Good morning and welcome to the Ormat Technologies Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note that this event is being recorded. I would now like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.
Thank you, Operator. Listening to the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning & Reporting. Before we begin, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current estimates, current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives, and expectations for future operations and are based on management's current estimates and projections of future results or trends.
Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risk and uncertainties, please see risk factors as described in Ormat Technologies' annual report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC. In addition, during the call, the company will present Non-GAAP financial measures such as Adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management reasons for presenting such information are set forth in the press release that was issued last night as well as in the slides posted on the website.
Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I'd like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at ormat.com under the presentation link that's found on the Investor Relations tab. With all that said, I would now like to turn the call over to Doron Blachar. Doron, the call is yours.
Thank you, Josh, and good morning, everyone. Thank you for joining us today. Ormat concluded 2023 on a positive note with its fourth quarter results finishing off a successful year. The company reported robust fourth quarter revenue growth with a 17.4% increase compared to the previous year's quarter and commendable 11.5% rise in Adjusted EBITDA. Throughout the year, Ormat maintained its momentum with a successful development execution and enhanced operational performance from existing facilities, coupled with a promising recovery in the Product segment.
These factors collectively contributed to a 13% increase in total annual revenues and a 10.6% increase in full-year Adjusted EBITDA. Throughout 2023 and the beginning of 2024, we successfully augmented our capacity by adding 239 MW through development projects and acquisitions. Among these portfolio additions, 157 MW were integrated into the Electricity segment, comprised of 100 MW of geothermal and solar PV assets acquired in January 2024, and 82 MW from the addition of five new storage facilities to the storage segment. This expansion aligned with our multi-year capacity expansion target, further strengthening our EBITDA and earnings generation in 2024 and beyond.
Since the beginning of 2023, we have signed four long-term PPAs for a total of 98 MW in our Electricity segment and 55 MW or 180 MWh in our growing energy storage segment. As we continue to successfully execute against our growth strategy, we expect the benefits of improved generation capacity and our team's demonstrated ability to sign PPAs with attractive pricing terms will continue to support solid returns and earnings performance for our shareholders as we head into 2024. In our Product segment, we are encouraged by the recovery we saw in 2023.
Annual Product segment revenues grew 87.3% versus 2022, and our increased backlog of $152 million is representative of the growing global demand for our geothermal products. We expect this healthy demand, combined with our industry leadership position, to allow us to continue competing and growing our presence in key strategic regions. Looking ahead to 2024, we expect to continue capturing the benefits of our successful growth strategy. We are on track with our capacity expansion in both the Electricity and the Storage segments, with a potential to reach between 2.1-2.3 GW across our portfolio by end of 2026.
We anticipate a significant increase of 7% and 10% in revenues and Adjusted EBITDA, respectively, for 2024. We continue to see strong support for renewable energy backed by the IRA benefits, including the PTC for geothermal and ITC for storage. We expect this support will continue to create opportunities for new PPAs in both the electricity and storage segments and expect that these benefits will continue to reduce our capital needs to help fund our growth strategy and enhance our EPS in 2024 and beyond.
The current environment carries encouraging tailwinds supporting demand for geothermal and energy storage, driven by global decarbonization efforts and the collective push to utilize the world's renewable energy resources to reduce greenhouse gas emissions and combat the impact of climate change. Now, before I provide further updates on our operation and plans, I will turn the call over to Assi to review the financial results. Assi?
Thank you, Doron. Let me start my review of our financial highlights on slide 5. The fourth quarter marks another strong finish to an overall excellent year in 2023, creating positive momentum as we head into 2024 and positioning us well as we aim to deliver on our multi-year financial and operating targets. Total revenues for 2023 was $829.4 million, up 13% year-over-year, and revenue for the fourth quarter was $241.3 million, marking 17.4% growth year-over-year. These fourth quarter and full-year results represent solid growth across both our electricity and Product segments. Across the full year 2023, our Adjusted EBITDA results of $481.7 million increased 10.6% compared to $435.5 million in 2022.
