Note 9 - Property, Plant and Equipment and Construction-in-process

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE 9 — PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION-IN-PROCESS

Property, plant and equipment

Property, plant and equipment, net, consist of the following:

	December 31,
	2022			2021
	(Dollars in thousands)
Land owned by the Company where the geothermal resource is located	$	42,335		$	40,545
Leasehold improvements		13,230			9,105
Machinery and equipment		350,584			302,367
Land, buildings and office equipment		52,222			48,275
Vehicles		14,115			10,724
Energy storage equipment		91,025			79,805
Solar facility equipment		32,003			—
Geothermal and recovered energy generation power plants, including geothermal wells and exploration and resource development costs:
United States of America, net of cash grants		2,641,280			2,511,027
Foreign countries		897,657			800,000
Asset retirement cost		48,578			41,157
		4,183,029			3,843,005
Less accumulated depreciation		(1,689,572	)		(1,548,032	)
Property, plant and equipment, net	$	2,493,457		$	2,294,973

Depreciation expense for the years ended December 31, 2022, 2021 and 2020 amounted to $163.2 million, $153.0 million and $133.5 million, respectively. Depreciation expense for the years ended December 31, 2022, 2021, and 2020 is net of the impact of the cash grant in the amount of $7.5 million, $7.4 million and $7.3 million, respectively.

U.S. Operations

The net book value of the property, plant and equipment, including construction-in-process, located in the United States was approximately $2,830.3 million and $2,502.2 million as of December 31, 2022 and 2021, respectively. These amounts as of December 31, 2022 and 2021 are net of cash grants in the amount of $144.4 million and $151.9 million, respectively.

Foreign Operations

The net book value of property, plant and equipment, including construction-in-process, located outside of the United States was approximately $556.4 million and $514.3 million as of December 31, 2022 and 2021, respectively.

The Company, through its wholly owned subsidiary, OrPower 4, Inc. (“OrPower 4”), owns and operates geothermal power plants in Kenya. The net book value of assets associated with the power plants was $301.5 million and $297.4 million as of December 31, 2022 and 2021, respectively. The Company sells the electricity produced by the power plants to Kenya Power and Lighting Co. Ltd. (“KPLC”) under a 20-year PPA ending between 2033 and 2036.

The Company, through its wholly owned subsidiary, Orzunil I de Electricidad, Limitada (Orzunil), owns a 97% interest in a geothermal power plant in Guatemala. The net book value of the assets related to the power plant was $27.1 million and $17.2 million at December 31, 2022 and 2021, respectively. The Company sells the electricity produced by the power plants to INDE, a Guatemalan power company under a PPA ending in 2034.

The Company, through its wholly owned subsidiary, Ortitlan, Limitada (“Ortitlan”), owns a power plant in Guatemala. The net book value of the assets related to the power plant was $42.3 million and $39.8 million at December 31, 2022 and 2021, respectively.

The Company, through its wholly owned subsidiary, GeoPlatanares, signed a BOT contract for the Platanares geothermal project in Honduras with ELCOSA, a privately owned Honduran energy company, for 15 years from the commercial operation date. Platanares sells the electricity produced by the power plants to ENEE, the national utility of Honduras under a 30-year PPA which expires in 2047. The net book value of the assets related to the power plant was $79.5 million and $75.4 million at December 31, 2022 and 2021, respectively.

The Company, through its subsidiary, Guadeloupe Bouillante ("GB"), owns a power plant in Guadeloupe. The net book value of the assets related to the power plant was $43.5 million and $39.4 million at December 31, 2022 and 2021, respectively. GB sells the electricity produced by the power plants to EDF, the French electric utility, under a 15-year PPA.

Construction-in-process

Construction-in-process consists of the following:

	December 31,
	2022		2021
	(Dollars in thousands)
Projects under exploration and development:
Up-front bonus costs	$	5,335	$	5,335
Exploration and development costs		89,230		44,664
Interest capitalized		703		703
		95,268		50,702
Projects under construction:
Up-front bonus costs		11,156		39,156
Drilling and construction costs		761,129		611,553
Interest capitalized		25,645		20,072
		797,930		670,781
Total	$	893,198	$	721,483

