Ormat Technologies to Build Massive Geothermal Electricity Generating Project in Indonesia

Expected to recognize revenue of $ 254 million from the sale of equipment during construction of the project.
/ By Clive Minchom /

Ormat Technologies announced today that Sarulla Operations Ltd. (SOL) has signed a Joint Operating Contract (JOC) and Energy Sales Contract (ESC) for the 330 MW Sarulla geothermal power project in Tapanuli Utara, North Sumatra in Indonesia.

Ormat participation in this project includes two roles. Ormat designed the plant and will supply its Ormat Energy Converters to the power plant. In addition, Ormat, through its subsidiary Ormat International, Inc., holds a 12.75% equity stake in SOL, which owns and operates the Sarulla project. As a supplier, the company expects to recognize revenues of $254 million related to the equipment sales over the construction period. Other members of the consortium that owns SOL include Medco Energi Internasional Tbk (Medco); Itochu Corporation (Itochu); and Kyushu Electric Power Co. Inc (Kyushu).

Ormat geothermal power plant built and operated by the city of Reno,    Nevada,    United States

Ormat geothermal power plant built and operated by the city of Reno, Nevada, United States/ Wikipedia

Under the JOC, PT Pertamina Geothermal Energy (PGE), the concession holder for the project, has provided SOL with the rights to use the geothermal field and under the ESC PT PLN, the state electric utility will be the off-taker at Sarulla for 30 years.

The Sarulla project is the largest single contract geothermal power project to capitalize on the large scale potential of highly productive Indonesian geothermal resources. The project will be implemented in three phases of 110 MW each, utilizing both steam and brine extracted from the geothermal field to increase the power plant’s efficiency.

The Ormat technology was selected for this project as it maximizes the efficient use of varied composition of geothermal fluid, which in this case includes steam, brine and gases. In addition Ormat’s technology allows practically 100% reinjection of the geothermal fluid back into the reservoir, maintaining the sustainability of the geothermal resource thus increasing power and mitigates the negative effect of gases.

The consortium has started preliminary testing and development activities at the site. Construction is expected to begin after the consortium obtains financing, which is expected to take approximately one year. The first phase is scheduled to commence operation in 2016. The remaining two phases are scheduled to start within 18 months of the first phase.

The project is expected to obtain construction and term loans under a limited recourse financing package of direct loans from the Japan Bank for International Cooperation (JBIC) and the Asian Development Bank (ADB), as well as loans to be provided by five commercial banks (the MLAs). The MLAs are expected to be backed by political risk guarantees from JBIC.

330 MW Sarulla geothermal, Ormat’s Chief Executive Officer, stated: “After a long process of negotiations, we reached an agreement on the amendments to the JOC and ESC agreements that were required for the bankability of the project. Once the financing closes, we will be able to recognize revenues from the supply of the equipment over the construction period and further strengthen the performance of our Product Segment. This project, represents our entry into Indonesia, a region we have been excited about for some time, We believe the potential opportunity in Indonesia is significant, and we look forward to pursuing opportunities in what we anticipate will be a growing market in the years to come. I would like to thank Pertamina, PGE, PLN and our partners for their confidence in our technology.

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Ormat (NYSE: ORA) was founded by Lucien and Dita Bronicki and grew out of its predecessor company Ormat Industries Ltd. and which is based in Yavneh in Israel.  Ormat Industries Ltd. today holds a controlling 60% in Ormat and Ormat’s principal production facilities are also co-located in Ormat Industries’s own facilities in Israel. The two Bronickis are husband and wife and Dita now acts as the Chief Executive Officer of Ormat and Lucien is Chief Technology Officer of the company.  Their son Yoram is also the President and Chief Operating Officer. Together the Bronicki family controls 22.07% of Ormat Industries and the Private Equity company FIMI owns another 22.5% so control of Ormat itself is carefully locked up despite it being publicly listed in New York.
 
Ormat has grown substantially over the years and today has become a very large company with total revenues in 2012 from the sale of electricity, and of its equipment and other products, recently announced of US$514 million, of which $ 327 million came from electricity generation alone.  The company produced a very large loss in the net income line in 2012 of US $206 million – taken after writing down the value of one specific non-performing geothermal investment in California by US $ 229 million. At US $ 20.31 dollars per share today the company is valued at US $ 920 million in the marketplace, about half its peak of five years ago at the end of 2007.
 
Geothermal energy is found mainly by tapping into very high temperature water and steam reservoirs lying beneath the surface of the earth, which in certain locations are sufficiently naturally pressurized to able to be turned into electricity at ground level on an economic basis.  Ormat has developed many such sites, of varying sizes, around the world though to date mostly its own projects are mostly located in the United States. At the end of 2012 Ormat owned and operated 18 such plants totaling 575 megawatts of generating capacity, of which 14 were situated in the United States.  Most of the plants it has built to date for its own account are in the 20-100 megawatt capacity in the size range.  In addition to selling electricity from its geothermal units the company derives revenues from the sale of its proprietary production technologies and equipment to third parties and is highly regarded as a globally competitive, reliable and ethical supplier.

 

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