Our record fourth quarter Adjusted EBITDA results of $139 million increased 11.5% compared to $124.7 million in the fourth quarter of last year. Year- over- year, the growth in adjusted EBITDA was largely driven by an increase in revenue in electricity and Product segments, combined with a larger contribution from tax equity transactions. In the full year 2023, net income attributed to the company's stockholders was $124.4 million or $2.08 per diluted share. This represents an increase of 88.9% and 77.8% versus the prior year, respectively.
On an adjusted basis, net income attributed to the company's stockholders was $121.9 million or $2.05 per diluted share, an increase of 32.2% and 25% versus the same period last year, respectively. The significant year-over-year earnings growth was driven by higher operating income, further supplemented by the impact of the IRA benefits that flow through our tax line. In the fourth quarter of 2023, net income attributed to the company's stockholders was $35.7 million or $0.59 per diluted share, in comparison to $18 million or $0.32 per diluted share in the same quarter last year.
On an adjusted basis, net income attributed to the company's stockholders was $40.5 million or $0.67 per diluted share, compared to $41.2 million and $0.73 per diluted share during the fourth quarter of 2022. Quarter-over-quarter earnings were impacted by a higher effective tax rate. Moving to slide 6, we break down the revenue performance at the segment level. Electricity segment revenue increased by 5.5% to $667 million and 11.3% to $184 million in the year and from fourth quarter of 2023, respectively. This increase was largely driven by the new project that came online in 2022 and the commercial operation of our numerous geothermal, solar PV, and energy storage projects.
This included the Heber 1 geothermal power plant, which went online in May 2023. The quarter also benefited from improved generation at Puna power plant that had been operating at lower capacity in the first three quarters of 2023. In the Product segment, revenue marked a substantial increase, growing by 87.3% to $133.8 million and by 56.7% to $50.4 million in full year 2023 and in the fourth quarter, respectively. The growth in our Product segment was primarily due to the new contracts that are reflected in a higher backlog and the timing of revenue recognition versus the prior period.
Energy storage segment revenue decreased by 6.8% to $28.9 million in the full year 2023 and by 14% to $7 million compared to last year's fourth quarter. Lower year-over-year segment revenues were driven primarily by lower revenue in the PJM and CAISO markets, as merchant rates were lower than 2022. New facilities that came online during the year partially offset the impact of weaker merchant prices. Moving to slide 7, the gross margin for the Electricity segment was 36.6% and 39.5% in 2023 and fourth quarter, down 320 basis points and 400 basis points, respectively.
The decrease in full-year margin performance was mainly due to business interruption of $15.6 million recorded in 2022 compared to $6.3 million recorded in Q1 2023 related to the Heber and the Puna power plants, as well as revenue at Puna due to lower generation and energy prices. In the quarter, the reduction was mainly driven by $6.4 million of business interruption income recorded in fourth quarter 2022 related to Heber 1. In the Product segment, gross margin was 13.4% and 12.6% in the full year 2023 and the fourth quarter, respectively, down 190 basis points and 1,000 basis points.
Margin decreased due to low profitability associated with contracts that were signed during 2021 and 2022, partially offset by new contracts with higher margins that were signed in 2023. Looking forward, we expect our Product segment margin to be between 15%-20%. The Energy Storage segment reported a full-year gross margin of 6.4% compared to 21% in the prior year. The reduction was driven by significant pullback in merchant prices in the East Coast compared to last year's observed market-driven pricing strength. In the fourth quarter of 2023, margin was negative 8.9% compared to positive 11.7% year-over-year.
As we enter 2024, we expect improved margin rising to between 10%-15%, supported by the Pomona II PPA that was signed this year and the COD of Bottleneck, which also carries fixed price tolling agreements. Looking at slide 8, the Electricity segment generated 94% of Ormat total consolidated Adjusted EBITDA in 2023. The Product segment generated 4% of, and the Energy Storage segment reported Adjusted EBITDA of $9.9 million, representing almost 2% of total Adjusted EBITDA. Reconciliation of EBITDA and Adjusted EBITDA are provided in the appendix slides.
