our product on the product side, this is what we generally provide. We do not provide the field development work, just the power plant.

It has to wait -- any real commitment beyond that really has to wait still the field is developed. And a change -- I would say that a change in the last two years, that is relevant both to lenders and also from what we understand, to the DOE's criteria. They put a very strong emphasis on proving the field, and with numbers ranging from 70% of the brine behind pipe, as they call it, to sometimes 100% of the brine behind pipe. And therefore that requires probably somewhere between a quarter and a third of the total installed cost of the project to be spent before equipment can be released. And so therefore this -- I think that if you want to look at the bigger picture, when it comes not to forging relationships, but to actual release of projects in our product segment, there's a lot of work that needs to be done. And it takes time, and I -- my understanding is that only a little bit of this was done in the last year and a half in the US by other developers.

Right. So would it be fair to qualify that more of it was an unrealistic expectation maybe of pushing -- getting from exploration to the drilling stage for some of your potential domestic customers? Or was it more of a capital constraint or a combination of the two? It almost seems like you are better funded than most of the potential customers and domestically, and therefore maybe they under estimated one or both of those aspects?

I think that, yes, it's a fair statement to say that it's a combination of the two. And really the disparity between very strong endorsement of geothermal or renewable energy as a way to jump start for the economy and what actually needs to happen or it needs to be done by the developers that are often cash constrained. And this just -- and the product comes at very late in that stage, the actual sale of product.

Okay. Thanks very much. The rest of my questions have been answered. I appreciate it.

Your next question comes from the line of Lasan Johong of RBC Capital Markets.

Yes, I just had a follow-up question, Dita, on the solar issue. I know you are focusing primarily on Israel. Have you looked at opportunities since last we talked in the US, where you might be able to take advantage of your locations? Are you still studying that? Is that still an option?

The answer is that we are looking at this (inaudible -- multiple voices) studying it. But there is nothing specific to report yet. But, yes, we are looking at it very seriously.

And I guess the other question is more of a comment. Any chance you might start getting EBITDA guidance going forward?

We are noting your request, but I don't think anytime soon.

Okay. That's it. Thank you.

Thank you, Lasan.

This concludes the question-and-answer portion of today's conference. I would now like to turn the call back over to Dita for closing remarks.

Thank you. Thank you, operator. Thank you all for participating in such an active and thorough discussion. And we look forward to see you in about six weeks and continue to -- the dialogue, and get a better understanding of our plans and of our growth plans and of our future. Thank you all.

Thank you. This concludes your conference. You may now disconnect.