	Projects under exploration and development
	Up-front Bonus Costs			Exploration and Development Costs			Interest Capitalized		Total
	(Dollars in thousands)
Balance at December 31, 2019	$	17,018		$	66,916		$	703	$	84,637
Cost incurred during the year		—			5,832			—		5,832
Transfer of projects under exploration and development to projects under construction		(11,671	)		(27,270	)		—		(38,941	)
Balance at December 31, 2020		5,347			45,478			703		51,528
Cost incurred during the year		—			2,680			—		2,680
Transfer of projects under exploration and development to projects under construction		(12	)		(3,494	)		—		(3,506	)
Balance at December 31, 2021		5,335			44,664			703		50,702
Cost incurred during the year		—			44,566			—		44,566
Balance at December 31, 2022	$	5,335		$	89,230		$	703	$	95,268

	Projects under construction
	Up-front Bonus Costs			Drilling and Construction Costs			Interest Capitalized		Total
	(Dollars in thousands)
Balance at December 31, 2019	$	27,473		$	258,484		$	5,961	$	291,918
Cost incurred during the year		—			298,215			3,565		301,780
Transfer of projects under exploration and development to projects under construction		11,671			27,270			—		38,941
Transfer of completed projects to property, plant and equipment		—			(204,852	)		—		(204,852	)
Balance at December 31, 2020		39,144			379,117			9,526		427,787
Cost incurred during the year		—			403,296			10,546		413,842
Transfer of projects under exploration and development to projects under construction		12			3,494			—		3,506
Transfer of completed projects to property, plant and equipment		—			(174,354	)		—		(174,354	)
Balance at December 31, 2021		39,156			611,553			20,072		670,781
Cost incurred during the year		—			489,953			5,573		495,526
Transfer of completed projects to property, plant and equipment		(28,000	)		(340,377	)		—		(368,377	)
Balance at December 31, 2022	$	11,156		$	761,129		$	25,645	$	797,930

Impairment of long-lived assets

The Brawley power plant has been generating electricity below its generating capacity of 13MW due to continuous wellfield issues which have resulted in higher-than-expected operating costs and lower-than-expected electricity revenues. The Company has implemented a number of remediation plans and technical solutions involving additional investments in the power plant in order to improve its performance and reduce operating costs, however, during the fourth quarter of 2022, as a result of the failure of the recent remediation plan and the lower than forecasted performance of the power plant during the quarter, the Company decided that it was no longer economical to continue investing in the Brawley power plant as the probability of success of additional wellfield work to increase capacity and reduce operating costs is low. The Company concluded that the power plant can be operated at optimal capacity of 7MW which will require lower investment and results in lower operating costs.

Based on the above circumstances and indicators, the Brawley power plant was tested for recoverability during the fourth quarter of 2022 by comparing the carrying amount of its assets to the estimated future net undiscounted cash flows expected to be generated by such assets, the result of which was that the carrying amount of the asset was below the estimated future net undiscounted cash flows. The Company then estimated the fair value of those assets using the expected future discounted cash flow approach using Level 3 inputs under ASC 820, as a measure of fair value as it deemed it to be the most appropriate for the power plant. As a result of the impairment analysis, the Brawley power plant was written down to its fair value of $13.6 million and the Company recorded a non-cash impairment loss of $30.5 million which was presented in the consolidated statement of operations and comprehensive income (loss) under “Impairment of long-lived-assets” for the year ended December 31, 2022, and is allocated to the Electricity segment.

In estimating the fair value for the power plant, the Company utilized the discounted cash flow approach ("DCF") which is a form of the Income Approach. The DCF approach is based on the present value of the estimated cash flow expected to be generated by the Brawley power plant which is the asset group. The expected cash flow was discounted using a rate of return that reflects the relative risk of the asset, as well as the time value of money. The determination of the Company and asset specific risk-adjusted discount rate is based on the weighted-average cost of capital ("WACC") taking into consideration the value of equity and interest-bearing debt. The Company applied a WACC rate of 9% in the estimation of the Brawley power plant. The Company noted that a 1% change to the WACC or long-term growth rates would not yield a significant change in the estimated fair value of the Brawley power plant. In addition to the WACC rate of 9%, other significant inputs of the future net cash flow estimates are generation capacity output, average realized price, and operating costs growth rate. These future net cash flow estimates are classified as Level 3 within the fair value hierarchy. Below are the significant unobservable inputs included in the valuation as of the year ended December 31, 2022.

Significant unobservable inputs:
Average generation capacity (MW)	7
Electricity price escalation (%)	2.2
Cost long-term growth rate	2.2
Average realized electricity price ($/MW)	92.2