Moving to slide 9, in the fourth quarter, we recorded $18.7 million in income related to tax benefits, for which $14.7 million was income related to five active tax equity transactions, while the remaining $4 million is related to transferable PTC, which were recorded in 2023 under the provision of the Inflation Reduction Act. The income related to tax benefits increased this quarter by $11.2 million compared to the same period last year. For the full year, income related to tax benefits increased by $27.2 million. Also, in the fourth quarter and full year 2023, we recorded $1.4 million and $18.7 million of ITC benefits in the income tax line related to new storage facilities that COD this year.
For fiscal year 2024, we expect an annual approximately $5 million-$10 million reduction in PTC recorded under the income attributed to the sale of tax benefits line of the P&L due to the termination of one of our tax equity transactions that reached the flip date, offset by new transactions we expect to sign related to Heber and Beowawe. We also expect to record $40 million in ITC benefits to our storage facility under the income tax line. The way we plan to record the ITC benefits during 2024 is slightly different compared to 2023.
Instead of recording the entire benefit under the tax line in the quarter that the storage project came online, we expect to reduce our tax rate proportionally throughout the year. We anticipate the receipts of approximately $145 million in cash proceeds related to the PTCs and ITC benefits that will reduce our capital needs for 2024. Looking at slide 10, our net debt as of December 31st, 2023, was approximately $1.8 billion, equivalent to 3.7x debt to EBITDA. Cash and cash equivalents and restricted cash and cash equivalents as of December 31st, 2023, was approximately $288 million compared to $227 million at the end of 2022.
Slide 10 breaks our cash for the 12th month, illustrating Ormat's ability to reinvest in the business and service our debt obligation while returning capital to our shareholders. Our total debt as of December 31st, 2023, was approximately $2.1 billion, net of deferred financing costs. Excluding the short-term commercial paper we issued is presented on slide 33 in the appendix and outlines the payment schedule. The average cost of our debt for the company is 10%-4.3%. We think it is important to note that nearly all of our debt liabilities remain fixed-rate in nature, which we believe will help continue to position Ormat competitively in the rising global interest rate environment.
Let's move to slide 11. We have approximately $741 million of total liquidity. Our total expected capital for 2024 is approximately $550 million, as detailed in slide 34 in the appendix. In 2024, we plan to invest approximately $340 million in Electricity segment and construction, drilling, and maintenance CapEx, and $187 million in our storage assets. Overall, Ormat is very well positioned to execute our strategic growth plans from a capital resource perspective, maintaining excellent liquidity and ample access to additional capital, as well as cash we expect to receive from the IRA benefits.
We expect that each project that reaches commercial operation in the next few years in the U.S. will be entitled to between 30%-40% of funding supported by the new IRA benefit. On February 21st, 2024, our board of directors declared, approved, and authorized payments of quarterly dividends of $0.12 per share to all holders of the c ompany issued and outstanding shares common stock on March 6th, 2024, payable on March 20, 2024. In addition, we expect to pay quarterly dividends of $0.12 per share in each of the next three quarters. Finally, on January 4th, 2024, Ormat completed the strategic acquisition of contracted operating geothermal and solar assets from Enel Green Power North America.
Ormat paid $272 million for 100% of the equity interest in the portfolio assets. The overall transactions were funded with available cash in combination with new corporate loans in the amount of $200 million that were raised in January 2024. The Enel Green Assets portfolio acquisition is expected to be immediately accretive to both revenue and EBITDA, and we intend to further improve the performance of the acquired asset portfolio through a series of operational enhancements and optimization initiatives. That concludes my financial overview. I would now like to turn the call over to Doron to discuss some of the recent developments.
Thank you, Assi Ginzburg. Thank you, Assi. Turning to slide 13 for a deeper glimpse at our operating portfolio. Generation growth in our core Electricity segment carried support from our multiple CODs we achieved during 2023, most notably at North Valley in April. Additionally, we brought operation back online at our Heber 1 facility following the replacement of the equipment, allowing higher generating capacity. We also completed an expansion to the Dixie Valley plant that we undertook to maximize the value of our existing PPA.
