Ormat Technologies Inc (ORA) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Ormat Technologies Fourth Quarter and Full Year 2017 Earnings Conference Call. (Operator Instructions) Please note today's event is being recorded.

I would now like to turn the conference over to Rob Fink of Hayden IR. Please go ahead, sir.

Thank you, operator. Hosting the call today are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.

Before beginning, we'd like to remind you that the information provided during this call may contain forward-looking statements related to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objective and expectations for future operations and are based on management's current estimates and projections, future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see risk factors as described in Ormat Technologies' annual report on Form 10-K filed with the SEC.

In addition, during the call, we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that was issued this morning as well as in the slides posted on the company's website. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP.

Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at ormat.com, under the Events and Presentation link that's found on the Investor Relations tab.

With all that said, I'd now like to turn the call over to Isaac. Isaac, the call is yours.

Thank you very much, Rob, and good morning, everyone. Thank you for joining us today.

Starting with Slide 5, I'd like to start that Ormat delivered another strong year, driven by continued growth in our electricity segment. We entered 2018 poised to build up our leadership position and create additional shareholders value.

I'd like to start with our decision to postpone our 2017 10-K in the announcement of the expected material weakness. We expect to file our 10-K on or before March 16, 2018. The delay in filing is the result of the need to complete additional review procedures primarily related to -- with respect to accounting for income tax and financial reporting.

We also announced that we expect to report material weakness in internal control over financial reporting as a result of an identified deficiency related to accounting for income taxes.

Although the work in relation to these review procedures is ongoing, the company believes our results of operations contained in this release are materially correct, and we are working diligently to remediate any issues. In any case, we do not believe it will impact our operational performances or execution of our future plans.

Let us continue with 2017 key highlights. Being the industry's only vertically integrated player with tremendous expertise in all facets creates a significant competitive advantage that helps us to develop resources relatively rapidly and drive efficiency throughout the value chain. We have set a goal of adding an incremental 190 to 200 megawatts of organic growth by the end of 2020 on top of the approximately 90 megawatts of new capacity we have added over the last year from Sarulla, Platanares and Tungsten Mountain power plants.

Additionally, once closed, the U.S. Geothermal acquisition should further bolster our growth. As we previously stated, we are focused on increasing the portion of revenues from the electricity segment and expect that 2018, the increase in revenues and profitability of the electricity segment will increase the total EBITDA margins and will contribute to our profitable growth. In the product segment, we secured new contracts and reached a backlog of $243 million to support revenues in 2018 and beyond.

We also have expectations that our storage initiative will augment our growth over the next few years. We have advanced in the offering and are positioned to develop 3 battery storage systems in New Jersey during 2018.

I will turn the call over to Doron for a review of financial result before I provide an update on our operations. Doron?

Thank you, Isaac, and good morning, everyone.

Starting with revenues on Slide 7. For the full year 2017, total revenues were $692.8 million compared to $662.6 million last year, an increase of 4.6%. This increase was attributable to our electricity segment, in which revenues increased by 7.3% compared to the corresponding period in 2016.

Moving to Slide 8. Revenues in our electricity segment were $468.3 million for the full year 2017 compared to $436.3 million in 2015. This increase was primarily attributable to the full year consolidation of our Bouillante power plant in Guadeloupe. The increase was also due to the commencement of our Platanares power plant in Honduras in September 2017 as well as the commencement of our Tungsten Mountain power plant in Nevada in December 2017. An additional contributor is the increased generation at our Puna power plant, attributable to successful improvement of the resource performance. Electricity segment revenues also increased as a result of $2.7 million generated by our Viridity business from the provision of energy storage and demand response services. The increase was partially offset by a decrease in generation at some of our power plants that were scheduled to take off-line temporarily to address maintenance issues.

Turning to Slide 9. Full year 2017 revenues for our product segment were $224.5 million, down 0.8% compared to $226.3 million for 2016. The slight decrease was primarily attributable to a different mix of near-completion contracts and new contracts signed during 2017 that impact the revenue recognition.

