Ormat’s BESS Pivot: How Tolling Agreements are Fueling a Distributed Energy Strategy in 2025

Industry Adoption: How Ormat Technologies is Mastering the BESS Market with a De-Risked Growth Strategy

Ormat Technologies’ evolution from a geothermal leader into a diversified distributed energy player has been methodical and decisive. Between 2021 and 2024, the company laid the foundation for its strategic pivot, initiating its move into Battery Energy Storage Systems (BESS). This period was characterized by initial projects like the 5 MW/20 MWh Tierra Buena facility in California (2022) and the development of hybrid assets like the Arrowleaf Solar and Storage project. The strategy was clear: leverage five decades of power plant expertise to capture value from the growing demand for grid stability. However, the commercial model was still evolving, with a mix of merchant-based revenues and early-stage contracts. The key inflection point arrived in 2024 with the signing of long-term tolling agreements in California and Texas, signaling a crucial shift away from market volatility toward a more stable, de-risked revenue model. This strategic refinement set the stage for a period of accelerated growth.

Since the start of 2025, Ormat’s BESS strategy has moved from foundation-building to rapid, validated scaling. The company’s energy storage segment revenue share doubled year-over-year to 11.9% in Q2 2025, providing definitive proof that the pivot is a financial success. This acceleration is driven by the execution of its de-risked commercial strategy on a global scale. The landmark achievement is the securing of 15-year tolling agreements for 300 MW / 1,200 MWh of BESS in Israel, which proves the replicability of its business model outside the U.S. and marks a major entry into a new international market. Concurrently, Ormat is solidifying its U.S. presence, bringing assets like the 60 MW / 120 MWh Lower Rio facility online in Texas under a seven-year tolling agreement. The variety of applications—from providing ancillary services in the volatile ERCOT market to securing long-term capacity in Israel—demonstrates that Ormat is adept at tailoring its BESS solutions to meet specific grid needs, creating a robust and diversified portfolio of high-value distributed energy assets.

Table: Ormat Technologies’ Key Investments in Distributed and Renewable Energy

Table: Ormat Technologies’ Key Partnerships and Collaborations

Geography: Ormat’s Domestic Dominance and Global Expansion

Between 2021 and 2024, Ormat’s distributed energy activities were concentrated in the United States, targeting high-value domestic markets. California served as the initial proving ground, with the commissioning of the Tierra Buena BESS in 2022 and the landmark Arrowleaf solar-plus-storage PPA in 2023. By 2024, the company’s geographic focus expanded to the Texas ERCOT market, a region known for grid volatility and high demand for ancillary services, where Ormat secured its first tolling agreements. This U.S.-centric approach allowed Ormat to build a strong operational and commercial foundation in familiar regulatory environments.

The period from 2025 to today marks a significant geographic inflection point, shifting from domestic concentration to ambitious international expansion. The standout event is the award of contracts for 1,200 MWh of BESS in Israel, a move that not only diversifies Ormat’s geographic footprint but also validates its tolling agreement model in a new global market. While expanding internationally, Ormat continues to deepen its U.S. presence, bringing the Lower Rio facility online in Texas and securing innovative tax equity financing for projects in Texas and New Jersey. This dual-pronged strategy—dominating key U.S. markets while replicating its success abroad—positions Ormat as a global player in the distributed energy landscape, with a clear blueprint for entering new regions with demonstrated needs for grid stabilization.

Technology Maturity: From Commercializing BESS to Piloting Next-Gen Geothermal

In the 2021–2024 timeframe, Ormat’s focus was on the commercialization and scaling of its BESS application. While battery technology itself was mature, Ormat was in the process of mastering its deployment, moving from smaller, initial projects like the 5 MW Tierra Buena facility to larger, more complex hybrid systems like the 140 MWh Arrowleaf project. A key development in this period was the maturation of the *commercial model*, as Ormat strategically pivoted from higher-risk merchant revenue streams toward de-risked, long-term tolling agreements. Simultaneously, the partnership with SLB in 2024 signaled an exploratory push into next-generation Enhanced Geothermal Systems (EGS), but this remained in the strategic collaboration phase, not yet at the pilot stage.