Our portfolio capacity also carried additional support from full year operations at CD4 and Tungsten Phase Two, which achieved their respective CODs over the course of 2022. This was partially offset by a reduction in capacity at our Puna facility due to operational issues related to the performance of the wellfield, which caused us to run the plant at lower capacity rates. The performance of Puna improved in the fourth quarter and is currently operating above 30 MW.
Our current total generating capacity, including the Enel assets we recently purchased, stands at 1,215 MW in the Electricity segment compared to 1,070 MW in 2022. This marks a 13.6% increase versus prior year levels, positioning us well to achieve our multi-year portfolio expansion target. Turning to slide 14, I will give more details on our operating footprint. We are back to normal operating at the operation at Puna and have successfully increased generation above 30 MW, up from the low 20s we observed earlier in the year.
We recently received an approval from the Hawaiian PUC for a new PPA at the facility and confirmation of the EIS. The new PPA expands the contracted capacity and carries a fixed energy rate that will remove the volatility of the current avoided cost structure. The PPA will be in effect following the completion of the power plant upgrade expected in 2026 and will carry an average rate per MWh of approximately $127-$137 per MWh, assuming we sell 100% of the generated electricity. At our Olkaria power plant in Kenya, we are currently operating at the 125 MW level, up slightly from prior year.
Our operational team continued to work to increase the capacity of Olkaria, and the drilling campaign we conducted in 2023 has shown successful results that are now being tested. We are optimizing the resource utilization and expect the connection of the new wells to support and improve future performance. In the Caribbean, we continue with the development of the Bouillante power plant at Guadeloupe and expect to finalize PPA negotiations shortly. At the end of 2023, we signed a new BOT PPA for a new 10 MW power plant we expect to build in Dominica near our Bouillante power plant at Guadeloupe.
The proximity of these two power plants creates attractive operational synergies that will reduce manpower costs and strengthen the economic potential of the expected new power plant. On the strategic front, on slide 15, in October, we announced the acquisition of a contracted operating assets portfolio in the United States from Enel Green Power North America. This transaction closed January 2024. The assets portfolio, including three geothermal facilities and three solar PV facilities, carries consolidated capacity generation of roughly 100 MW, with a three-year trailing average annualized EBITDA contribution of $24 million.
The portfolio also carries the opportunity to expand economics through a targeted series of growth investments, including operational optimization through the replacement of existing equipment with best-in-class internally manufactured equipment and the option to explore future greenfield projects in Utah and in California. Turning to slide 16, our Product segment backlog stands at $152 million. This backlog carries roughly $157 million of contracts mostly signed in 2023, including the recently signed $95 million geothermal contract for the Ngā Tamariki project in New Zealand.
We see future potential coming from New Zealand, Indonesia, and Latin America. Moving to slide 17 for an update on our energy storage segment. The segment reported lower revenues and gross margin in the fourth quarter due to lower year-over-year merchant rates, primarily in the PJM and CAISO market. We successfully COD-ed new projects to add 82 MW or 102 MWhs in total to our fleet, and we are currently in the final stages to commission the 20-MWh East Flemington facility. We also successfully secured a long-term tolling agreement for Pomona II facility. This agreement marks the third tolling agreement in our expanding portfolio, following the 2022 Bottleneck contract and 2023 Arrowleaf Solar and Storage facility.
These three agreements contribute to the growth of a stable, profitable, and predictable revenue stream for the energy storage segment, with over 40% of the segment's revenue expected to be contracted by the end of 2024. Please turn to slide 19, where I will briefly discuss our growth plans. We continue to see an increase in the demand for geothermal energy, and the successful and steady execution of our growth strategy has given us the confidence to reiterate our 2026 targets that were provided in early 2022.