Moving to Slide 10 for a look at our gross margin. For the full year 2017, combined gross margin was 38.7% compared to 40.9% in 2016. Our electricity segment gross margin increased to 41.9% for the full year 2017, up from 40% in 2016 primarily due to an increase in revenues from new power plants and the higher efficiency in some of our operating power plants. Electricity segment gross margin includes a gross loss of $2.7 million from Viridity. Electricity gross margin exclusive of Viridity gross loss is 42.7%, representing a 2.7 point increase compared to 2016.

In our product segment, gross margin decreased from 42.5% in 2016 to 32.2% for the full year 2017. The decrease was primarily attributable to additional costs associated with our project in Chile as well as increased competition, mainly in Turkey, and a different product mix and different margins in the various sales contracts we entered into for the product segment during this period.

Turning to Slide 11. Operating income for the full year 2017 was $205 million compared to $201.9 million for the full year 2015, an increase of 1.6% year-over-year. The increase in operating income was primarily attributable to the increase in our electricity segment gross margin and a decrease in general and administrative expenses. The increase was partially offset by a decrease in gross margin in our product segment.

Operating income attributable to our electricity segment for the full year 2017 was $154.5 million compared to $126.8 million for the full year 2016, which represents a 21.8% increase. Operating income attributable to our product segment was $50.5 million for the full year 2017 compared to $75.1 million for the full year 2016.

Moving to Slide 12. Our strong financial performance in 2017 enabled us to continue to streamline our capital structure and strengthen our balance sheet, which resulted in a meaningful decrease in our interest expense. In 2017, net interest expense was $54.1 million compared to $67.4 million in 2016, which represents a 19.7% decrease. This decrease was primarily due to the repayment of $250 million of our senior unsecured bonds in September 2016 that bore an annual fixed interest rate of 7% through the issuance of 2 new series of senior unsecured bonds, which bear an average interest rate of 4.2%. The decrease is also due to lower interest expense as a result of principal payments of long-term debt and revolving credit lines with banks as well as a $3.9 million decrease related to an increase in interest capitalized to projects. The decrease was partially offset by interest expense related to Don Campbell Phase 1 project finance debt.

Please turn to Slide 13. Other nonoperating expense, net for the full year 2017, was $1.7 million and includes a make whole premium of $1.9 million resulting from the prepayment of outstanding debt. This compares to other nonoperating expense net of $5.3 million for the full year 2016. Other nonoperating expense, net for the full year 2016, includes a prepayment fee of $5 million due to the repayment of the senior unsecured bond in September 2016 and a premium of $600,000 related to the purchase of $6.8 million aggregate principal amount of the OFC senior secured notes.

Please turn to Slide 14. For the full year 2017, income before income taxes and equity in losses of investees was $170.7 million compared to $141.1 million for the full year 2016. Adjusted income before income taxes and equity in losses of investees for the full year 2017 was $172.6 million, and it excludes $1.9 million of onetime make whole premium paid in connection with the prepayment of OFC senior secured notes and DEG loan, which were recorded in the third quarter of 2017. Adjusted income before income taxes and equity in losses of investees for the full year 2016 was $157.1 million, and it excludes $11 million of onetime settlement expense as well as $5 million of onetime prepayment fees, both recorded in the third quarter of 2016.

Now I would like to go over a few quarterly financial highlights, beginning with Slide 15. For the fourth quarter of 2017, total revenues were $166.4 million compared to $166.5 million in the fourth quarter of 2016. Revenues in the electricity segment were $128.5 million, an increase of 12.1% compared to the fourth quarter of last year mainly due to the additions of new projects to our fleet as well as increase in revenues from our Puna power plant in Hawaii. Revenues were also partially impacted by Ormesa, where we started to sell electricity under a 25-year PPA with SCPPA. This PPA replaced the 30-year-old Standard Offer #4 contract with Southern California Edison. Under the terms of the new PPA, energy from the power plant is sold to SCPPA at the rate of $77.25 per megawatt hour with no annual escalation. Revenues in the product segment were $37.9 million, a decrease of 27% compared to $51.9 million in the fourth quarter of 2016.

