US Permitting Reforms And Tax Credits Will Ignite Geothermal Expansion

Key Takeaways

• Favorable policy changes and tax incentives accelerate project timelines, lower costs, and enhance revenue growth and profitability for geothermal and energy storage developments.
  
• Growing demand for reliable clean power and expanded capacity pipeline support sustained earnings growth, improved margins, and long-term scalability.
  
• Heavy dependence on Chinese batteries, regulatory and policy uncertainties, operational and financing risks, and rising competition threaten long-term margin stability and revenue growth across segments.

Catalysts

Engages in the geothermal and recovered energy power business in the United States, Indonesia, Kenya, Turkey, Chile, Guatemala, Guadeloupe, New Zealand, Honduras, France, Indonesia, the Philippines, and internationally.

• Recent federal permitting reforms and policy support have significantly expedited geothermal project development timelines in the U.S., enabling Ormat to accelerate greenfield expansion and release more projects for construction, likely driving faster revenue growth and increased long-term cash flows.
  
• Extension of production and investment tax credits (PTC/ITC) for geothermal and energy storage projects through at least 2033 reduces capital costs, de-risks new project development, and boosts net margins and earnings over the next decade.
  
• Elevated demand for reliable, carbon-free baseload power-driven by electrification trends (including data centers and industrial customers)-is translating into premium power purchase agreement (PPA) pricing, supporting improved revenue visibility and margin expansion.
  
• Sustained high growth in Ormat's product and energy storage segments-demonstrated by 57.6% and 62.7% year-over-year revenue increases, respectively-reflects both broader adoption of energy storage solutions as grid reliability becomes critical and Ormat's ability to leverage its vertical integration for margin improvement.
  
• Successful execution of acquisitions (like Blue Mountain) and continued global capacity pipeline expansion, backed by $300 million in new financing at attractive rates, reinforce Ormat's path to sustained, diversified earnings growth and scale benefits over the long term.

Ormat Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ormat Technologies's revenue will grow by 9.4% annually over the next 3 years.
• Analysts are assuming Ormat Technologies's profit margins will remain the same at 14.5% over the next 3 years.
• Analysts expect earnings to reach $171.7 million (and earnings per share of $2.75) by about August 2028, up from $131.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $199 million in earnings, and the most bearish expecting $131.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.0x on those 2028 earnings, up from 41.4x today. This future PE is lower than the current PE for the US Renewable Energy industry at 42.6x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Ormat Technologies Future Earnings Per Share Growth

Risks

• Ormat's energy storage segment remains heavily reliant on batteries sourced from China, and pending U.S. regulatory changes targeting "foreign entity of concern" (FEOC) content may pose challenges post-2028, potentially threatening storage segment growth or ITC eligibility and thereby depressing long-term revenues and margins.
  
• Declining gross margins in the core electricity segment due to maintenance, wellfield performance issues, and U.S. energy curtailment events highlight inherent operational and asset risks; if these persist or worsen, they may structurally compress net margins and slow future earnings growth.
  
• The company faces high capital expenditure requirements ($200 million in electricity segment and $85 million in storage assets for H2 2025, with exploration drilling at $125–$150 million annually), with net debt to EBITDA at 4.4x; if revenue growth falters or funding becomes expensive due to higher interest rates or tighter credit, return on capital and future earnings may decline.
  
• While current policy tailwinds-like extended ITC/PTC for geothermal and storage-are boosting outlook, these benefits phase down after 2033 and could be curtailed or shifted by changes in political leadership or regulatory priorities, introducing long-term uncertainty to project economics and revenue stability.
  
• Despite a strong current backlog, the product segment is exposed to cyclical demand for EPC contracts (notably in New Zealand and Indonesia); delays, rising competition (especially from emerging low-cost solar+storage providers), or regulatory changes in these markets could result in revenue volatility and pressure market share over the long term.

Valuation

• The analysts have a consensus price target of $93.4 for Ormat Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $78.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $171.7 million, and it would be trading on a PE ratio of 42.0x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $89.49, the analyst price target of $93.4 is 4.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.