With the success that we have achieved thus far in our growth efforts supported by the attractive organic and acquisitive growth captured in 2023, we are targeting between 2.1-2.3 GW of portfolio capacity by year-end 2026. Our critical target markets of California and Nevada recognize the critical role that geothermal resources play in supporting their respective energy grids. We are on the forefront of developing and supplementing intermittent power generation with reliable and renewable, high-capacity geothermal energy resources with zero emissions. This support has helped sustain and expand the tailwinds for future PPAs.
Additionally, it has created adjacent tailwinds for energy storage demand, as added storage capacity will be necessary for the region to achieve their goals and further reduce greenhouse gas emissions to supply power to the grid. As we have discussed previously, the Inflation Reduction Act, which was signed on August 16, 2022, has had a significant positive impact on our ability to develop geothermal and storage assets in the U.S. at higher economics due to lower capital needs. We plan to continue seeking the PTC benefits for our new geothermal power plants and plan to enter into further tax equity transactions, which can fund over 40% of our capital needs for new geothermal plants in the U.S..
Moving to slide 20, we are on track with our long-term targets as communicated back in 2022 in our analyst data. We expect to increase our total electricity portfolio generation to between 1,450 and 1,470 MW by the end of 2026. In energy storage, we remain on track with our growth plans, and we expect to reach between 700-800 MW or 1.9-2.3 GWh by year-end 2026, marking a more than five-fold expansion from prior capacity levels. Slides 21 and 22 showcase the geothermal and the hybrid solar PV project currently underway. We are on track with our Beowawe repowering project, which we expect to be complete in the second half of 2024.
Later, towards the end of 2024, we expect to achieve the commercial commissioning for the Ijen plant in Indonesia, which will add another 15 MW of capacity to our growing portfolio. In 2025, we expect to add 20 MW in operations in the Caribbean area and one large power plant in New Zealand. In addition, we are planning to upgrade our recently acquired assets and add approximately 17 MW between the end of 2025 and 2026. Puna, North Valley II, and new prospects that will have successful exploration are expected to be operational by end of 2026.
Our project development underway in our solar PV portfolio awaits towards the first half of the year, as we expect to commission the Steamboat Hills Solar by the end of Q1 and North Valley and Beowawe by end of Q2. Moving to slide 24, the third layer of our growth plan focuses on the growth and development of our energy storage assets. We currently have seven projects under development that will add 355 MW or 1,060 MWh to our storage portfolio by the end of 2025. We are currently in the latest stage of COD in our 20 MW East Flemington storage facility in New Jersey.
Also, we released for construction the Sher 80 MW, 320 MWh storage facility in California that is expected to be online in the second half of 2025. Our pipeline in energy storage, as displayed on slide 25, shows our overall potential future capacity at 3.6 GW or 13.1 GWh. Geographically, we continue to focus our efforts largely in the core target market of the United States, where we have the ability to benefit from the increased demand for energy storage capabilities.
Please turn to slide 26 for a discussion of our 2024 guidance. We expect total revenues to increase by 7% year-over-year at the midpoint and to be between $860-$910 million, with Electricity segment revenues between $710-$730 million, an increase of 8% compared to 2023 results. We expect $115 million-$135 million in the Product segment, and energy storage revenues are expected to be $35 million-$45 million. We expect adjusted EBITDA to increase by approximately 10% at the midpoint to range between $515 million-$545 million. We expect annual adjusted EBITDA attributable to minority interests to be approximately $18 million.
I will end our prepared remarks on slide 27. This was a strong quarter that capped off a very strong year for Ormat. We are confident that our attractive and differentiated portfolio of power-generating assets, our unique growth strategy, and our demonstrated ability to develop attractive geothermal, solar PV, and energy storage projects with attractive long-term PPAs position Ormat for successful and will drive significant shareholder value as we progress across 2024. Before I open the call for questions, I'm happy to tell you that we will have our next investor day in New York City on June 20, 2024. This concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please.
At this time, I'd like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Justin Clare with Roth MKM. Please go ahead.