Turning to Slide 16. Our electricity segment gross margin increased to 41.6% for the fourth quarter of 2017, up from 39.7% in 2016 primarily due to an increase in revenues from new power plants and the higher efficiency in some of our [operating plants]. In our product segment, gross margin decreased from 40.8% in fourth quarter 2016 to 28.7% for the same quarter in 2017. Electricity segment gross margin includes revenues of $0.5 million and $1.9 million cost of revenues from Viridity.

Turning to Slide 17. Operating income for the fourth quarter of 2017 was $48.4 million, down 5.1% -- 5.5% compared to $51.2 million in the fourth quarter of 2016. The decrease was primarily attributable to lower revenues and gross margin in the product segments.

Please turn to the next slide. Income before income taxes and equity losses of investees for the fourth quarter of 2017 was $40 million compared to $36.7 million in the same quarter last year.

Please turn to Slide 19. Adjusted EBITDA for the fourth quarter of 2017 was $87.4 million compared to $76.9 million in the same period last year, which represents an increase of 13.6%, mainly attributable to the electricity segment.

Please turn to Slide 20. Adjusted EBITDA for 2017 was $343.8 million compared to $323.8 million for 2016, which represents an increase of 6.2%, mainly related to the performance of our electricity segment, which its adjusted EBITDA increased by 15.9% to $243.6 million in 2016 to $282.3 million in 2017. Electricity segment portion of our total adjusted EBITDA in 2017 represents 82% compared to 75% in 2016, demonstrating the execution of our strategies, as Isaac mentioned in his opening remarks.

Reconciliation of EBITDA and adjusted EBITDA are provided on the appendix slide.

Turning to Slide 21. Cash and cash equivalents as of December 31, 2017 were $46.8 million (sic) [$47.8 million] compared to $233.2 million (sic) [$230.2 million] as of December 31, 2016. The accompanying slide breaks down the use of cash for the full year. As you can see, we generated $245.6 million in cash from operating activities for the full year 2017. This compares quite favorably to the $159.3 million generated from operating activities in 2016.

Our long-term debt as of December 31, 2017 was $913.6 million, net of deferred financing costs, and its payment schedules are presented in Slide 22. The average cost of debt for the company is 4.8%.

With respect to our capital structure, we refinanced and prepaid almost all of our high debt bond that were issued previously. Today, we have to balance and manage interest rate versus customers. In the corporate level, we are raising low-cost debt. Although outside of the U.S., there is a constant assessment of low-cost debt and risk balance. Our view is that power plants outside the U.S. should be financed by multilateral lenders with nonrecourse debt. In developing countries, it reduces the risk, although it usually does come with a higher interest. We plan to finance the Platanares power plant in Honduras. We are negotiating nonrecourse project finance debt that will be provided by OPIC. The finance is expected to be signed and closed following the fulfillment of certain condition precedent set forth in the loan documents.

On March 1, 2018, Ormat's Board of Directors approved the payment of a quarterly dividend of $0.23 per share for the fourth quarter of 2017. The dividend will be paid on March 29, 2018 to shareholders of record as of the close of business on March 14, 2018. In addition, we expect to pay a quarterly dividend of $0.10 per share in each of the next 3 quarters.

Before turning the call back to Isaac, I would like to address the new U.S. tax reform and its implication on Ormat. The new U.S. tax reform has multiple elements that impact an international company like Ormat. It starts with the transition tax imposed on all E&P to date outside of the U.S. and continues with the (inaudible) tax into deductibility limitation and the (inaudible) tax. In Q4, we started to assess this implication, and we will include in the financial statements the best estimate we have. Based on SAB 118, we will continue to evaluate this implication and record any changes in the next couple of quarters. I will say that in light of the NOLs and the PTC that we have, we do not expect to pay cash taxes in the U.S. in the coming years.

