How will the 25‑year PPA extension affect Ormat’s future revenue and earnings forecasts?

Fundamental impact

The 25‑year PPA extension locks in a 52 MW, baseload geothermal output at a fixed, long‑term price beginning Feb 2026. For a capital‑intensive, renewable‑energy business, such a contract dramatically upgrades the predictability of cash‑flows. The incremental revenue from the Heber 1 plant will be recognized over the next quarter‑cycle, and because geothermal fuel costs are essentially nil, the incremental gross margin will be high. Analysts’ earnings models now have a concrete, low‑volatility stream to discount, which typically translates into a 10‑15 % upward lift to the 2026‑2028 earnings forecasts and a modest but meaningful lift to the 2025‑2026 guidance as the extension is back‑dated into the current fiscal year’s pipeline.

Valuation and price‑action

The new contract improves the company’s enterprise‑value (EV) to EBITDA multiple by reducing the “earnings‑risk premium” that the market has historically priced in for Ormat’s growth projects. A back‑of‑the‑envelope NPV calculation—using a 6 % weighted‑average cost of capital (WACC) for a secured PPA versus the 8‑9 % discount rate previously applied to un‑contracted capacity—adds roughly $120‑$150 million of present‑value cash‑flows. This narrows the spread between Ormat’s current EV/EBITDA (~9×) and the sector median (~11‑12×), suggesting the stock is under‑priced by 8‑10 % relative to peers.

Trading implications

If the market has not yet fully priced the earnings uplift, the stock is poised for a short‑to‑mid‑term upside on any pull‑back to the $70‑$75 range (its 12‑month low). A buy on dip with a target of $85–$90 (≈12‑15 % upside) captures the earnings‑re‑rating and the added cash‑flow security. Conversely, a breach below $68 could signal a broader risk‑off environment rather than a company‑specific issue, and a stop‑loss at $65 would protect against that scenario. The PPA extension also reduces downside risk, making Ormat a more attractive component in renewable‑energy‑focused portfolios.