Yep. Hi. Thanks for taking our questions. So first off here, I might have missed it, but did you share the expectations for electricity growth margins in 2024? If not, would you mind providing the expectations there? And then just wondering, if we compare the growth margin in 2024 to 2023, what are the key elements that we should be thinking about that are influencing the change? So there's Puna operating at a higher level of capacity. There's also the acquisition of Enel assets. But what are the other factors that we should be thinking about?
Good morning. So when we look at 2023 electricity, and I'm going to talk on the full year. For the full year, the growth margin was roughly 36.6%. When we look at 2024, we expect a slight uptick by 1% or 2% in the growth margin. It's coming basically from three elements. One, as you rightfully said, that Puna is operating at a much higher capacity for the full year expected 2024 versus 2023. Second, in Olkaria, we had a very successful drilling campaign that we expect in the second half of the year to impact us positively. And third is the assets of Enel that are also contributing higher relatively growth margin.
Okay. Got it. That's helpful. Then you reiterated the 2026 capacity target here, 2.1-2.3 GW. I was wondering if you are still anticipating to meet the interim target for 2025. You had talked about 1.9-2 GW potentially by the end of 2025. Are you on track there? It looks like you do have the assets in geothermal and solar to achieve that target. Storage, it seems like some assets may be needed to be added to the pipeline still. How are you thinking about that?
Yes. We are expecting to reach the target for the end of 2025. As you said, when you look at the list of projects that we released, including the Sher project that we released this week, we are very close to have all the detailed all the projects that would get us there. There is still some project on the energy storage that we'll need to release, and we are working to release them, getting the final permits. And so we do expect to be in line with these targets.
Okay. Got it. And then maybe just one more. It looks like your prospects that you're exploring here increased a decent amount quarter-over-quarter. I think you're at 42 now versus 33 last quarter. I was wondering if you could just expand on what drove the increase there and what opportunities you're pursuing.
The prospects in the U.S., I guess that's what you are referring to, increased mainly due to the acquisition of Enel that brought in new targets, new greenfields in Utah and in California. It's an ongoing process that we continuously look at opportunities. Whenever we have a chance, we buy new lands that the BLM issue. I think the main difference is the acquisition of Enel and the potential prospects they brought in.
Got it. Okay. Thank you.
Thank you.
Your next question comes from the line of Ryan Levine with Citi. Please go ahead.
Good morning. Hoping to start off on New Mexico. I noticed you have one development project there. There's recent legislation that came into that got passed last week. What's your outlook for development in that state, and is there more meaningful commercial opportunities that you're seeing emerge in New Mexico?
Yeah. So we have Rincon in New Mexico as a potential greenfield, which we actually like. I can tell you that until the last legislation a few weeks ago, we didn't see strong regulatory support in New Mexico. But with this new change, we are looking at it. We know that there are power plants over there operating. I can tell you that we are also looking on the energy storage market in New Mexico. So this is definitely a place that we are looking into.
Okay. Maybe shifting region of the world. In terms of Kenya, can you give us an update around the cash payments you may have received this quarter as the cash inflows and how the state of commercial negotiations or the state of those projects are progressing?
As I mentioned in the last call, Kenya AR last year was rising, not because of KPLC inability to pay, but because of a lack of U.S. dollars in the country, because of a very good weather in the second half of 2023 that positively impacted the agriculture export. In addition to the fact that the Kenya government was able to issue EUR 2 billion of new debt bond a few weeks ago, I'm happy to say that in the first 50 days of 2024, we already collected over $32 million.
So out of the $80 million that was owed to us by end of 2023, $32 million was already collected, and there is a very good outlook to continue with the strong collections. So I will say that so far for the year, a very good outcome to our cash and benefiting us tremendously. If you look at the cash flow last year, we were suffering almost a $60 million increase in the receivable. I hope that this year we'll see the opposite, and therefore, the operating cash flow will be much stronger. As of the negotiation, as you know and everybody knows that in every negotiation, it needs to be a win-win situation.