In reviewing our tax accounting for fiscal 2017 while preparing to file the 10-K, our management identified a deficiency in the effectiveness of our internal control over financial reporting related to our accounting for income taxes, which affected the recording of deferred tax assets and liabilities in our interim consolidated financial statement during the second and third quarters of fiscal 2017. Our management has concluded that this deficiency constitutes a material weakness in our internal control over financial reporting. And accordingly, internal controls over financial reporting was not effective as of December 31, 2017. This deficiency resulted in immaterial errors, but this will not result in a material restatement in our previously issued interim consolidated financial statement nor does it require a restatement of or change in our consolidated financial statements for any prior annual or interim period. We are in the process of developing and implementing the remediation plan to remediate this material weakness during 2018.

That concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac?

Thank you very much, Doron.

Starting with Slide 24 for an update on operations. During 2017, we have added approximately 90 megawatts and increased our fleet to 795 megawatts by bringing new power plants online. Additionally, as you can see on Slide 25, we adjusted the generation capacity of our existing power plants based on their performances.

Turning to Slide 26. Generation in this quarter was positively affected by Puna and Bouillante, as described by Doron as well as from Platanares coming online. The overall generation year-over-year increased by 1.7%.

Turning to Slide 27 for an update on our backlog. As of February 26, 2018, our product segment backlog increased to $243 million. We were able to sign new contracts in Turkey, which continue to represent a significant share of our total backlog. We view this region as one with many opportunities due to the geothermal resources and the government's commitment to geothermal energy. We are positioned to utilize our vertically integrated structure to price our offerings competitively to push out more competition.

We also continue to expand our presence in New Zealand, where we signed a $50 million EPC contract related to Ngawha extension geothermal project. We expect the contract to have a significant contribution to our 2019 and 2020 product segment revenues.

Additionally, for the first time in a decade, we received an order from EDC in the Philippines. We are targeting the Philippines as a market with the potential for our product sales, and we believe this order will create more opportunities in the region.

Our backlog also includes the Soda Lake $36 million EPC contract that was signed in December 2016 and is still pending final notice to proceed. This contract was not included in 2018 revenue guidance.

We anticipate that our backlog contract mix, together with the lower-revenue volume and a weaker dollar expected in 2018, will bring product segment margin to be in the range of 27% to 30%. Longer term, we believe opportunities in other regions will help us diversify our product backlog and will positively impact our revenues and margin in 2019 and beyond. Moreover, as we progress with our strategy to increase our electricity segment portion in the total revenues, we expect lower impact of the incremental changes in the product segment on our financial results.

Moving to the next slide. We remain on track with our near-term growth, and we are updating our target to between 190 and 200 megawatts by the end of 2020 from organic growth. This target is supported by the list of projects presented on Slide 28 and additional projects under development.

We also plan to add new capacity from enhancements to our Brady and Puna power plants. At Brady, we are replacing the equipment with new Ormat binary units, following -- which we expect the capacity of Brady complex to increase by 4 megawatts to approximately 22 megawatts. We expect to complete the enhancement in the first quarter of 2018. At Puna, we are planning to replace 10 old steam units with 2 new Ormat binary units and upgrade the existing auxiliary equipment. This upgrade will increase the Puna complex generation capacity by 8 to 46 megawatts. We have entered into negotiations with HELCO to secure a PPA for the increased generation during the original term of the existing PPA, and we are also negotiating extension to the PPA for the period beyond 2027. Assuming we complete negotiations with HELCO successfully, we should expect the upgrade to be completed by late 2018 -- '19 or early 2020. In 2018, we plan to have Solar PV project in one of our geothermal plants and use solar for the auxiliary power at these plants. We have to do more on these projects in the future.

Turning to Slide 29. We continue to expand our geothermal development inventory and add new prospects to support our future organic growth. As of today, we have approximately 32 prospects worldwide.

Turning to Slide 30. In early 2017, we acquired Viridity as part of our strategic plan to expand our reach into energy storage and leverage Ormat's core capabilities in this growing market. We concluded the post-acquisition process, added staff to support future activity and developed unique offering of Battery Storage as a Service or BSAAS systems. In 2018, we plan to complete 3 storage projects, including a 1 megawatt hour Behind-the-Meter energy storage system that's expected to come online in the first quarter in 2018 and 2 20-megawatt hour projects In-Front-of-the-Meter energy storage systems expected to be online by the end of this year. We continue participating in RFPs on the East and West Coasts and build a portfolio that will contribute to our earnings in the mid and long term.

