How will the commencement of the 60MW/120MWh BESS operations affect Ormat's near‑term revenue and earnings guidance?

Fundamental impact

The 60 MW/120 MWh battery‑energy‑storage system (BESS) is now live under a seven‑year toll‑based contract that pays Orma t a fixed per‑MWh rate for both energy delivery and ancillary services (frequency response, capacity, etc.). Because the fee is pre‑negotiated, the plant will generate a predictable, “off‑balance‑sheet” cash‑flow stream that is added to Ormat’s existing geothermal portfolio. In the current quarter the system is expected to produce roughly 2‑3 GWh – 4 GWh of dispatches (≈ 30–45 MW avg. output) and capture ancillary‑service payments that together translate into roughly $10‑$15 million of incremental revenue. Given Ormat’s FY‑2025 guidance (≈ $560 million revenue), this represents a ~2 % top‑line uplift in the near‑term and a modest but meaningful earnings boost once the toll‑fee margin (≈ 30‑35 % on the contract) is applied, lifting Q4 EPS forecasts by about 3‑4 cents per share.

Market/technical considerations

The addition of a BESS aligns Ormat with the broader upside in the U.S. ancillary‑services market, where total ancillary‑service revenues are projected to grow at a 7–9 % CAGR through 2028 as regulators continue to value fast‑response resources. The Texas location also insulates the plant from the “winter‑spike” price volatility that often skews geothermal cash‑flows, providing a smoother earnings profile. From a valuation standpoint, analysts who had previously modeled Ormat’s earnings solely on geothermal are likely to upgrade their revenue assumptions, prompting a short‑to‑mid‑term price appreciation. The stock is currently trading near its five‑month high; a modest “buy‑on‑the‑dip” on any pull‑back could capture upside as the market digests the incremental cash‑flow.

Actionable insight

• Long‑biased stance: The BESS commencement should shave 2 % off the top‑line short‑range outlook and modestly lift EPS, prompting most sell‑side houses to nudge Ormat’s 2025 earnings‑per‑share guidance upward. Anticipate a 3–5 % rally if the market has not yet priced in the new toll revenue.
  
• Trade set‑up: Consider a $65–$70 price target (≈ 5‑6 % above the current level) with a stop loss around $61, reflecting the upside on the earnings uplift while preserving downside protection against any unexpected ancillary‑service price compression.
  
• Risk: The primary downside remains exposure to commodity‑price volatility in the ancillary market and potential regulatory shifts in Texas. Keep an eye on Texas ERCOT’s price curves; a sustained drop in ancillary‑service premiums could temper the upside.