From 2025 onwards, BESS has transitioned from a growth segment to a core, scaling pillar of Ormat’s business. The technology application is now fully commercial and highly bankable, as evidenced by the $62 million hybrid tax equity partnership with Morgan Stanley and the massive 1,200 MWh deployment in Israel. With its BESS model proven and scaling, Ormat is now advancing the next technological frontier. The August 2025 partnership with Sage Geosystems moves next-generation geothermal from concept to a concrete pilot project. This strategic sequencing is critical: Ormat first mastered and scaled a commercially ready technology (BESS) to generate growth and revenue, and is now using that strength to invest in and de-risk a more nascent, but potentially transformative, technology (EGS).

Table: SWOT Analysis of Ormat’s Distributed Energy Strategy

Forward-Looking Insights and Summary

The data from 2025 signals that Ormat’s transformation into an integrated renewable energy firm is not only underway but accelerating. The company has successfully created a powerful, de-risked growth engine with its BESS portfolio, and the year ahead will be defined by its ability to execute at an even larger scale. The Israeli BESS deal serves as a clear blueprint for further international expansion, and market actors should watch for similar announcements in other regions that require grid stabilization and capacity services.

The most critical signal for the future, however, is the pilot project with Sage Geosystems. While Ormat’s BESS business provides near-term growth, a successful demonstration of Sage’s Pressure Geothermal technology would be a transformative long-term catalyst. It would validate a pathway to unlock vast, previously inaccessible hot dry rock resources, potentially making geothermal a more scalable and distributed resource. This would create powerful synergies, allowing Ormat to pair its firm, baseload geothermal power with its flexible BESS assets to offer an unparalleled clean energy solution. Investors and strategists should closely monitor upcoming Q3 2025 financial results for continued growth in the Energy Storage segment, but the true long-term value inflection point lies in the progress of Ormat’s next-generation geothermal pilots. Ormat is no longer just a geothermal company; it is an architect of the future, integrated grid.

Frequently Asked Questions

What is a tolling agreement and why is it so important for Ormat’s battery storage strategy?
A tolling agreement is a long-term contract where a utility or customer pays Ormat a fixed fee to have the right to use its battery storage facility. This is a crucial part of Ormat’s de-risked strategy because it guarantees stable, predictable revenue for many years, moving the company away from the volatility of energy market prices (merchant revenue). As shown with the deals in Texas and Israel, this model makes large-scale projects more financially secure and bankable.

How has Ormat’s business strategy evolved in 2025?
In 2025, Ormat’s strategy shifted from the foundational phase (2021-2024) to one of rapid, validated scaling. The company successfully proved its Battery Energy Storage Systems (BESS) business model, with the segment’s revenue share doubling year-over-year. Key changes include executing this model on a global scale with the 1,200 MWh deal in Israel and securing innovative financing like the tax equity partnership with Morgan Stanley to fuel accelerated growth.

Is Ormat abandoning its core geothermal business for energy storage?
No, Ormat is expanding and diversifying its energy portfolio, not abandoning its core business. The article shows that while aggressively growing its BESS segment, Ormat continues to invest heavily in geothermal. In 2025, it acquired the Blue Mountain geothermal plant and partnered with Sage Geosystems to pilot next-generation geothermal technology. The strategy is to integrate flexible battery storage with its firm, baseload geothermal power.

What is the significance of Ormat’s BESS project in Israel?
The project in Israel, totaling 1,200 MWh under 15-year tolling agreements, is significant for two main reasons. First, it marks a major, successful entry into a new international market for Ormat’s distributed energy business. Second, it validates that the company’s de-risked tolling agreement model is replicable and successful outside of the United States, providing a blueprint for future global expansion.

What are the main risks to Ormat’s growth strategy identified in the analysis?
According to the SWOT analysis, the primary risk has shifted from proving the business model to managing its success. The main threats are now execution risk—the challenge of managing a large and rapidly growing pipeline of complex projects across multiple countries—and a dependency on external financing to fund this rapid expansion. However, the company is actively mitigating the financing risk through innovative structures like the tax equity deal with Morgan Stanley.