Turning to Slide 31. In January, we signed a definitive agreement to acquire U.S. Geothermal for a total consideration of approximately $110 million on fully diluted basis. U.S. Geothermal is currently operating 3 geothermal power plants in Oregon, Nevada and Idaho. These 3 properties currently generate 38 megawatts of electricity, and they have an existing PPA with favorable pricing, which allows for up to 55 megawatts. Once this acquisition closes, we anticipate utilizing our capabilities and expertise to improve generation and our plant efficiencies, as we have done with Ormat's existing portfolio. We believe that we can improve the profitability of U.S. Geothermal's operations by more than 50% during 2018 -- '19 through the implementation of synergies and cost reductions. We anticipate closing in the second quarter of 2018, subject to regulatory approvals, approval by U.S. Geothermal shareholders and other closing conditions.

Turning to Slide 32. Our estimated capital needs for 2018 include approximately $156 million for construction of new projects and enhancement of our existing power plants. In addition, we estimate approximately $51 million for maintenance CapEx for operating power plants, including $18 million investments for standby wells that we plan to drill at our Puna power plant.

For our exploration and development activity, we plan to invest approximately $41 million, and additional $40 million, we plan for our storage activity. We also plan to invest in our production facilities approximately $12 million. In the aggregate, we estimate total capital expenditures of approximately $300 million for the full year 2018. In addition, we expect $58 million for long-term debt repayment in 2018 and additional $51 million for repayment of short-term revolving lines of credit.

Please turn to Slide 33 for a discussion of our 2018 guidance. I would note that beginning in 2018, we anticipate reporting 3 discrete line items for revenue. We will be adding another line item, reflecting energy storage, demand response and energy management-related revenue, in addition to the electricity and product line items. Additionally, as we have not yet closed the U.S. Geothermal acquisition, we did not include any of the expected financial contribution in our 2018 guidance. In 2018, we expect total revenues between $688 million and $712 million. By segment, we expect electricity segment revenues between $500 million and $510 million; product segment revenues expected to be between $180 million and $190 million; in the other segment, we expect revenues of between $8 million and $12 million. We expect adjusted EBITDA between $355 million and $365 million. And we expect annual adjusted EBITDA attributable to minor interest to be approximately $24 million.

As we previously stated, we are focused on increasing the portion of revenues from the electricity segment. In 2018, we expect that the increase in profitability of the electricity segment will mainly come from the full contribution of new capacity that come online in 2017, including Platanares and Tungsten Mountain as well as from Sarulla with 2 phases, SIL and NIL. Sarulla contribution is accounted under the equity method and is expected to be a notable contribution to our EBITDA in 2018 and beyond. We expect that this increase in revenues and margin expansion in the electricity segment will mitigate the expected reduction in our product segment sales and will contribute to our profitable growth.

Please turn to Slide 34. In summary, 2017 was another successful year. We opened new opportunities, grew our portfolio and expanded our geographic footprint. Ormat remains the industry leader, the only vertically integrated participant in a growing industry. And I'm very optimistic that we will continue to see the benefits of our strategic initiatives in 2018 and beyond.

And this concludes our prepared remarks. Now I would like to open the call for questions. Operator, if you please.

(Operator Instructions) Today's first question comes from Noah Kaye of Oppenheimer.

Isaac and team, I just want to start with the pipeline trajectory here. You've updated the organic growth outlook to adding 190 to 200 megawatts by year-end 2020. I think before this, the target was 150 to 160 megawatts by year-end '19. So just so I kind of understand how we should be modeling this, what should apples-to-apples be for how much you think you're going to add by 2019, understanding that is subtracting out 24 megawatts at Tungsten that you already brought online?

I don't have in front of me now the breakdown for each specific year. We have it in the aggregate. You can see on the presentation, where we added a few projects that I don't think we've discussed before. It relates to the Puna enhancements, CD4, Tungsten, Solar and the Viridity (inaudible). But I don't have the specific breakdown for each of the years in front of me to give you a specific response on 2020 numbers.