We have a valid contract with PPA until 2034. We are always happy to negotiate new terms on a win-win base. I can't say that there was any change in the prospects of getting into new terms because mainly of the fact that Ormat's electricity is needed, and it's already priced probably the most cheapest electricity in Kenya other than Kenyan. So I don't anticipate any major changes in the contract going forward. And if there will be one, we will announce it to the market. But as you said at the beginning, they need the electricity, and they are paying for it. We expect 2024, at least as of today, to have a very strong collection in Kenya.
Okay. On the storage segment, I appreciate all the disclosure around your fixed versus merchant risk or revenue mix. Is there any key hubs that may have caused the margin pressure in this recent quarter, and how are you seeing the outlook for storage margin going forward, and to the extent there's any resource adequacy or any other payments that are relevant for that margin outlook that we should keep in mind?
I would say 2023 was a relatively low merchant pricing across all the markets that we operate in, and that's why you saw lower margins in the energy storage. Part of the balancing of the risk that we're doing is signing tolling agreements or PPA agreements. We signed on Pomona II. We signed with Bottleneck that will come online this year. And as I said before, we expect at the end of the year to be around 40% contracted. And then next year, we have additional contracts coming with PPA, and we are negotiating additional contracts with PPA.
So all in all, there's going to be a balance, so we will not see this high volatility that we see today. However, we definitely do not want all storage assets to be contracted because we do believe that we can get benefits from this volatility. We just want to have it better aligned. On margins, so we expect in 2024 around 10%-15% growth margin, and the second half of 2024 to be even higher, around 15%-20% once Bottleneck comes into operation.
Great. Thanks for taking my questions.
Thank you.
Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Please go ahead.
Hey. Good morning. Can you hear me?
Yes. Yes, Julien.
Excellent. Thank you very much, guys. I hope you guys are well. Look, thank you. First off, if I can, can we talk a little bit about the storage segment? Just what exactly is going on vis-à-vis just the latest revenue guidance? Obviously, a little bit more flatter last year off of a robust 2022. But how are you thinking about the cadence of that business over time here? You've had a couple of flatter years. You've been putting more capital into it, obviously more profitable in the earlier years, but just a little bit more color on just why it still is sort of in the same ballpark here, if you will, and the negative margins in the quarter.
So I think on the look, the negative margins on the quarter, as we said, relates mainly to the merchant pricing and the fact that most of the fleet is merchant. What is going to change once Pomona tolling agreement kicked in and Bottleneck at the second half of the year? We finished 2023 with around $29 million. The guidance that we gave is $35-$45 million, which is close to 40% increase year-over-year. What we see in the storage market is that as we bring online more projects and we sign more contracted assets, pricing goes up. Actually, if you will go and annualize 2023 and 2024 to see how they would look, if all the assets that come online would have operated for the full year, you will probably see over 50% increase year-over-year.
So we actually are starting to benefit from the growth that we see in the storage. When you see the plan that we have to grow the storage to 700-800 MW at the end of 2026, it is a significant growth, and we expect this segment to continue and grow significantly as we continue to release large projects during the year. And as I said, on the margins, we expect 2024 to be 10%-15%, with the second half after Bottleneck coming into operations around 15%-20%.
Got it. Excellent. And then just vis-à-vis the longer term here, obviously, we're talking here about storage growth, but overall, you guys have this Analyst Day coming up. How many years forward do you expect to provide here? And then the interim here, just as you think about these targets that you had, how are you thinking about achieving the sort of 2025, 2026 financial metrics that you'd articulated? I get that maybe you're now going to pivot to something that might have a little bit more of a longer-dated view to it by mid-year.
Look, what we've said now is that the target that we've set in 2022, the growth targets, we are reiterating the growth target, and we expect to be in line with these growth targets. As we come to the Analyst Day in June, we will obviously come with longer-term targets. I can't tell you exactly how many years down the road, but in all the previous Analyst Days, we give longer-term targets, so you will know where the company is going. I think today, we gave out the targets for the end of 2026 again for 2.1-2.3 GW of operating assets, which is a very nice growth target.
