Note 3 - Northleaf Transactions and Business Acquisition

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Sale of Membership Interests [Text Block]

NOTE

3

— NORTHLEAF TRANSACTIONS AND BUSINESS AQUISITION

Northleaf transactions

On

April

30,

2015,

Ormat Nevada Inc. (“Ormat Nevada”), a wholly-owned subsidiary of the Company, closed the sale of approximately

36.75%

of the aggregate membership interests in ORPD LLC (“ORPD”), a new holding company and subsidiary of Ormat Nevada, that indirectly owns the Puna geothermal power plant in Hawaii, the Don A. Campbell geothermal power plant in Nevada, and

nine

power plant units across

three

recovered energy generation assets known as OREG

1,

OREG

2

and OREG

3

to Northleaf Geothermal Holdings, LLC for

$162.3

million. The net proceeds to the Company were

$156.8

million after payment of

$5.5

million of transaction costs. The sale was made under the Agreement for Purchase of Membership Interests dated

February

5,

2015.

This transaction closed on

April

30,

2015

and resulted in a taxable gain in the U.S. of approximately

$102.1

million, for which the Company utilized a portion of its Net Operating Loss (“NOL”) and tax credit carryforwards to fully offset the tax impact of the gain.

Following the transaction, the Company maintains control of ORPD and continues to consolidate the entity with non-controlling interest being recorded. Consequently, the Company recorded the net proceeds from the issuance of membership interests as an increase to additional paid-in capital of

$71.3

million and non- controlling interests of

$85.5

million. See Note

19

for tax details.

On

November

23

,

2016,

Ormat Nevada, closed a follow-on sale of

36.75%

equity interest in the

second

phase of the Don A. Campbell power plant for proceeds of approximately

$44.2

million. The Don A. Campbell commenced operations in

September

2015

and sells its electricity to SCPPA under a

20

year PPA. Following the closing, the power plant was contributed to the existing ORPD, as agreed upon under the ORPD agreement with Northleaf Geothermal Holdings, LLC that was executed on

April

30,

2015.

The net proceeds to the Company were

$44.1

million after payment of

$0.1

million of transaction costs and resulted in a taxable gain in the U.S. of approximately

$21.4

million, for which the Company utilized a portion of its Net Operating Loss (“NOL”) and tax credit carryforwards to fully offset the tax impact of the gain.

Following the transaction, the Company continue to maintain control of ORPD and consolidate the entity with additional noncontrolling interest being recorded. Consequently, the Company recorded the net proceeds from the issuance of membership interests as an increase to additional paid-in capital of

$7.8

million and non- controlling interests of

$36.3

million. See Note

19

for tax details.

Guadeloupe power plant transaction

In

July

2016,

we announced that we closed the previously announced acquisition of Geothermie Bouillante SA (“GB”). GB owns and operates the

14.75

MW Bouillante geothermal power plant located in Guadeloupe Island, a French territory in the Caribbean, which currently generates approximately

13

MW. GB also owns

two

exploration licenses providing an expansion potential of up to

45

MW of capacity.

Pursuant to the terms of an Amended and Restated Investment Agreement (“Investment Agreement”) and Shareholders Agreement with Sageos Holding (“Sageos”), a wholly owned subsidiary of Bureau de Recherches Géologiques et Minières (“BRGM”), the Company together with Caisse des Dépôts et Consignations (“CDC”), a

 French state-owned financial organization, acquired an approximately

80%

interest in GB, allocated

75%

to the Company and

25%

to CDC. The Company and CDC will gradually increase their combined interest in GB to

85%

and Sageos will hold the remaining balance. As part of the agreement, CDC will pay the Company a premium.

Pursuant to the agreements, the Company paid approximately

$20.6

million to Sageos for its approximately

60%

interest in GB. In addition, the Company is committed to further invest

$8.4

million (approximately

€7.5

million) in the next

two

years, which will increase the Company

’s interest to

63.75%.

The cash will be used mainly for the enhancement of the power plant.

The Company has planned modifications to the existing equipment as well as to further develop the asset, with a potential of reaching a total of

45

MW in phased development by

2021.

Under the Investment Agreement, the Company will pay Sageos an additional amount of up to

$13.4

million (approximately

€12

million) subject to the achievement of agreed production thresholds and capacity expansion within a defined time period.

The Bouillante power plant sells its electricity under a

 

15

-year PPA that was entered into in

February

2016

with Électricité de France S.A. (“EDF”), the French electric utility. The Company plans to optimize the use of the resource at the existing facilities and recover its current production to its design capacity of

14.75

MW by mid-

2017.

The Company accounted for the transaction based on the provision of Accounting Standard Codification

805,

Business Combinations, and consequently recorded intangible asset of

$33.0

million pertaining to the

15

-year PPA with EDF and

$7.1

million of goodwill. Additionally, following the transaction, the Company gained control over GB effective

July

5,

2016

and consolidated the entity with redeemable noncontrolling interest of

$5.0

million and noncontrolling interest of

$8.3

million being recorded. The redeemable noncontrolling interest pertains to Sageos right to sell its equity interest in GB to the Company for cash considerations. The noncontrolling interest pertains to CDC and was included under noncontrolling interest in the consolidated statements of equity.

The revenues of GB of approximately

$8.1

million were included in the Company

’s consolidated statements of operations and comprehensive income for year ended

December

31,

2016.

Viridity Transaction

On

December

29,

2016

the Company entered into a definitive agreement to acquire substantially all of the business and assets of Viridity Energy, Inc. (“Viridity”), a privately held Philadelphia-based company engaged in demand response, energy management and storage of energy. The acquisition is expected to close early

2017.

Initial consideration for the acquisition is

$35

million, which will be paid at closing and is subject to adjustment in certain cases. Additional contingent consideration will be payable in

two

installments upon the achievement of certain performance milestones measured at the end of fiscal years

2017

and

2020.

Using proprietary software and solutions, Viridity serves primarily retail energy providers, utilities, and large industrial and commercial clients. Viridity

’s offerings enable its clients to optimize and monetize their energy management, demand response and storage facilities potential by interacting on their behalf with regional transmission organizations and independent system operators. Founded in

2008,

Viridity has under contract over

850

MW across

3,000

sites, including management of a portfolio of non-utility storage assets located in the northeastern US with over

80,000

operational market hours.