We will try to provide it to you offline.

Okay. But I think it's fair to then just calculate, if I take out Tungsten, that there's an additional 65 megawatts of new projects that you see coming online by 2020 kind of relative to what you've guided before through '19.

Yes, it sounds reasonable.

Yes, yes. Maybe just understanding both for this quarter and then for the year ahead guidance. You called out $0.5 million of revenue from Viridity in the quarter, $1.9 million of COGS. What was Viridity OpEx in the quarter? And how should we think about Viridity EBITDA and sort of all the energy storage, other profile for 2018? Because it certainly appears like it is, at least in the short term, margin dilutive.

Noah, don't forget that the company only joined us during 2018, and it took us at least 2 quarters to sort out and consolidate into the company. The actual real projects -- we have 2 types of projects. We have projects that we are building in front of the meter and behind the meter, and we have projects that we are building just to build on our equity, and we will operate them. And we are building -- and we have EPC projects. The main 2 or 2-something projects which will be adding to revenue sometime next year will be finished this year, but -- so I'm not expecting this segment to be accretive before the end of 2018.

So we should assume no -- basically no EBITDA contribution. Or is it actually a drag?

Exactly. So our guidance to EBITDA for 2018 doesn't really include any positive impact coming from the segment. The first 2 quarters were quarters that we consolidated the company into and started to build projects. In the second year, which is 2018, is the year that we are building up our portfolio and products and projects around the U.S. So I believe that the main impact on EBITDA will be coming beginning of next year.

Great, great. Appreciate calling that out. And then just on financing, a couple of questions on financing. I think you look at all the capital funding needs. Just kind of wondering generally how to think about funding that. And then kind of maybe a minor item here, but I believe we're still waiting on an OPIC disbursements related to the project, one international project, a substantial disbursement. Can you kind of update us on what the timing of that will be?

Yes. We are in the, practically, the final stages of financing our Platanares project in Honduras. (inaudible) as you say, it's more than $100 million of financing, and that obviously currently is financed with our own equity. So once this comes into play, it will support our CapEx in 2018. In addition to that, I would say that we are in advanced discussions to get some corporate loans if we need as well as some tax equity discussions that we have for the Tungsten project that came online in December that we expect to have in the second half of the year, to finalize in the second half of the year.

Okay, great. And just to be clear, you think that the OPIC funding will likely come, say, by the end of the first half of this year?

Yes.

(Operator Instructions) Today's next question comes from Paul Coster of JPMorgan.

If you don't mind, a few questions. What is the dividend policy moving forward? If you can just sort of walk us through what's happening there, please. And the tax rate for '18, what should we assume?

On the dividend policy, we did say that we're going to pay about $0.10 in the next 3 quarters. It's a similar dividend policy. We are -- however, we did increase the first 3 quarters' dividend in order to more streamline the fourth quarter's dividend. And the Q4 will have a catch-up policy of 20% of net income. But since Q1 to Q3 are continuing to grow and we actually increased them from $0.08 to $0.10 this year, we assume that the catch-up would be significantly lower than what we see this year. Regarding the tax rate, well, with the tax reform that is in the U.S. and its multiple implications on Ormat, it's very hard to give a number. I think that if you're looking on cash basis, then we don't see paying cash in the U.S. due to the NOLs and the PTCs that we have. And the other locations would be similar to previous years. So it's very hard to give you a specific percentage of tax rate to put in today.

Got it. Okay. Just on your upgrade activity in 2018, and I think I heard you say, Angel, that the margins and the EBITDA -- the EBITDA margins for the electricity should improve. Can you just talk us through the capacity factor, impact of the upgrades and why is it the margins are not impacted by that?

Paul, on the efficiency -- on the percentage, there is no real difference. If you look year-by-year, the growing percentage of profitability is mainly coming off 2 things, the first one being new power plants added to the fleet, which their O&M expenses are lower than an older power plant. And the second thing is efficiency coming from the older power plants, and they're being enhanced and developed and changed based on our new technologies. So overall, if you look a few years back, we are expecting our profitability on those power plants still continue to grow.