Once again, that is star one for any questions. And our next question will come from the line of Derek Podhaizer with Barclays. Please go ahead.
Hey. Good morning. I just wanted to go back to the 2024 guide. You guys talked about gross margin expansion on electricity, product, and storage. But can you just clarify as far as how much EBITDA support you expect out of the PTCs? Just trying to triangulate the guide and the different puts and takes there. So do you need to expand on what brings you we got the revenue guide, but what brings you on the margin front and then the PTCs would be helpful.
Good morning, Derek. As I mentioned on the call, we expect PTCs to be down roughly $5 million-$10 million year-over-year because of the elimination of one of our facilities that we entered into 10 years ago, and it's basically ended. It's the Opal tax equity transaction. This will be offset. The $5 million-$10 million is the net number. We will plan to enter into two new tax equity transactions in Heber and in Beowawe. But the net number, this year, we had $62 million. Next year, we expect $5 million-$10 million less.
Got it. That's very helpful. Thank you. I wanted to ask about the 12-MW reductions you guys put in your deck. I mean, can you help explain that to us? What's driving that? How should we think about that for all your other projects just going forward? And then just curious as far as what the call on the balance sheet capacity could be as potentially having to re-equitize or just some thoughts around that as far as what it means for covenants. Yeah, just everything with the covenants and the reductions and how we should think about it as far as a call on the balance sheet.
Let's start with the balance sheet. The balance sheet is very strong. Debt to EBITDA is year-end. It was a 3.7 times metric. Our covenants are sometimes around 6-7 times debt to EBITDA. So for us to be even close to it, our EBITDA should be half, or we should borrow additional $2 billion with no additional EBITDA. From a liquidity perspective, as we said, we have over $700 million of liquidity, and we did not impact the liquidity by the Enel transaction because we borrowed additional $200 million to fund it. So on the balance sheet side, I think Ormat is one of the strongest companies in the industry with probably the lowest leverage in the industry.
If you look at our peers, our peers have many leveraged 5-6 times, and therefore, we don't anticipate at this point any equity requirement. We raised the equity in 2023 anticipating a strong M&A market, knowing what we see in front of us. We were actually right and timed very well the transaction of the equity versus the transaction of the offering. Can you repeat the question on the 12 MW? Which page are you looking at just for me to follow so I can answer your question?
Yes. No, and I appreciate all those comments. Number 13, just the 12 MW reduction, just how to think about that, what's driving that, and how should we think about that for the rest of the portfolio?
Every quarter or every year, we balance all the power plants. Some power plants have maybe more cooling than what anticipated, and that's how we adjust the portfolio. I don't think there was any one project that was big, but it was a mega here and a mega there.
Got it. Okay. That's helpful. And then just one more question for me. Can you just talk about the capacity factor trends? I mean, you're bringing on more solar, which should be diluted to the geothermal assets, but how should we think about your capacity factor over the next few years and all the puts and takes around that?
I think that the fact that we are bringing more and more new facilities should over time increase the capacity factor. Also, you have in Puna and Kenya assets that were not performing well over the last few years. We expect them to perform much better over the next year or two or starting even already in Puna. So we should see a slight uptick. You are right that actually, solar is not as diluted as you think because we are producing more electricity from the power plant. But you're right. The capacity factor of the solar is lower. But please remember that on our solar, the effective price that we are getting is actually geothermal price. So maybe it's diluted to the capacity factor, but it's very accretive to the earnings.
Got it. Great. I appreciate the comments. We'll turn it back.
We have no further questions at this time. I'll hand the call back to Doron Blachar for closing remarks.
Hi. Thank you. 2023 was a very good year, and we expect 2024 to be even a better year. Ormat is committed to growth as we demonstrated in 2023 with the new project we released and the Enel acquisition. And we are continuing to grow the company with the targets that we have set. So I want to thank all of you for your support and looking forward to seeing you in June. Thank you.
That does conclude today's call. Thank you all for joining. You may now disconnect.