Okay. And one question. This might be just a narrower on my part. But I thought Dixie Meadows was coming online imminently. Can you just talk us through what the status of that facility is?

We still have Dixie Meadows on our expected fleet. But unfortunately, as we had to drill in a different area, that we are expecting to get permits to drill there, so it will take more time to come up with the available resource and build up a power plant on it.

So what time frame do you expect?

It's not going to happen in 2018.

And ladies and gentlemen, our next question comes from Jeff Osborne of Cowen and Company.

I was wondering if you could just expand on the tax issues. Are these at the corporate level, where the controls are? Or is it at the plant level? Just any additional detail you can give us would be helpful.

Yes. The issues are basically at the corporate. This is our U.S. tax issues. I wouldn't call them too much issues. Obviously, as we said, they don't have any material impact on the financial statements. They relate mainly to internal controls, the thought process and its procedures and processes.

Got it. And then how should we think about the PTC extension? And is there any ramifications to contracts that have been signed over the past year, 1.5 years that were signed without the ITC, notably the SCPPA project?

No. The extension of the PTC is obviously a good thing. We're looking to see whether we can actually have maybe another project that we'll be able to have a start of construction due to the extension from the end of '16 to '17. The existing project that we had coming online, Tungsten or McGinness 3, are, at least as we understand it, eligible for the PTC. On Tungsten, as I said before, we are negotiating tax equity, and McGinness Phase 3 is also one that we will start negotiating as we get closer to COD.

Got it. And then maybe just the last one from me. On the U.S. Geothermal, can you talk about -- first of all, in 2Q, do you have any insight at this point if that will be an early 2Q or a late 2Q close? Where do we stand on how we should model that?

Probably, the simple answer will be probably in the middle.

All right. Very good. And then what about the 50% improvement that you're talking about in terms of the accretiveness? Is that -- I imagine the Boise facility they have would be shut down pretty quickly. But as we model the plant-level economics, which are not in your guidance, is it a safe assumption to say that most of that construction would happen in '18 and by the spring of 2019 would be largely done and is a tailwind for 2019 results?

Jeff, we didn't close this acquisition yet. And obviously, we're not coming with the operational plans, what to close, how to close and when to close them. So one thing is sure, that once we close it, we will come up with the plans that we have and prepared for this acquisition. Eventually, as I mentioned during my remarks before, our expectation is, overall, on year '19, we will have 50% efficiency on the numbers.

By the end of '19? Okay. And my last question maybe about U.S. Geothermal that you could answer is just their undeveloped assets in Guatemala and Nevada, The Geysers. Can you just touch on any of those as we look out to the end of 2020, recognizing it's not part of your 190 to 200 megawatts that you're talking about? But do you have any sense of confidence in those assets? Or have you not done any due diligence yet?

Obviously, we did due diligence. Otherwise, we wouldn't be in a situation to offer and sign an agreement with them. So it really relates to Nevada. And if you relate to Guatemala, we have also an existing asset very close to their asset. But the main problem over there is the PPA. I don't see an upcoming PPA in the near future in Guatemala. On The Geysers, it's a different type of resource. And our resource group and engineering group are looking into it, what exactly we can do with it, because as everybody understands, it is a different type of resource, and it's not the type of resource that we are dealing with. And again, same place, there is an issue of a PPA. In other assets in enhancements, there might be a chance that we can find a PPA for it in Nevada, and then it will be an immediate accretive to our fleet -- an immediate accretion to our fleet.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Isaac for any closing remarks.

Thank you very much. And ladies and gentlemen, thank you for your ongoing support. And as we all realize, there is a hurdle this quarter and this year, which, I believe, our excellent employees and advisers will overcome in the upcoming very near future. And as we remarked, I don't think and believe that it has any impact on our strategy, execution and operation. And I'm expecting that 2018 being a much better year than 2017, which, by itself, was an excellent year for Ormat. Thank you very much.

And thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect.