SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K


REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
 
November 28, 2021
 
Commission File Number 001-36761
 
Kenon Holdings Ltd.


1 Temasek Avenue #37-02B
Millenia Tower
Singapore 039192
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F  ☒            Form 40-F  ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K on paper as permitted by Regulation S-T Rule 101(b)(1):
 
Indicate by check mark if the registrant is submitting the Form 6-K on paper as permitted by Regulation S-T Rule 101(b)(7):

EXHIBIT 99.2 TO THIS REPORT ON FORM 6-K IS INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-201716) OF KENON HOLDINGS LTD. AND IN THE PROSPECTUSES RELATING TO SUCH REGISTRATION STATEMENT.



CONTENTS

Periodic Report of OPC Energy Ltd. for the Nine Months and Three Months Ended September 30, 2021
On November 28, 2021, Kenon Holdings Ltd.’s subsidiary OPC Energy Ltd. (“OPC”) reported to the Israeli Securities Authority and the Tel Aviv Stock Exchange its periodic report (in Hebrew) for the nine months and three months ended September 30, 2021 (“OPC’s Periodic Report”). English convenience translations of the (i) Report of the Board of Directors regarding the Company’s Matters for the Nine-Month and Three-Month Periods ended September 30, 2021, (ii) Unaudited Condensed Consolidated Interim Financial Statements as at September 30, 2021 as published in OPC’s Periodic Report, and (iii) Pro Forma Consolidated Interim Financial Statements as at September 30, 2021 (reflecting the acquisition of the CPV Group (“CPV”) (i.e. Competitive Power Holdings LP, Competitive Power Ventures Inc. and CPV Renewable Energy Company Inc.) by CPV Group LP, an entity in which OPC holds a 70% stake) are furnished as Exhibits 99.1, 99.2 and 99.3, respectively, to this Report on Form 6-K. In the event of a discrepancy between the Hebrew and English versions, the Hebrew version shall prevail.

Forward Looking Statements
This Report on Form 6-K, including the exhibits hereto, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements with respect to OPC’s business strategy, statements relating to OPC’s and CPV’s development projects including expected start of construction and completion or operation dates, estimated cost and investment in projects, and characteristics (e.g., capacity and technology) and stage of development of such projects, including expected commercial operation date (“COD”), estimated construction cost and capacity, and statements with respect to CPV’s development pipeline and backlog and projects including the description of projects in various stages of developments and statements relating to expectations about these projects, statements and plans with respect to the construction and operation of facilities for generation of energy on the consumers’ premises and arrangements for supply and sale of energy to consumer, statements with respect to OC Sorek 2 Ltd. project and its construction, equipment supply and long-term maintenance agreements, statements with respect to industry and potential regulatory developments in Israel and the U.S., the OPC-Hadera power plant, including the expected insurance reimbursement for COD delay and compensation for delay in delivery date, OPC’s plans and expectations regarding regulatory clearances and approvals for its projects, and the technologies intended to be used thereto, statements with respect to the expected impact of COVID-19, the Electricity Authority tariffs, expected timing and impact of maintenance, renovation and construction work on OPC’s power plants, the expected COD of Energean’s Karish reservoir and expected impact of COD delays, the expected interpretation and impact of regulations on OPC and its subsidiaries, OPC’s expansion plans and goals, OPC’s adoption of certain accounting standards and the expected effects of those standards on OPC’s results, statements relating to potential expansion activities by OPC outside of Israel, assumptions and estimates with respect to the preparation of the pro forma financial statements. These statements are based on OPC Energy Ltd. management’s current expectations or beliefs, and are subject to uncertainty and changes in circumstances. These forward-looking statements are subject to a number of risks and uncertainties which could cause the actual results to differ materially from those indicated in such forward-looking statements. Such risks include risks relating to potential failure to obtain regulatory or other approvals for projects or to meet the required conditions and milestones for development of its projects, the risk that OPC (including CPV) may fail to develop or complete projects or any other planned transactions including dispositions or acquisitions, as planned or at all, the actual cost and characteristics of project, risks relating to potential new regulations or existing regulations having different interpretations or impacts than expected, the risk that the accounting standards may have a material effect on OPC’s results, risks relating to changes to the Electricity Authority tariffs with and the impact on OPC’s results, risks relating to electricity prices in the U.S. where CPV operates and the impact of hedging arrangements of CPV, the risk that the assumptions and estimates on which the pro forma financial statements were based may not be realized as expected or at all, and other risks and factors, including those risks set forth under the heading “Risk Factors” in Kenon’s Annual Report on Form 20-F filed with the SEC and other filings. Except as required by law, Kenon undertakes no obligation to update these forward-looking statements, whether as a result of new information, future events, or otherwise.



Exhibits





* English convenience translation from Hebrew original document.


SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
KENON HOLDINGS LTD.
 
 
 
Date: November 28, 2021
By:
 /s/ Robert L. Rosen
 
Name:
 Robert L. Rosen
 
Title:
 Chief Executive Officer






EXHIBIT 99.1

OPC ENERGY LTD.

Report of the Board of Directors regarding the Company’s Matters
for the Nine‑Month and Three‑Month Periods Ended September 30, 2021

The Board of Directors of OPC Energy Ltd. (hereinafter – “the Company”) is pleased to present herein the Report of the Board of Directors regarding the activities of the Company and its investee companies, the financial statements of which are consolidated with the Company’s financial statements (hereinafter – “the Group”), as at September 30, 2021 and for the nine-month and three-month periods then ended, in accordance with the Securities Regulations (Periodic and Immediate Reports), 1970 (hereinafter – “the Reporting Regulations”). The nine‑month period ended September 30, 2021 will be referred to hereinafter as – “the Period of the Report”.

The review provided below is limited in scope and relates to events and changes in the state of the Company’s affairs during the Period of the Report that have a material effect on the data included in the interim financial statements and on the data in the Description of the Company’s Business, and is presented based on the assumption that the reader has the Company’s Periodic Report for 2020 which was published on March 25, 2021 (Reference: 2021-01-044994), (hereinafter – “the Consolidated Financial Statements for 2020” and “the Periodic Report for 2020”, respectively)1, which includes, among other things, the Description of the Company’s Business part, the Report of the Board of Directors and the financial statements for the year ended December 31, 2020, which were included in the Company’s Periodic Report for 2020. The information included in the Periodic Report and the Consolidated Financial Statements for 2020 is included herein by reference.

Attached to this Report are the consolidated interim financial statements as at September 30, 2021 (hereinafter – “the Interim Statements”) and consolidated proforma financial statements as at September 30, 2021 as a result of acquisition of the CPV Group (as defined in Note 6 to the Interim Statements (hereinafter – “the CPV Group”)) on January 25, 2021, and on the assumption that this Report is read together with the Periodic Report for 2020, which is presented herein by reference. In certain cases, details are provided regarding events that took place after the date of the financial statements and shortly before the publication date of this Report. The materiality of the information included in this Report was examined from the point of view of the Company1. The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and in accordance with the provisions of Part D of the reporting regulations. In this report, “dollar” means the U.S. dollar.

It is emphasized that this Report contains “forward‑looking” information, as defined in the Securities Law, 1968 (hereinafter – “the Securities Law”). Forward-looking information is uncertain information relating to the future, including projections, assessments, plans, estimates or other information relating to a matter or event, the realization of which is uncertain and/or outside the Company’s control. Forward‑looking information included in this Report is based on information or assessments existing in the Company as at the publication date of this Report.

This Directors’ Report has not been audited or reviewed by the Company’s auditing CPAs.


1
It is noted that in some of the cases an additional description was provided in order to present a more comprehensive picture of the matter being addressed or the relevant business environment. References to Immediate Reports in this Report include the information included in the said Immediate Reports by means of reference.



OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs

1.
General

The Company is a public company the securities of which are listed for trading on the Tel Aviv Stock Exchange Ltd. (hereinafter – “the Stock Exchange”).

The Company is engaged in two areas of activity that are reported as business segments in its financial statements: (1) generation and supply of electricity and energy in Israel – as part of this area of activities, the Company is engaged in generation and supply of electricity and energy to private customers, Israel Electric Company Ltd. (hereinafter – (“the Electric Company” or “IEC”) and the System Administrator (as it is defined in Section 1 of the Periodic Report for 2020), as well as in initiation, development, construction and operation of power plants and facilities for generation of energy through natural gas and renewable energy in Israel. The Company manages its activities in Israel mainly through a wholly‑owned subsidiary OPC Israel Energy Ltd. (“OPC Israel”). For details regarding this area of activities – see Section 8 to Part A which is included in the Periodic Report for 2020 and the updates presented in this report; and (2) holding, development, construction and management of renewable energy and conventional power plants (powered by natural gas) in the United States – as part of this area of activities, the Company is engaged in development, construction and management of renewable energy and conventional power plants in the United States through the CPV Group and in holding rights in active power plants and power plants under construction, which the CPV Group initiated and constructed, both in the conventional areas as well as in the area of renewable energy. In addition, the CPV Group is engaged in provision of asset and energy management services to power plants in the United States that it owns and that are owned by third parties. For details regarding the agreement for acquisition of the activities and with respect to this area of activities, which constitutes a reportable business segment for accounting purposes commencing from the interim statements as at March 31, 2021 – see Sections 2.3.1 and 17 to Part A which is included in the Periodic Report for 2020 and the updates presented in this report (including the interim statements).

The CPV Group is held indirectly by the Company (about 70% as stated in Note 6 to the Interim Statements) and its acquisition was completed on January 25, 2021. The CPV Group was established in 1999 and since that date it has initiated and constructed power plants with an aggregate capacity of about 15 gigawatts, of which about 5 gigawatts using renewable energy, and an additional about 10 gigawatts is from conventional power plants. Commencing with the interim financial statements as at March 31, 2021, the Company consolidates the financial statements of the CPV Group and also attaches consolidated interim proforma financial statements as at September 30, 2021 as a result of completion of the acquisition of the CPV Group. The CPV Group has holdings in active projects through associated companies and subsidiaries.

On May 9, 2021, the Company completed acquisition of 27% of the shares of Gnrgy Ltd. (hereinafter – “Gnrgy”), which is engaged in the area of charging services for electric vehicles. The Company includes Gnrgy with its activities in Israel. For details – see Section 3K below.

In July 2021, the Company received a virtual supply license and in accordance therewith the said activities were started on September 1, 2021. The Company includes the virtual supply activities together with the activities in Israel. For details – see Section 3E below.

As at the publication date of the report, the Company’s activities are carried on in Israel and in the United States, however it is clarified that this does not act to limit the Company’s activities in the future in additional geographical areas. From time to time, the Company is examining possibilities for expanding its activities in the area of generation and supply of electricity and energy, including by means of constructing and/or acquiring power plants (including using renewable energy and for storage) including in additional geographic regions worldwide, and advancement of projects that, as stated, are found to be suitable and that are consistent with the Company’s business plans, as they will be from time to time, and expansion of the range of its services and the synergy embedded in the Group’s activities (such as acquisition of the shares of Gnrgy, as detailed above).
2

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter

1.
Operating projects

Set forth below are main details with reference to the operating projects in Israel:

             
Presentation
             
             
format
             
             
in the
     
Type of
 
Year of
 
   
Capacity
   
Rate of
 
financial
     
project/
 
commercial
 
Project
 
(MW)
   
holdings
 
statements
 
Location
 
technology
 
operation
 
                             
OPC Rotem Ltd. (“Rotem”)
 
466
   
80%

Subsidiary
 
Rotem Plain
 
Natural gas, combined cycle
 
2013
 
                             
OPC Hadera2 Ltd. (“Hadera”)
 
144
   
100%

Subsidiary
 
Hadera
 
Natural gas, cogeneration
 
2020
 


2  In addition, Hadera holds the Energy Center (boilers and turbines located on the premises of Hadera Paper Mills Ltd.), which serves as back‑up for supply of steam from the Hadera power plant. It is noted that from the end of 2020 the turbine in the Energy Center is not operating, and the Company will examine its continued operation with the Electricity Authority due to the contact of the System Administrator to the Electricity Authority wherein the System Administrator believes that continued operation of the turbine by the Company requires a license pursuant to the Electricity Administrator Law and coordination with the System Administrator.

3


OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

1.
Operating projects (Cont.)

Set forth below are main details with reference to the operating projects in the United States3:

             
Presentation
                  
         
Rate of
 
format
                  
         
holdings
 
in the
                  
         
of the CPV
 
Company’s
     
Type of
 
Year of
 
Restricted
   
Capacity
   
Group in
 
financial
     
project/
 
commercial
 
market4
Project
 
(MW)
   
the project
 
statements
 
Location
 
technology
 
operation
 
customer
                                      
CPV Fairview LLC (“Fairview”)
 
1,050
   
25%

Associated company
 
Pennsylvania
 
Natural gas in a combined cycle5
 
2019
 
PJM
                                      
CPV Towantic LLC (“Towantic”)
 
805
   
26%

Associated company
 
Connecticut
 
Natural gas / two fuels combined cycle
 
2018
 
ISO‑NE
                                      
CPV Maryland LLC (“Maryland”)
 
745
   
25%

Associated company
 
Maryland
 
Natural gas combined cycle
 
2017
 
PJM
                                      
CPV Shore Holdings LLC (“Shore”)
 
725
   
37.53%

Associated company
 
New Jersey
 
Natural gas combined cycle
 
2016
 
PJM
                                      
CPV Valley Holdings LLC (“Valley”)
 
720
   
50%

Associated company
 
New York
 
Natural gas / two fuels combined cycle
 
2018
 
NYISO
                                      
CPV Keenan II Renewable Energy Company LLC (“Keenan”)
 
152
    6100%

Subsidiary
 
Oklahoma
 
Wind
 
2010
 
SPP (long‑term PPA)


3
Active projects in the U.S. are held through the CPV Group, which is held by the Company at the rate of about 70%.
4 For additional details regarding the relevant area of activities of each project in the restricted market – see Section 4 below.
5 The possibility exists for a mix of ethane of up to 25%.
6 On April 7, 2021, the CPV Group signed and completed acquisition of 30% of the rights in Keenan from its Tax Equity partner. For details – see the Company’s Immediate Report dated April 8, 2021 (Reference No.: 2021‑01‑059787) and Section 4M below.
4


OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction

Main details with reference to the initiation and construction projects in Israel7:

                                           
Total cost of
Power
                     
     Date/
     
Total
 
the investment
plants/
                         
expectation
     
expected
 
as at
facilities
                         
of the start
     
construction
 
September 30,
for
                         
of the
 
Main
 
cost
 
2021
generation
     
Capacity
 
Rate of
          
commercial
 
customer/
 
(NIS
 
(NIS
of energy
 
Status
 
(megawatts)
 
holdings8
 
Location
 
Technology
 
operation
 
consumer
 
millions)
 
millions)
                                              
Zomet Energy Ltd. (“Zomet”)
 
Under construction

≈ 396

100%

Plugot Intersection

Conventional with open cycle

January 2023

The System Administrator

9≈ 1,500

10≈ 869


7
It is clarified that that stated in this report in connection with projects that have not yet reached operation (Zomet, Sorek B, facilities for generation of energy on the consumer’s premises, NIP 94, NIP 20B), including with reference to the expected operation date and the anticipated cost of the investment, is “forward‑looking” information, as it is defined in the Securities Law, which is based on the Company’s estimates and assumptions as at the publication date of the report and regarding which there is no certainty it will be realized (in whole or in part). Completion of the said projects may not occur or may occur in a manner different than that stated above due to, among other things, dependency on various factors, including those that are not under the Company’s control, including assurance of connection to the network and output of electricity from the project sites and/or connection to the infrastructures, receipt of permits, completion of planning processes and construction work, the final scope of the costs in respect of the development, construction and land, and the terms of undertakings with main suppliers and there is no certainty they will be fulfilled or what their final terms will be. In addition, ultimately technical, operational or other delays and/or breakdowns could be caused, this being as a result of, among other things, various factors as stated above or as a result of occurrence of one or more of the risk factors the Company is exposed to, including construction risk and/or the Coronavirus crisis. For additional regarding risk factors involved in construction projects – see Section 20.3 of Part A in the Periodic Report for 2020. It is clarified that the characteristics (including the capacity and/or technology) of NIP 94 and NIP 20B, which are in the initial initiation stages and their progress is subject to, among other things, planning and licensing processes and connection assurance, are subject to change. It is further clarified that delays in completion of the projects could impact the ability of the companies to comply with their obligations to third parties in connection with the projects.
8  Companies consolidated in the Company’s financial statements.
9 The estimate of the costs, as stated, does not take into account half of the assessment issued by Israel Lands Authority in January 2021, in the amount of about NIS 200 million (not including VAT) in respect of capitalization fees (for details – see Section 8.11.6 to Part A in the Periodic Report for 2020), while as at the date of the report the Company had filed a legal appeal of the final assessment. In August 2021, the Company was informed that the appeal was rejected by Israel Lands Authority and as at the publication date of the report the Company intends to continue the processes for appealing the assessment and further to this in November 2021 the Company submitted a valuation.
10 Not including amounts relating to milestones provided in the Zomet Power Plant construction agreement that were partially completed.
5

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Main details with reference to the initiation and construction projects in Israel: (Cont.)

                                   
Total cost of
Power
                     
Date/
     
Total
 
the investment
plants/
                     
expectation
     
expected
 
as at
facilities
                     
of the start
     
construction
 
September 30,
for
                     
of the
 
Main
 
cost
 
2021
generation
     
Capacity
 
Rate of
         
commercial
 
customer/
 
(NIS
 
(NIS
of energy
 
Status
 
(megawatts)
 
holdings8
 
Location
 
Technology
 
operation
 
consumer
 
millions)
 
millions)
                                     
OC Sorek 2 Ltd. (“Sorek 2”)
 
Under construction
 
≈ 87
 
100%
 
On the premises of the Sorek B seawater desalination facility
 
Cogeneration
 
Fourth quarter of 2023
 
Yard consumers and the System Administrator
 
Up to ≈ 200
 
≈ 19
                                     
Facilities for generation of energy on the consumer’s premises
 
In various stages of initiation / development
 
Every facility up to 16 megawatts As at the publication date of the report, construction and operation agreements were signed for a total of 90 megawatts. The Company intends to take action to sign construction and operation agreements in a cumulative scope of at least 120 megawatts11
 
100%
 
On the premises of consumers throughout Israel
 
Conventional and renewable energy (solar)
 
Gradually over the years starting from 2022 pursuant to the conditions provided in the agreements
 
Yard consumers also including Group customers
 
An average of about NIS 4 per megawatt
 
≈ 44


11 The Company’s intention, as stated, reflects its intention as at the publication date of the report only, and there is no certainty that the matters will materialize based on the said expectation, and the said intention is subject to, among other things, the discretion of the Company’s competent organs. As at the publication date of the report, there is no certainty regarding signing of additional binding agreements with consumers, and there is no certainty regarding the number of consumers with which the Company will sign agreements and/or regarding the scope of the megawatts the Company will contract for and/or the type of technology if agreements are signed. As stated, as at the date of the report, all of the preconditions for execution of the projects for construction of facilities for generation of electricity on the customer’s premises had not yet been fulfilled, and the fulfillment thereof is subject to various factors, such as, licensing, connection and construction processes.


6

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Main details with reference to the initiation and construction projects in Israel: (Cont.)

                                   
Total cost of
Power
                     
Date/
     
Total
 
the investment
plants/
                     
expectation
     
expected
 
as at
facilities
                     
of the start
     
construction
 
September 30,
for
                     
of the
 
Main
 
cost
 
2021
generation
     
Capacity
 
Rate of
         
commercial
 
customer/
 
(NIS
 
NIS
of energy
 
Status
 
(megawatts)
 
holdings12
 
Location
 
Technology
 
operation
 
consumer
 
millions)
 
millions)
                                     
AGS Rotem Ltd. (“NIP 94”)
 
In initiation
 
As part of the statutory process the study examined the impact on the environment of construction of a power plant with a scope of 720 MW).13
 
80%
 
Rotem Plain, adjacent to the Rotem Power Plant
 
Conventional with storage capability
 
Not yet determined
 
Not yet determined
 
Not yet determined
 
Not yet determined
                                     
OPC Hadera Expansion Ltd. (“NIP 20B”)
 
In initiation
 
As part of the statutory process the study examined the impact on the environment of construction of a power plant with a scope of 800 MW).14
 
100%
 
Hadera, close to the Hadera Power Plant
 
Conventional with ability to integrate storage
 
Not yet determined
 
Not yet determined
 
Not yet determined
 
Not yet determined


12 Companies consolidated in the Company’s financial statements.
13 In the Government Decision dated October 29, 2020, the capacity restriction was removed. The said capacity constitutes “forward‑looking” information regarding which there is no certainty it will be realized, and that is subject to completion of the planning processes and compliance with additional conditions that have not yet been fulfilled.
14 In the Government Decision dated October 29, 2020, the capacity restriction was removed. The said capacity constitutes “forward‑looking” information regarding which there is no certainty it will be realized, and that is subject to completion of the planning processes and compliance with additional conditions that have not yet been fulfilled.
7

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Main details with reference to the construction projects in the United States:15

                               
Total
 
Amount of
                               
estimated
 
the investment
                               
construction
 
in the
       
Rate of
                     
cost for
 
project at
       
holdings
 
Status
         
Expected
     
100% of the
 
September 30,
       
of the
 
in the
         
commercial
     
project
 
2021
   
Capacity
 
CPV
 
financial
         
operation
 
Regulated
 
(NIS
 
NIS
Project
 
(megawatts)
 
Group
 
statements
 
Location
 
Technology
 
date
 
market
 
millions)16
 
millions)
                                     
CPV Three Rivers LLC (“Three Rivers”)
 
1,258
 
1710%
 
Associated company
 
Illinois
 
Natural gas, combined cycle
 
Second quarter 2023
 
PJM
 
≈ 4,175 (≈ $1,293 million)
 
≈ 2,096
(≈ $649 million)


15
Projects under construction in the United States are held through the CPV Group. Details with respect to the scope of the investments in the United States were translated from dollars and presented in NIS based on the currency rate of exchange on September 30, 2021 – $1 = NIS 3.229. The information presented below regarding projects under construction and projects awaiting construction in the U.S., including regarding the commencement date of the construction, the expected commercial structure, the projected commercial operation date and the expected construction costs, including “forward‑looking” information, as defined in the Securities Law, regarding which there is no certainty it will materialize (in whole or in part), including due to factors that are not under the control of the CPV Group. The information is based on, among other things, estimates of the CPV Group, and it is also based on plans the realization of which is not certain, and which might not be realized due to factors, such as: delays in receipt of permits, an increase in the construction costs, delays in the construction work and/or technical or operational malfunctions, problems or delays regarding signing an agreement for connection to the network or connection of the project to transmission or other infrastructures, an increase in costs due to the commercial conditions in the agreements with main suppliers (such as equipment suppliers and contractors), problems signing an investment agreement with a tax equity partner regarding part of the cost of the project and utilization of the tax benefits (if relevant), problems signing commercial agreements for of the potential revenues from the project, regulatory changes, an increase in the financing expenses, unforeseen expenses, weather events, the Coronavirus crisis, etc. Completion of the projects in accordance with the said estimates is subject to the fulfillment of conditions which as at the date of the report had not yet been fulfilled and, therefore, there is no certainty it will be completed in accordance with that stated. Such delays could even impact the ability of the companies to comply with liabilities to third parties in connection with the projects. For additional details regarding the risk factors involved with the activities of the CPV Group – see Section 17.14 of Part A in the Periodic Report for 2020.
16 Including initiation fees and reimbursement of pre‑construction development expenses to the CPV Group.
17 On February 3, 2021, the transaction for sale of 7.5% of the rights in the Three Rivers project was completed, which was held up to that time by the CPV Group. For additional information – see Section 2.3.1 of Part A in the Periodic Report for 2020.
8

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Main details with reference to the construction projects in the United States:15
                               
Total
 
Amount of
                               
estimated
 
the investment
                               
construction
 
in the
       
Rate of
                     
cost for
 
project at
       
holdings
 
Status
         
Expected
     
100% of the
 
September 30,
       
of the
 
in the
         
commercial
     
project
 
2021
   
Capacity
 
CPV
 
financial
         
operation
 
Regulated
 
(NIS
 
NIS
Project
 
(megawatts)
 
Group
 
statements
 
Location
 
Technology
 
date
 
market
 
millions)16
 
millions)
                                     
CPV Maple Hill Solar LLC (“Maple Hill”)
 
126 MWdc18
 
19100%
 
Consolidated
 
Pennsylvania
 
Solar
 
Second half 2022
 
PJM
 
≈ 575 (≈ $178 million)20
 
≈ 216
(≈ $67 million)


18 About 100 MWac.
19 As at the publication date of the report, the CPV Group had signed an agreement of principles with a “tax partner” (“Tax Equity Partner”) for investment of about $40 million in the project, where as at this date the undertaking is subject to completion of the negotiations and signing of the binding agreements. For additional details – see Section 4E in this Report of the Board of Directors below.
20 As at the date of this report, the expected cost of the investment in the project increased compared with the cost expected as at June 30, 2021 (see Report of the Company’s Board of Directors as at June 30, 2021), where the said increase stems from mostly from development fees to the CPV Group as a result of a change in the structure of the expected undertaking with the Tax Equity Partner (as stated above) that is expected to permit a potential increase in development fees to the CPV Group (where the development fees are estimated as at the date of the report in the aggregate amount of about $30–$35 million and are included in the above amount), and partly from an increase in the equipment costs and additional expected costs. That stated in connection with the amount of the development fees to the credit of the CPV Group is “forward‑looking” information that is based on the estimates of the CPV Group as at the date of the report and that is subject to the final conditions that will be determined, if any, in a binding agreement with the Tax Equity Partner, which has not yet been signed.

9


OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Main details with reference to a construction project having an agreement for sale of electricity (PPA) that is set for construction in the near future in the United States:

                                   
Total
 
Amount of the
                                   
estimated
 
investment
Power
     
Rate of
                         
construction
 
in the
plants/
     
of the
                         
cost for
 
project at
facilities
     
holdings
             
Expected
         
100% of the
 
September 30,
for
     
of the
         
Expected
 
commercial
         
project
 
2021
generation
 
Capacity
 
CPV
         
start
 
operation
 
Regulated
 
Commercial
 
(NIS
 
NIS
of energy
 
(megawatts)
 
Group
 
Location
 
Technology
 
date
 
date
 
market
 
structure
 
millions)
 
millions)
                                         
CPV Rogue’s Wind LLC (“Rogue’s Wind”)
 
≈ 114
 
21100%
 
Pennsyl-vania
 
Wind
 
First half 2022
 
Second half 2023
 
PJM
 
PPA agreement for sale of electricity, availability (capacity) and Renewable Energy Certificates (RECs) for 10 years.22
 
≈ 830 million
(≈ $257 million)23
 
≈ 18
(≈ $5 million)


21 As at the publication date of the report, the CPV Group is expected to take action to sign an agreement with a “tax investor” (“Tax Equity Partner”) with respect to investment in the project (subject to appropriate regulatory arrangements). The Tax Equity Partner will enjoy most of the tax benefits in respect of the project, which are mainly tax credits relating to Production Tax Credits (PTC) and depreciation expenses for tax purposes, as well as participation in a proportionate amount to be agreed to of the free cash flows for distribution. The entitlement to participate in part of the free cash flows is effective up to the point of reaching a rate of return on the investment of the Tax Equity Partner that will provided in the agreement. After reaching the said rate of return, the share of the Tax Equity Partner in the income and cash flows will decline to a minimum rate. It is emphasized that the CPV Group has not yet signed an agreement, as stated, and therefore there is no certainty that such an agreement will ultimately be signed, or that its conditions will be in accordance with that stated (if ultimately signed), and the matter is subject to, among other things, to commercial and regulatory conditions.
22 For details regarding the PPA agreement signed in April 2021 – see Note 9K(5) to the Interim Statements.
23 Including development fees to the CPV Group, which are estimated at the amount of about $15 – $20 million. As at the date of the report, the expected cost of the investment in the project increased compared with the expected cost as at June 30, 2021, where the increase stems mainly from an increase in the expected costs of the wind turbine for the power plant and an increase in the construction budget, shipping and delivery costs, and transmission network upgrade costs. It is noted that part of the increase of the transmission network upgrade costs is compensated for in the framework of the price adjustments based on the price formula in the project’s PPA agreement. It is clarified that the amount shown in the table is subject to additional changes, including due to a global increase in equipment and shipping costs, which has been visible over the past several months and/or other costs. That stated regarding the amount of the development fees to the CPV Group is “forward‑looking” information that is based on the estimates of the CPV Group as at the date of the report and which will be subject to the final conditions that will be determined in a yet to be signed binding agreement with the tax partner.
10

OPC Energy Ltd.
Report of the Board of Directors

2.
Brief description of the Group’s area of activities, its business environment and developments in its business in the Period of the Report and thereafter (Cont.)

2.
Projects under initiation and construction (Cont.)

Set forth below is a summary of the scope of the development projects (in megawatts)24 in the United States:25 as at the publication date of the report:

Technology
 
Advanced
   
Early stage
   
Total
 
                   
Solar26
   
1,488
     
1,315
     
2,803
 
Wind
   
114
     
150
     
264
 
Total renewable energy
   
1,602
     
1,465
     
3,067
 
Natural gas
   
1,985
     
1,940
     
3,925
 
Storage
   
     
100–500
     
100–500
 


24 In general, the CPV Group views projects that in its estimation are in a period of up to two years or up to three years to the start of the construction as projects in the advanced development stage (there is no certainty the development projects, including projects in the advanced stage, will be executed). It is noted that that stated depends on the scope of the project and the technology, and could change based on specific characteristics of a certain project, as well as from external circumstances that are relevant to a certain project. It is clarified that in the early development stages (in particular), the scope of the projects and their characteristics are subject to changes, if and to the extent they reach advanced stages.
25
The information presented in this section with reference to development projects of the CPV Group, including regarding the number of projects, their characteristics (the capacity, technology, etc.), constitutes “forward‑looking” information as it is defined in the Securities Law, regarding which there is no certainty it will be realized or the manner in which it will be realized. It is clarified that as at the date of the report there is no certainty regarding the actual execution of the development projects (in whole or in part), and their progress is subject to, among other things, completion of development and licensing processes, obtain control over the lands, signing agreements (such as equipment and agreements agreements), execution of construction and connection processes, assurance of financing and receipt of various regulatory approvals and permits, which as at the present time have not yet been completed. In addition, advancement of the development projects is subject to the discretion of the competent authorities of the CPV Group and of the Company. It is clarified that the Rogue’s Wind project, which is in the advanced initiation stage in the near term, is included in the above table. It is further clarified that solar projects under development that are the subject of the Immediate Report dated October 20, 2021 (Reference No.: 2021‑01‑157965) are included in the above table.
It is noted that the ability to locate new projects in relevant energy markets, with price and liquidity levels that support new construction constitutes a significant success factor for the development activities. In addition, regarding renewable energy projects, it is important that the country or region wherein the CPV Group seeks to construct new projects have the possibility to generate additional revenues through sale of Renewable Energy Certificates (RECs). It is further noted that in  the estimation of the CPV Group, additional factors that impact the development activities include, among others: obtaining sufficient control over the lands; the ability to connect to the electricity grid at a strategic connection point at a low connection cost; obtaining the permits required for construction of new projects, including compliance with all the environmental requirements; and the ability to raise sufficient debt and equity for construction of new projects.
26 The capacities in the solar technology included in this report are denominated in MWdc. The capacities in the solar technology projects in the advanced development stages and in the early development stages are about 1,197 MWac and about 1,050 MWac, respectively.
11

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter:

A.
During October 2021, early repayment was completed of the full amount of the outstanding credit under Rotem’s project financing, in the amount of about NIS 1,292 million (an early repayment fee) and restricted cash was released, in the amount of about NIS 125 million. Rotem recognized a non‑recurring expense in the statement of income in the third quarter of 2021, in the aggregate amount of NIS 244 million, in respect of the early repayment fee (about NIS 188 million, net of tax), even though the repayment was completed subsequent to the date of the report. In addition, in October 2021, in light of the early repayment of the balance of Rotem’s credit, the Company executed an early close‑out of an interest SWAP contract, which yielded the amount of about NIS 13 million to the Company. It is noted that as at September 30, 2021, the balance of the short‑term credit in the Interim Statements includes the balance of Rotem’s credit prior to execution of the early repayment.

The Company and the additional shareholder in Rotem provided Rotem shareholders’ loans for financing part of the amount of the early repayment, in the amount of about NIS 1,130 million, based on their proportionate holdings in Rotem’s shares.

B.
In September 2021, the Company issued a new series of debentures (Series C), in the amount of about NIS 851 million par value, where the proceeds from the issuance was designated for, among other things, early repayment of Rotem’s credit, as stated above. For additional details – see Section 13 of this report and Note 9B(8) to the Interim Statements.

C.
Further to that stated in Sections 8.5.1.2 and 8.5.3.1 of Part A of the Periodic Report for 2020, in October 2021, connection of a direct electricity line from the Hadera Power Plant to Hadera Paper Mills Ltd. was executed.

It is noted that in December 2020 and in the months January through May 2021, replacement and renovation work was performed with respect to certain components of the gas turbines in the Hadera Power Plant as part of anticipated activities. In this framework, in January 2021, the replacement and renovation work in one of the gas turbines was completed and in May 2021 the replacement and renovation work of the second gas turbine was completed. Accordingly, in the first half of 2021, there were about 65 maintenance days during which the Hadera Power Plant operated on a partial basis. The performances of the gas turbines commencing from the end of the replacement and renovation work are in accordance with that expected from them.

Regarding the maintenance work in the steam turbines, during November 2021 a shut down of the Hadera Power Plant was started for 10 days. In addition, in March 2022, additional maintenance work is expected to be performed in the steam turbine for a period of time estimated at about 60 days. It is noted that performance of the said replacement and renovation work without interruption could be impacted by traffic restrictions resulting from the Coronavirus crisis in light of the need for arrival of equipment and foreign work teams. After performance of the additional maintenance activities in the steam turbine, a further improvement in the plant’s performance is expected27.


27
That stated in Section C. above, including with reference to the execution dates of the maintenance work and the Additional Work, the duration of the work of the said work periods and/or the improvement of the performance of the power plant after execution of the work, includes “forward‑looking” information, as it is defined in the Securities Law. The aforesaid information may not be realized, or may be realized in a different manner, including as a result of reasons that are not under Hadera’s control, such as coordination with the contractor or equipment supplier, the manner of performance of the work by the contractor, technical breakdowns or other delays, which could impact the duration of the shutdown (full or partial of the power plant), including factors impacted by the Coronavirus crisis. Partial operation or shutdown of the Hadera Power Plant during extended periods of the maintenance, renovation and replacement work count impact Hadera’s ability to comply with the power plant’s availability (capacity) provisions (regarding this matter – see also Sections 8.10 and 8.12.3 of Part A in the Periodic Report for 2020) and could have a negative impact on the results of Hadera’s activities.

12

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

C.
(Cont.)

For details regarding starting of the arbitration proceedings by Hadera’s construction contractor and the contentions of the Company and the construction contractor – see Note 9D(2) to the Interim Statements and the Company’s Immediate Report dated September 23, 2021 (Reference No.: 2021‑01‑148533). As at the publication date of this report, the Company had submitted a response and a counter request to the arbitrators. It is noted that the parties are concurrently carrying on contacts in an effort to formulate a compromise, where as at the publication date of this report there is no certainty regarding the ultimate formulation of a compromise as stated. Up to now, no compensation had been received from the construction contractor in respect of the delay in the commercial operation of Hadera and non‑compliance with the performances provided in the construction agreement (except for amounts unilaterally offset by the Company from payments to the construction contractor and the construction contractor has raised contentions regarding this matter). In addition, as at the publication date of this report, no amounts have been received under the insurance policy for damages caused by delay of the commercial operation of the Hadera Power plant. There is no certainty that Hadera will be able to receive reimbursements and/or compensation in respect the full amount of its direct and indirect damages.

D.
Further to that stated in Section 8.13.6 to Part A of the Periodic Report for 2020 regarding the anticipated operation date of the Karish natural gas reservoir and possible delay of the said operation date, in November 2021 Energean sent Rotem and Hadera an update notification (further to prior updates) whereby due to a force majeure event, so Energean contends, the first gas from the Karish reservoir is expected in the middle of 202228.

Due to the delay in supply of the gas from the Karish reservoir compared with the original projected date, Rotem and Hadera will be required to acquire the quantity of gas it had planned to acquire from Energean for purposes of operation of the power plants at the present gas prices, which are provided in the agreements of Rotem and Hadera with Tamar and which are higher than the price stipulated in the Energean agreements. Accordingly, the delays in the commercial operation date of Energean and in supply of the gas from the Karish reservoir will have an unfavorable impact on the Company’s profits with reference to the supply from the Karish reservoir on the original date. For additional details, including regarding payment of compensation to Rotem and Hadera in the period of the report – see Note 9D(3) to the Interim Statements.


28 That stated above, including regarding the commercial operation date of the Karish reservoir, and regarding supply of the gas to the Company, includes “forward‑looking” information as defined in the Securities Law, which is based on the data received by the Company from Energean as at the publication date of this report and additional publicly‑available data, and there is no certainty it will materialize. Ultimately, the expected impact on the project timetables or a delay in the operation date of the Karish reservoir may be delayed beyond the estimated time, and he impacts on the Company could be more than that stated above – this being due to factors that are not under the Company’s control. In addition, there is no certainty that additional compensation will be received from Energean and there is no certainty that compensation will be paid to Rotem and Hadera that will cover all of their damages (direct or indirect).
13


OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

E.
Further to that stated in Section 8.2.1.6 of Part A of the Periodic Report for 2020 regarding the decision of the Electricity Authority regarding determination of an arrangement for suppliers that do not have means of generation (“virtual supply”) and revision of the Standards for existing suppliers, in order to gradually open the supply area in the electricity sector to new suppliers and supply to household consumers29, on April 7, 2021, the Electricity Authority published for the public’s comments the language of the license for suppliers as part of virtual supply (“a Virtual Supply License”) and update of the timetables for opening the supply area to competition, according to which commencement of the said activities took place on September 1, 2021. Further to that stated in its request, in July 2021 the Company received a Virtual Supply License. A license, as stated, was also granted to Gnrgy (in which, as at the publication date of the report, the Company holds an interest of 27% – see Note 3K below). Further to that stated, commencing from September 2021, the Company has customers in the scope of about 110 MW for virtual supply. For additional details regarding provision of guarantees in connection with the virtual supply – see Note 9B(3) to the Interim Statements.

F.
Further to that stated in Section 14.2.6.4 to Part A of the Periodic Report for 2020 regarding application of the decision of the Electricity Authority with respect to deviations from Rotem’s consumption plans, in May 2021 IEC notified Rotem according to its approach sale of energy to end‑consumers in excess of the generation capacity of Rotem’s power plant, deviates from the provisions of the PPA agreement between it and IEC (as stated in Section 8.14.5.1 to the Periodic Report for 2020)30. Rotem’s position regarding the PPA agreement is different, and in any event to the best of Rotem’s understanding the matter is expected to be impacted by supplementary arrangements that are to be determined by the Electricity Authority further to the decision of the Electricity Authority, as stated in Section 14.2.6.4 to Part A (Description of the Company’s Business) of the Periodic Report for 2020 and in this Section below.


29See Decision No. 60105 of the Electricity Authority dated September 22, 2021 at the following link:
https://www.gov.il/he/departments/policies/60105.
30
For details regarding disputes between Rotem and Israel Electric Company – see that stated in Section 8.4.15 to Part A of the Periodic Report for 2020 and in Note 9E(1) to the Interim Statements. As at the publication date of the report, no understandings have been formulated with reference to the disputes between the parties. As stated in the above‑mentioned reports, to the extent understandings are not formulated Israel Electric Company (or the System Administrator, upon its “stepping into the shoes” of Israel Electric Company in the PPA agreement) may start proceedings.

14

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

F.
(Cont.)

In May 2021, the Electricity Authority published a hearing regarding revision of the standards for purposes of implementation of the market model on the existing private generation and on the renewable energies according to which application of the market rules to the various types of generators is governed, including bilateral generators and generators with fixed availability (capacity) that operate in the framework of Regulation 241, and broad changes are proposed to the market rules31. The Electricity Authority notes in the said hearing that that it is proposed at this stage to exclude from application of the decision the Rotem generation unit, to which a special regulation applies that requires adjustments in a number of aspects, and that the Electricity Authority is presently examining all the changes required in the regulation that applies to this unit in order to create regulatory uniformity between it and the other private generation units, and in this regard it will also include consider application of the market rules to it. The impact of the hearing regarding the market model on Rotem depends on the final arrangements that will be determined (if any).

In June 2021, Rotem was informed that the Professional Staff of the Electricity Authority intends to recommend to grant Rotem a supply license (the language of the license has not yet been disclosed) and at the same time to impose certain covenants on Rotem regarding the generation activities and the supply activities, including an extraordinary consumption format, as noted above32, including arrangement of the manner of applying the above‑mentioned market model to Rotem and the manner of determination of the price when generation at the plant is reduced. Based on the information received, the team intends to take action to implement the above‑mentioned arrangements, subject to a hearing, from January 2022. Further to that stated, Rotem is taking action with the Electricity Authority in order to clarify and present its position with respect to the said arrangements, including regarding the commencement date. It is clarified that to the best of Rotem’s understanding making of a decision regarding the matter is subject to publication of a hearing, which as at the publication date of the report a hearing had not yet been published. Accordingly, as at the date of the report supplementary arrangements, as noted, had not yet been determined, and there is no certainty regarding their final language and the extent of their impact.


31
https://www.gov.il/he/departments/publications/Call_for_bids/shim_yatzranut_kayemet
32
For additional details regarding the matter of granting a supply license to Rotem and the decision regarding deviation from the consumption plan and its impacts – see Sections 8.12.2, 14.2.6 and 20.3.5 to Part A of the the Periodic Report for 2020.
15

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

G.
In June 2021, the Electricity Authority published a “call” regarding update of the hourly demand categories on the basis of which the tariff is determined for customers of Israel Electric Company33, and further thereto, in October 2021, the Authority announced, a hearing regarding the matter (after making several revisions to the said “call”). Based on the Authority’s approach in light of the transition to use of renewable energies during daytime hours and the change in the mix of the fuels, a need has been created to revise the categories of the hours on the basis of which the controlled price will be determined, in order that the TOAZ tariff will reflect, to the extent possible, the hourly costs of generation of the electricity. Update of the hours as part of the hearing relates to the cost ratios as between the different hours, and the definition of the groups (categories) of the relevant hours, which essentially reduces the peak hours (which were moved to evening hours) and expands the difference between the tariffs for the peak and the low‑level demand categories. In addition, the summer season was extended to four months. Pursuant to the hearing, the statistical categories of the hours created two categories in every season – low level and peak, without the intermediate category that existed up until now (Geva). The basis for the categories of the hours will be updated from time to time based on the mix of the electricity consumption in the market. Change of the categories of the hours in accordance with the hearing is expected to increase the tariffs paid by the household consumers and to decrease the tariffs paid by the TOAZ consumers. Based on the hearing, to the extent it is so provided in a decision, the arrangements provided therein will enter into effect gradually starting from 2022. If the format determined in the hearing is determined as it was published, this would not be expected to have a significant impact on the Company’s activities in Israel in 2022 and would be expected to have a negative impact on the Company’s activities in Israel in 2023, based on the tariffs that will be provided and the composition (mix) of the Company’s sales. As at the publication date of the report, a decision had not yet been made. The Company is examining its possible courses of action regarding the matter.

H.
Further to that stated in Section 2.3.3 of Part A of the Periodic Report for 2020, in June 2021, a number of agreements were signed in connection with construction of the Sorek 2 project. For details – see Note 9H to the Interim Statements. In September 2021, a full Notice to Proceed was issued to the construction contractor. For details – see the Company’s Immediate Report dated September 30, 2021 (Reference No.: 2021‑01‑149919).

As at the publication date of the report, the Company estimates that its construction cost of the Sorek 2 project, including its share in the Construction Agreement and the equipment supply agreement, which constitute most of the said cost (without the long‑term Maintenance Agreement), at the amount of about NIS 200 million34.


33
https://www.gov.il/he/departments/publications/Call_for_bids/kol_kore_mashab
34 It is clarified that that stated above regarding completion of the project, dates and/or the construction cost constitutes “forward‑looking” information, as it is defined in the Securities Law, which is based on estimates and assessments the Company makes as at the publication date of the report and there is no certainty it will be realized. The said information may not be realized or may be realized in a manner different than foreseen, due to, among other things, dependency on various factors, such as, the final scope of the costs in respect of the development and the land, connection to the infrastructure networks and occurrence of any of the risk factors the Company is exposed to. As at the publication date of the report, completion of the project is subject to, among other things, completion of the planning and licensing processes, the proper condition of the construction work and the equipment and completion of a detailed technical coordination regarding connection of the project to the electricity grid. Ultimately, technical breakdowns and/or delays could be caused in the processes relating to construction of the project and/or the Company may be caused to incur additional costs relating to the project beyond the estimates as stated in the Company’s Immediate Report dated June 27, 2021 (Reference No.: 2021‑01‑043576). It is noted that the delay in the commercial operation date (see table above) could impact the ability of the project to comply with its liabilities to third parties in connection with the project. For additional details regarding risk factors involved with construction projects – see Section 20.3 to Part A in the Periodic Report for 2020.
16

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

I.
Further to Government Decision No. 171 from July 202135, regarding transition to a low‑carbon economy, wherein national targets were set for reduction of emissions of greenhouse gases, including a target for reduction of the annual quantity of greenhouse gas emissions in 2050 by at least 85% of the annual quantity measured in 2015, the Government decided as part of Government Decision No. 286 from August 202136, the Government decided to instruct the Minister of Finance to amend the Excise Tax on Fuel Order (Imposition of Excise Tax), 2004, and the Customs Tariffs and Exemptions Order and Purchase Tax on Goods, 2017, such that it will result in a gradual internal absorption of the external and environmental costs of carbon emissions, commencing from 2023, in the scope detailed in the Decision. As at the publication date of the report, the Company estimates that, in general the decision is expected to raise the gas acquisition costs of the Company, where this impact is expected to be partially or fully offset if the costs stemming from the decision are reflected in the generation component37.

J.
Further to that stated in Section 8.10 of Part A in the Periodic Report for 2020, regarding the maintenance date that was scheduled for the Rotem Power Plant to take place in October 2021, as at the publication date of the report the said maintenance was postponed and is planned for April 2022.

K.
In April 2021, the Company signed an agreement for acquisition of shares (“the Share Purchase Agreement”) of Gnrgy Ltd. (“Gnrgy”), which is engaged in the area of charging services for electric vehicles (e‑mobility) and construction of charging posts for electric vehicles. For additional details – see Note 9I to the Interim Statements and the Immediate Reports dated April 13, 2021 and May 10, 2021 (Reference Nos. 2021‑01‑062613 and 2021‑01‑081177, respectively).

L.
On January 1, 2021, the annual update of the electricity tariffs of the Electricity Authority for 2021 entered into effect, according to which the generation component, which declined at the rate of about 5.7%. The generation component constitutes about 86% of the load and time tariff (“TAOZ”) at the highest‑voltage summer peak, system costs constitute about 8% of the TAOZ at the highest‑voltage summer peak, and infrastructure services constitute about 6% of the TAOZ at the highest‑voltage summer peak. The said decline in the generation component has a negative impact on the Company’s income in 2021 compared with 2020, including in the period of the report. For additional information regarding the generation component in prior years – see Note 25B to the consolidated financial statements for 2020, and see, among other things, section: Additional Details regarding the activities in Israel (Section 5) below. Regarding the factors impacting the generation component – see Section 7.7.1 of Part A of the Periodic Report for 2020. Regarding the seasonal impacts on the results of the Company’s activities in Israel – see Note 1A to the Interim Statements and that stated in this Directors’ Report below.


35
https://www.gov.il/he/departments/policies/dec171_2021
36
https://www.gov.il/he/departments/policies/dec286_2021
37 The Company’s estimates regarding offset of the impact of the Government’s decision constitutes “forward‑looking” information, regarding which there is no certainty it will be realized and which is dependent on, among other things, the regulatory arrangements that will be provided and the dates of their application (entry into effect).
17

OPC Energy Ltd.
Report of the Board of Directors

3.
Main developments in the business environment and the Company’s activities in Israel in the period of the report and thereafter: (Cont.)

M.
Coronavirus – in March 2020, the World Health Organization declared the Coronavirus to be a worldwide pandemic. Despite taking preventative measures in order to reduce the risk of spread of the virus, the virus continued to spread and it has caused significant business and economic uncertainty and volatility in the global markets, which were partly caused by the preventative measures taken and imposition of restrictions by various governmental entities worldwide. As at the date of the report, the virus is continuing to cause business and economic uncertainty. In the Period of the Report, there is a trend in recovery in the scope of the economic activities throughout the world, including removal of some of the restrictions on movement (travel) and carrying on of business and trade. At the same time, in the period of the report, along with vaccination of the population at high rates, due to the outbreak of new mutations, the virus is continuing to spread at significant rates both in Israel as well as in other countries, and accordingly restrictions are being imposed and may be imposed in the future on movement and on activities. As at the date of the report, up to now the Coronavirus Crisis had not had a significant impact on the Company’s results and activities in Israel. Nonetheless, in light of the uncertainty regarding the duration of the Coronavirus crisis, the intensity thereof and its impacts on the markets and factors relating the Company’s activities (such as, employees, significant customers, significant suppliers, lenders, etc.), as well as the uncertainty regarding the measures that will be taken by government entities, as at the date of the report, the Company is not able to estimate with any certainty the full impact of the Coronavirus Crisis on the Company. Spread of the virus and infections at the Company’s power plants and other sites, continuation of the Coronavirus Crisis for an extended period, a significant impact of the Coronavirus Crisis on main suppliers (such as, suppliers of natural gas, construction and maintenance contractors, etc.) or the Group’s main customers, or continuing movement restrictions, could have an unfavorable impact on the Company’s activities and results, as well as on its ability to complete construction projects on time or at all and/or on its ability to execute future projects. The Company is continuing to take steps in order to ensure the health and safety of its employees in all of the Company’s facilities and offices, to maintain the level of activities in all its various facilities in and outside of Israel in order to reduce the potential impact of the pandemic on its business. For additional details regarding the Coronavirus Crisis and its possible impact on the Company in Israel – see Note 1B to the Interim Statements. For details regarding the impact of the Coronavirus Crisis (according to the contentions of Energean) on the date of the flow of the gas from Karish Tanin reservoir – see Section 3D above.

It is noted that the activities of the Company’s active power plants in Israel, as well as the construction activities of the Zomet Power Plant, are continuing in the restrictions’ period since they are deemed to be essential activities while preparing the work teams and taking safety measures to prevent infections and outbreaks at the Company’s sites. It is further pointed out that the continuity of the construction work on the Zomet Power Plant or the renovation and maintenance work at the Rotem Power Plant and the Hadera Power Plant could be impacted by the traffic (movement) limitations due to the Coronavirus Crisis in light of the need for arrival of equipment and foreign work teams.

For additional details regarding the Company’s area of activities in Israel – see below in this Report of the Board of Directors and the notes to the Interim Statements.

18


OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter:

A.
Further to that stated in Section 17.1.3 to Part A in the Periodic Report for 2020, the electricity price and the natural gas prices (the main fuel of the power plants powered by natural gas of the CPV Group) are main factors in the profitability of the CPV Group, as well as the capacity prices in the activity areas of the CPV Group’s power plants. A number of variables impact the profitability of the natural gas‑powered power plants of the CPV Group, including the price of various fuels, the weather, load increases and unit capacity, which cumulatively affect the gross margin and the profitability of the CPV Group. The electricity prices in the PJM market were about 65% higher and about 80%–85% in the nine months and three months ended September 30, of 2021, respectively, compared with the corresponding periods in 2020. The electricity prices in the ISO‑NE and the NYISO markets were about 95% and about 100%–105% higher in the nine months and three months ended September 30, of 2021, respectively, compared with the corresponding periods in 2020. The average price of natural gas in Henry Hub was about 93% about 120% higher in the nine‑month and three‑month periods ended September 30, 2021, respectively, than in the corresponding periods in 2020.

In the estimation of the CPV Group, the increase in the price of the natural gas stems from the strengthening of the global demand, which increases the demand for liquid natural gas from the United States, stagnation in the production of natural gas and low inventory levels of natural gas compared with prior years. In general, in the currently existing generation mix, to the extent the gas prices are higher the electricity margins of the CPV Group are expect to be higher, such that the marginal energy prices will be higher and will favorably impact the CPV Group’s energy margins38. This impact is partly offset by plans hedging electricity and gas prices in the CPV Group’s conventional power plants, which are intended to reduce changes in the gross margin of the CPV Group resulting from changes in the commodity prices in the energy market. The purpose of the hedging plans is to fix the energy margin (in certain scopes that were determined at every date / for every project, based on each project’s specific characteristics) through an undertaking in agreements hedging the gas prices and the electricity prices, generally for short periods, as at the publication date of the report mostly up to about one year – this being in the hedging agreements of the RPO type that were signed by some of CPV’s power plants and that are intended to assure minimum cash flows for purposes of servicing the debt39. The increase in the prices during the period of the report and thereafter was offset by hedging agreements for the active power plants for 2021. In addition, increase in the forward energy prices led to a request to deposit additional collaterals under the hedging agreements in the Shore, Maryland, Towantic and Fairview power plants, in the cumulative amount of (in respect of 100% of the power plants) of about $111.5 million as at September 30, 2021, in order to ensure compliance with the liabilities pursuant to the hedging agreements (such as, purchase of gas, sale of electricity and generation activities). For purposes of provision of the additional collaterals working capital credit facilities of the said power plants were utilized. In the estimation of the CPV Group, most of the said collaterals are expected to be released back to the companies up to the second quarter of 202240.


38 That stated regarding the impacts of the natural gas prices on the profitability of the CPV Group is “forward‑looking” information, as it is defined in the Securities Law, which is based on estimates of the CPV Group in accordance with the characteristics of its activities on the publication date of the report only, and there is no certainty it will be realized. That stated could change due to various factors, including factors not under the control of the CPV Group.
39
In some of the existing power plants there are also hedging agreements of the RPO type that were signed as part of the financial closing. For additional details – see Note 3D(7) to the Interim Statements.
40
That stated above regarding release of the collaterals and/or the expected release date constitute “forward‑looking” information as it is defined in the Securities Law, which is based on the estimate of the CPV Group as at the date of the report, and regarding which there is no certainty it will be realized. That stated depends on, among other things, the conditions of conditions of the market and/or other arrangements with the parties to the relevant hedging agreements.

19

OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter:

A.
(Cont.)

In addition to that stated, the CPV Group’s profitability is impacted by the capacity of the power plant and as a practical function of the current operation and maintenance work, along with planned and unplanned maintenance. In September 2021, the Valley power plant entered into maintenance work for a period of about 20 days, which had a negative impact on the plant’s results.

Energy prices

In the nine months and three months ended on September 30, 2021, the electricity prices rose in the markets in which the CPV Group operates, compared with the corresponding periods last year. Most of the increase stems from an increase in the natural gas prices, an increase in demand in 2021 and relatively hot weather in the summer months.

The following table summarizes the average electricity prices in each of the main markets in which the projects of the CPV Group are active in the nine‑month and three‑month periods ended September 30, 2021 and 2020. The prices are denominated in dollars per megawatt hour:

   
For the nine months ended
   
For the three months ended
 
   
September 30
   
September 30
 
   
(MW/h)
   
(MW/h)
 
Region
 
2021
   
2020
   
2021
   
2020
 
                         
PJM West (Shore and Maryland)
 
$
33.70
   
$
20.24
   
$
41.77
   
$
22.75
 
PJM AD Hub (Fairview)
 
$
33.79
   
$
20.43
   
$
41.22
   
$
23.04
 
NY‑ISO Zone G (Valley)
 
$
37.16
   
$
18.98
   
$
42.92
   
$
20.99
 
ISO‑NE Mass Hub (Towantic)
 
$
41.21
   
$
21.04
   
$
44.85
   
$
22.70
 


Note:
The average electricity prices are based on Day‑Ahead prices as published by the relevant ISO.

The following table summarizes the average gas prices in each of the main markets in which the projects of the CPV Group are active in the nine‑month and three‑month periods ended September 30, 2021 and 2020. The gas prices rose in the nine‑month and three‑month periods ended September 30, 2021 compared with the nine‑month and three‑month periods ended September 30, 2020 due to, among other things, increased demand for electricity in the United States, an increase in the global demand for natural gas, an increase in demand for liquid natural gas from the United States, stagnation in production of natural gas and low inventory levels of natural gas compared with prior years (the prices are denominated in dollars per MMBtu).

   
For the nine months ended
September 30
   
For the three months ended
September 30
 
Region
 
2021
   
2020
   
2021
   
2020
 
                         
TETCO M3 (Shore, Valley)
   
3.11
     
1.55
     
3.75
     
1.45
 
Transco Zone 5 North (Maryland)
   
3.56
     
1.87
     
3.77
     
1.97
 
TETCO M2 (Fairview)
   
2.78
     
1.33
     
3.52
     
1.11
 
Dominion South (Valley)
   
2.74
     
1.38
     
3.54
     
1.23
 
Algonquin (Towantic)
   
3.93
     
1.75
     
3.86
     
1.52
 

Source: The average gas prices are based on Day‑Ahead prices at gas Midpoints as reported in Platt’s Gas Daily.
20

OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

A.
(Cont.)

            Capacity payments

PJM market

In the PJM market, the capacity payments vary between the market’s sub‑regions, as a function of local supply and demand and transmission capabilities. The next tender relating to the June 2023 through May 2024 generation year is expected to take place in the first quarter of 2022.

Set forth below are the capacity tariffs in the sub‑regions that are relevant to CPV’s projects and in the general market (the prices are denominated in dollars per megawatt per day):

Sub-Region
 
CPV Plants41
 
422022/2023
2021/2022
2020/2021
 
PJM – RTO (“General Market”)
 
 
 
 
50
 
 
140
 
 
76.53
 
 
PJM MAAC
 
 
Fairview, Maryland, Maple Hill
 
 
95.79
 
 
140
 
 
86.04
 
 
PJM EMAAC
 
 
Shore
 
 
97.86
 
 
165.73
 
 
187.77
 

Source: PJM


41 The Three Rivers project, which is presently under construction, did not participate in the capacity tender, and is expected to participate in the capacity tender starting from the 2023–2024 capacity year.
42 As determined in capacity tenders in June 2021, as stated in the Report of the Company’s Board of Directors dated June 30, 2021 (Reference No.: 2021‑01‑070297).
21


OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

A.
(Cont.)

NYISO market

Similar to the PJM market, in the NYISO market availability (capacity) payments are made in the framework of a central mechanism for acquisition of capacity. In the NYISO market, there are a number of submarkets, wherein there could be various capacity demands as a function of local supply and demand and transmission capability. NYISO makes seasonal tenders in every spring for the upcoming summer (May through October) and in the fall for the upcoming winter (November through April). In addition, there are supplemental monthly tenders for the balance of the capacity not sold in the seasonal tenders. Power plants are permitted to assure the capacity payments in the seasonal tender, the monthly tender or through bilateral sales. The Valley power plant is in Area G (Lower Hudson Valley).

Set forth below are the capacity prices determined in the seasonal tenders in NYISO market. It is noted that the actual capacity prices for Valley are impacted by the seasonal tenders, the monthly tenders and the SPOT prices, with variable capacity prices every month, as well as bilateral agreements with energy suppliers in the market (the prices are denominated in dollars per kilowatt per month):

 
 
 
Sub-Area
 
 
 
CPV
 
Plants
 
 
Summer
Winter
2021/2022
 
 
Summer
2021
 
 
Summer
Winter
2020/2021
 
 
Summer
Winter 2020
 
 
NYISO
Rest of the Market
 
 
-
 
 
1.00
 
 
4.09
 
 
0.10
 
 
2.71
 
 
Lower Hudson Valley
 
 
Valley
 
 
1.01
 
 
4.56
 
 
0.23
 
 
3.07
 

Source: NYISO

ISO‑NE market

The ISO‑NE permits availability (capacity) payments as part of a central mechanism for acquisition of capacity. In the ISO‑NE market, there are a number of submarkets, wherein there could be various capacity demands as a function of local supply and demand and transmission capability. Forward capacity tenders are made three years in advance for the capacity year. In addition, there are supplemental monthly tenders for the balance of the capacity not sold in the Forward tenders. As stated in Section 17.2.1 of Part A of the Periodic Report for 2020, when Towantic entered into the capacity market, the project assured a fixed capacity payment for seven years which is granted to new players. Payment of the capacity, as stated, will apply up to May 2025 and participation is expected in a tender for the period from June 2025 through May 2026, which is expected to be held in the first quarter of 2022.

22


OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

B.
In November, 2021, the U.S. Congress approved the Bipartisan Infrastructure Law, which was signed by the President of the United States (“the Infrastructure Law”). The Infrastructure Law is the first part of legislation (having two parts), which addresses numerous sectors in the U.S. economy, including, transportation, construction and energy. A significant part of the Infrastructure Law deals with expansion of transmission and R&D infrastructures relating to technologies, capture of carbon and sequestration of hydrogen, strengthening the grid and energy effectiveness. The second part of the legislation, known as the “Building Back Better Act”, includes a number of proposals regarding expansion of generation facilities using renewable energy by means of “refundable tax credits”43 and a tax credit for carbon capture (“the BBB Law”). The BBB Law was approved by the U.S. Senate in August 2021 and as at the publication date of the report it is being deliberated in the House of Representatives, and its “price tag” is estimated at about $3.5 trillion. As at the publication date of the report, there is uncertainty regarding passage of the BBB Law and its content, in light of issues that are still being discussed. The said legislation and regulation could have a material impact on the demand for electricity by means of advancement of reduced‑carbon transportation and economy and concurrently raising the standards for generation of electricity using clean energy.44

C.
Changes in the costs in the production and supply chain of equipment for the projects: in 2021, including in the period of the report and thereafter, due to high global demand for raw materials, and shipping and delivery, on the one hand, and limited production capacity and limited shipping and delivery capacity, on the other hand, there has been a significant increase in costs in the production and supply chain. In general, prices of raw materials for the generation facilities rose, as did the shipping and delivery costs. To the extent this trend continues, there could be an impact on the cost of the inputs for the CPV Group. At the present time, there is no certainty regarding the duration or the extent of the trend and, accordingly, the CPV Group is not able to predict with any degree of certainty and precision the impact thereof on the Company’s activities.

D.
The increasing demand for renewable energy in the PJM, MISO and SPP electricity markets, led to an increase in demand for connections to the grid and requests for connection surveys of solar projects to the grid. This demand creates a burden and causes a slowdown in the connection process and could impact the process and rate of the progress of the projects.


43 It is noted that an arrangement as stated (to the extent it is determined and subject to the final arrangements) is expected to permit renewable energy projects to enjoy the tax benefits in cash with no need for a Tax Equity partner.
44
The Company’s above estimate regarding changes in the area of activities constitutes “forward‑looking” information, as it is defined in the Securities Law, which is based solely on the Company’s said estimates as at the publication date of the report only and on publicly‑known data and which is dependent and contingent on various factors.

23

OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

E.
Further to that stated in Section 17.2 to Part A in the Periodic Report for 2020, in connection with an advanced development project of the CPV Group, in May 2021, a commencement order was issued for the construction work on the Maple Hill project using solar energy, to the project’s construction contractor. On this date, among other things, a construction agreement (EPC) was signed and rights in the project’s lands were acquired. For additional details relating to the project – see that stated in Section 2 above and the Immediate Report dated May 12, 2021 (Reference No.: 2021‑01‑083409). In June 2021, the project participated for the first time in capacity tenders in the PJM market, and it will be entitled to capacity payments, as shown in the table above. In August 2021, Maple Hill signed an agreement with a third party whereby a financial accounting will be made between the parties based on 48% of the amount of the electricity generated by the Maple Hill power plant for a period of 10 years from the operation date. The balance of the electricity generated (52%) is expected to be sold in the market or under a separate agreement for sale of electricity in the future45. As at the date of this report, the CPV Group had signed a document of principles with a “tax partner” with respect to an investment in the project of about $40 million, where as at the date of this report the undertaking is subject to completion of the negotiations and signing of binding agreements. The said tax partner is expected to enjoy most of the tax benefits relating to the project, which consist mainly of investment tax credits (ITC) and deprecation deductions for tax purposes, along with participation in a proportionate amount (to be agreed upon) of the cash flows that are free (available) for distribution. The entitlement to participate in part of the said free cash flows is effective up to reaching a certain investment period of the tax partner as will be determined in the agreement. After reaching the said period, the share of the tax partner in the income and cash flows will decline to a minimal rate. It is emphasized that the CPV Group has not yet signed a final agreement, as stated, and therefore there is no certainty that such an agreement will ultimately be signed or what its terms will be, including what will be the scope of the investment in accordance with that stated (if ultimately signed). As at the date of this report, the expected cost of the investment in the project has increased compared with the cost expected as at June 30, 2021, where the said increase stems partly from a change in the structure of the expected undertaking with a tax partner that is expected to permit a potential increase in development fees to the benefit of the CPV Group (as at the date of the report the development fees are estimated at about $35 million and are included in the above amount), and partly from an increase in the equipment costs and additional expected costs46. For additional details relating to the project, including material agreements signed as at the publication date of the report – see Note 9K(4) to the Interim Statements.

F.
Further to that stated in Section 17.8 to Part A in the Periodic Report for 2020, in August 2021, Keenan signed a financing agreement with a number of financial entities, including a term loan and accompanying credit frameworks. Concurrent with completion of the financing agreement, as stated, Keenan repaid the prior financing it took out in 2014. For additional details – see the Company’s Immediate Report dated August 8, 2021 (Reference No.: 2021‑01‑162437) and Note 9K(3)(d) to the interim statements.

G.
In September 2021, the financial investors, which hold cumulatively (indirectly) about 30% of the rights in the CPV Group, approved their participation in an additional investment commitment in the development and expansion of the CPV Group – each one based on its proportionate share (where in addition to the Company’s share (70%)), the additional investment is in the aggregate amount of about $400 million. For additional details – see the Company’s Immediate Report dated September 19, 2021 (Reference No.: 2021‑01‑147864) and Note 9J to the Interim Statements.

H.
In October 2021, the Company completed an issuance of shares by means of an offer of rights, among other things, in connection with development and expansion of the Company’s activities in the United States, as stated in the shelf offer report published by the Company in September 2021. The proceeds for the rights exercised amounted to about NIS 328.5 million (gross). For details – see Section 13 of this report and Note 9B(9) to the Interim Statements.

I.
In October 2021, the CPV Group signed agreements for acquisition of all of the rights in two solar projects that are in various stages of development, with an aggregate capacity of about 458 MWdc in Kentucky (about 98 MWdc), Illinois (about 360 MWdc) in the United States (“the Acquisition” and “the Projects”, respectively). Concurrent with signing of the agreements, completion of acquisition of the rights in the Projects was executed by the CPV Group.


45
That stated constitutes “forward‑looking” information, regarding which there is no certainty it will be realized or the manner of its realization. As at the date of the report, a project under construction is involved and completion of the project in accordance with that stated above is subject to conditions that have not yet been fulfilled.
46
That stated with respect to the amount of the development fees to the benefit of the CPV Group is “forward‑looking” information that is based on the estimates of the CPV Group as at the date of the report, and that are subject to the final terms that will be determined, if determined, in a binding agreement with the tax partner, which has not yet been signed.
24


OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

I.
(Cont.)

In exchange for acquisition of the rights in the Projects, on the completion date of the Acquisition the amount of about $9 million was paid to the seller, where the transaction includes contingent consideration, which together with the amount paid on the closing date, as stated, could amount to about $46 million. The contingent consideration is to be paid in increments subject to reaching development milestones in the Projects. Upon their acquisition, the Projects were added to the backlog of development project of the CPV Group using solar technology.

As at the publication date of the report, the Projects hold rights in land and have submitted requests for connection to the grid, and in the estimation of the CPV Group, subject to completion of the various development stages, including assurance of the financing required for the development, they are expected to ripen into the development stage in the second half of 202347.

The Projects are located in the PJM market.

J.
As part of its strategy of expanding its activities in the area of renewable energy (as stated in, among other places, Section 17.13 of Part A of the Periodic Report for 2020), the CPV Group is considering entry into Offshore Wind projects (wind energy at sea) in the United States, and in this regard it is examining opportunities in this area in the geographical locations of its activities. In the estimation of the CPV Group, the Offshore Wind area in the United States is expected to grow significantly in the next decade, mainly along the east coast. As part of the policy to reduce emissions, the Biden administration has set a target of installed capacity of 30 GW of Offshore Wind projects by 2030. The CPV Group’s intention is to take action to initiate, finance, develop, construction and operate projects in this area, including by means of a joint venture with financial and other investors. In this connection, it is noted that the CPV Group has entered into the preliminary financing stage in the competitive process for acquisition of rights in an area designated for construction of an Offshore Wind facility located along the New York coastlines, which includes 8 land sections with a total expected capacity of more than 6,000 megawatts coastlines48.

K.
For details regarding repayment of a seller’s loan in respect of a project under construction, which was provided as part of completion of the transaction for acquisition of the CPV Group – see the Company’s Immediate Report dated October 31, 2021 (Reference No.: 2021‑01‑161151) and Note 7A to the Interim Statements.


47
That stated above with reference to the start date of the construction of the projects constitutes “forward‑looking” information as it is defined in the Securities Law, which is based on the estimates of the CPV Group as at the date of the report. Completion of the projects is subject to completion of the development stages, which at the present time have not yet been completed. The development stages include, among other things, completion of the licensing processes, signing agreements with main suppliers (construction contractor and supply of equipment) and with a “tax partner”, assurance of connection to the grid and signing a connection agreement and assuring the commercial structure of the Projects.
48 That stated in this Section regarding the estimates of the CPV Group and its plans constitutes, as well as with respect to the expected capacity of the project referred to above, “forward‑looking” information and there is no certainty it will materialize. In addition, as at the publication date of the report, there is no certainty regarding participation in the competitive process and/or regarding the expected capacity of the project (if it is ultimately advanced).
25


OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

L.
Further to that stated in Section 17.8 to Part A of the Periodic Report for 2020, in May 2021, Maryland signed an extension of the credit framework agreement of the Term Loan B type, relating to the project. As part of replacement of the credit agreement, Maryland signed a loan agreement, in the amount of about $350 million, and accompanying frameworks, in the amount of about $100 million. For details – see Note 7C to the Interim Statements.

M.
Further to that stated in Section 17.2 to Part A of the Periodic Report for 2020, in connection with a wind energy power plant having a capacity of 152 megawatts (Keenan) (in this Section – “the Project”), which is held at the rate of 70% as at the date of the Periodic Report for 2020, by the CPV Group, on April 7, 2021 an agreement was signed for acquisition of the balance of the rights in the Project by the CPV Group (that is, the remaining 30%). For additional details – see Note 9K(6) to the Interim Statements.

N.
Further to that stated in Section 17.2 to Part A of the Periodic Report for 2020, in connection with projects in advanced development of the CPV Group, in April 2021 an agreement was signed for sale of electricity (PPA) in the wind energy project Rogue’s Wind for sale of all the Project’s energy, availability (capacity) and Renewable Energy Certificates (RECs) of the project. For details – see that shown in the above table.

The construction cost of the project, including initiation fees to the CPV Group estimated at about $11 million, is about $257 million. As at the date of this report, the expected cost of the investment in the project has risen compared with the expected cost as at June 30, 2021, where the said increase stems mostly from an increase in the expected costs of the wind turbine for the power plant, shipping and delivery costs, an increase in the construction budget and the costs of upgrading the transmission network. It is noted that part of the increase in the costs of upgrading the transmission network is expected to be compensated for in the framework of the price adjustments in accordance with the price formula in the project’s PPA agreement. It is clarified that that stated in the table is subject to additional adjustments, including due to a global increase in the equipment and shipping prices, as is visible in the past months, and/or other costs.

26

OPC Energy Ltd.
Report of the Board of Directors

4.
Main developments in the Company’s activities in the United States in the period of the report and thereafter: (Cont.)

O.
The Coronavirus: as stated in Section 17.14.11 to Part A of the Periodic Report for 2020, the spread of the Coronavirus has a significant impact on the business activities in the United States and worldwide. During the Coronavirus crisis, the activities of the power plants of the CPV Group are continuing while making adaptations, such as, changes in the shifts of workers, change in the timetables for performance of the maintenance work, transfer of employees to working remotely, etc. In addition, the CPV Group is continuing to make adaptations for purposes of information security at the power plants. Furthermore, the Coronavirus crisis impacted the availability of suppliers and on the sectors involved in the development activities of the CPV Group. At this date, there is no certainty relating to the duration of the Coronavirus crisis, its force (scope) and its impacts on the markets or on factors relating to CPV’s activities, and therefore the CPV Group is not able to estimate with any degree of certainty and completeness the impact of the Coronavirus crisis, and event of the outbreak of the virus and the (possible) spread thereof at the power plants of the CPV Group or restrictions on conducting business in the areas in which it operates, as well as the measures taken and that will be taken worldwide as a result thereof – which has impacted the economy and commodity markets in the U.S., in general, and the prices of electricity and natural gas, in particular – could impact CPV’s activities (even significantly), thwart completion of the construction of projects (as detailed in Section 2 above) and the progress of development of the development projects of the CPV Group, and could also impact its ability to actually commence execution of its future projects. For details – see Note 1B to the Interim Statements.

For additional details regarding the area of the Company’s activities in the United States – see the Report of the Board of Directors below and the notes to the Interim Statements that are attached to this report.
27

OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.  Financial Position as at September 30, 2021 (in millions of NIS)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Current Assets
           
             
Cash and cash equivalents
 
1,565
 
200
 
Most of the increase stems from withdrawal of deposits and restricted cash, in the amount of about NIS 1,815 million, investments received from holders of non‑controlling interests (financial investors) in the CPV Group, in the amount of about NIS 727 million, issuance of debentures (Series C), in the amount of about NIS 842 million (net of issuance expenses), issuance of shares for net proceeds of about NIS 365 million, and withdrawals under the project financing agreements in Israel and in the United Stated, in the amounts of about NIS 262 million and about NIS 333 million, respectively. In addition, there was an increase in the cash balances as a result of the Company’s current operating activities, in the amount of about NIS 264 million.
 
This increase was partly offset by cash used for acquisition of the CPV Group, in the amount of about NIS 2,140 million, cash used for investments in projects in Israel and the U.S., in the amounts of about NIS 285 million and about NIS 214 million, respectively, and current debt repayments (including interest) in Israel and the U.S., in the amounts of about NIS 197 million and about NIS 407 million, respectively.
 
For additional information – see the Company’s condensed consolidated statements of cash flows in the Interim Statements.
             
Short-term deposits
 
 
1,607
 
The decrease stems from withdrawal of the deposits for purposes of acquisition of the CPV Group. For details regarding the agreement covering acquisition of the CPV Group – see Note 6 to the Interim Statements.
             
Short-term deposits and restricted cash
 
125
 
207
 
Most of the decrease derives from release of collaterals in respect of hedging transactions, in the amount of about NIS 86 million, and release of collaterals, which were used for provision of bank guarantees in Israel, in the amount of about NIS 67 million (for additional details – see Note 9B to the Interim Statements).
 
This decrease was partly offset by a reclassification to short term of a debt service reserve in Rotem in the amount of about NIS 72 million. The reclassification was made in light of the early repayment of the full balance of the outstanding credit of Rotem in October 2021. For additional details – see Note 10A to the Interim Statements.

It is noted that in October 2021, in light of the early repayment of Rotem’s debt, balances of restricted cash were released, in the amount of about NIS 125 million.

28


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.          Financial Position as at September 30, 2021 (in millions of NIS)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Current Assets (Cont.)
           
             
Trade receivables and accrued income
 
177
 
153
 
Most of the increase stems from an increase of about NIS 28 million due to the first‑time consolidation of the CPV Group and an increase of about NIS 17 million in accrued income deriving from sale of energy in the virtual supply framework (for additional details – see Note 9B(6) to the Interim Statements). On the other hand, there was decrease in accrued income in Israel, in the amount of about NIS 13 million, mainly as a result of the impact of the seasonal factor on the sales and reduction of the generation component (as described in Note 9A(1) to the Interim Statements) and from a decrease in balance of the trade receivables in the United States (after the initial consolidation of the CPV Group), in the amount of about NIS 11 million, due to collection of an annual debt.
             
Receivables and debit balances
 
145
 
63
 
Most of the increase, in the amount of about NIS 39 million, is due to the first‑time consolidation of the CPV Group, and in light of making deposits in connection with project under construction in the United States, in the amount of about NIS 25 million. In addition, as at September 30, 2021, the amount includes the balance of the receivables, in the amount of about NIS 9 million, in respect of the compensation receivable due to the delay in the commercial operation on the part of Energean (for further details – see Note 9D(3) to the Interim Statements) and the balance, in the amount of about NIS 13 million, in respect of an early close‑out of an interest SWAP contract in light of execution of the early repayment of the entire balance of Rotem’s outstanding credit (for further details – see Note 10A to the Interim Statements).
             
Short-term derivative financial instruments
 
1
 
   
             
Total current assets
 
2,013
 
2,230
   

29


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Non-Current Assets
           
             
Long-term deposits and restricted cash
 
66
 
231
 
Most of the decrease stems from release of collaterals in respect of interest SWAP contracts (as described in Note 22D to the consolidated financial statements for 2020), in the amount of about NIS 35 million, release of a collateral, in the amount of about NIS 53 million, which was designated to secure a bank guarantee (for additional details see – Note 15D(4) to the consolidated financial statements for 2020) and Note 9B to the Interim Statements). In addition, there was a decrease of about NIS 72 million stemming from reclassification to short term of a debt service reserve in Rotem. The reclassification was made in light of early repayment of the full balance of the outstanding credit of Rotem in October 2021. For additional details – see Note 10A to the Interim Statements.
             
Long-term prepaid expenses and receivables
 
180
 
143
 
Most of the increase stems from construction of infrastructures in Zomet, in the amount of about NIS 21 million, and a loan to an associated company in the United States, in the amount of about NIS 16 million. In addition, there was an increase, in the amount of about NIS 4 million, due to the first‑time consolidation of the CPV Group.
             
Investments in associated companies
 
1,851
 
 
Most of the increase is the result of acquisition of the CPV Group. For additional details regarding investments in associated companies – see Sections 1 and 6 to this Report and Notes 6 and 7 to the Interim Statements.
             
Deferred tax assets, net
  120  
24
 
An increase of about NIS 78 million stemming from an increase in the loss for tax purposes in Israel, mainly in light of the early repayment in Rotem (for additional details – see Note 10A to the Interim Statements), and an increase of about NIS 18 million resulting from acquisition of and the activities of the CPV Group.
             
Long-term derivative financial instruments
 
31
 
1
 
The balance as at September 30, 2021 includes mainly interest SWAP contracts in Israel (about NIS 22 million) and in the U.S. (about NIS 3 million), which are measured at fair value.
             
Property, plant and equipment
 
3,278
 
2,665
 
Most of the increase stems from investments in the Zomet project, in the amount of about NIS 289 million, an increase of about NIS 180 million stemming the first‑time consolidation of the CPV Group, investments in projects under construction in the CPV Group, in the amount of about NIS 186 million, investments in projects involving energy generation facilities located on the consumer’s premises, in the amount of about NIS 32 million, and investments in additional projects in Israel, in the amount of about NIS 23 million.
 
This increase was partly offset by depreciation expenses in respect of property, plant and equipment in Israel, in the aggregate amount of about NIS 99 million.


30


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Non-Current Assets (Cont.)
           
             
Right-of use assets
 
300
 
276
 
Most of the increase derives from the first‑time consolidation of the CPV Group.
             
Intangible assets
 
673
 
5
 
As at September 30, 2021, the balance represents mainly the amount of about NIS 333 million, in respect of an agreement for sale of electricity in the Keenan project, and the amount of about NIS 335 million relates to goodwill created in light of acquisition of the CPV Group.
             
Total non-current assets
 
6,499
 
3,345
   
             
Total assets
 
8,512
 
5,575
   

31


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Current Liabilities
           
             
Current maturities of long-term liabilities
 
1,385
 
149
 
Most of the increase, in the amount of about NIS 1,019 million, derives from reclassification to short term of the balance of the unpaid credit of Rotem in light of the early repayment in October 2021, and an increase, in the amount of about NIS 244 million, stemming from Rotem’s obligation to pay an early repayment fee due to repayment of the balance of the credit as stated. For additional details – see Note 10A to the Interim Statements. In addition, the increase stems from update of current maturities of loans and debentures in Israel in accordance with the repayment schedule, in the amount of about NIS 48 million, and an increase of about NIS 21 million, due to the first‑time consolidation of the CPV Group, and an increase of about NIS 40 million from update of current maturities in the United States.
 
This increase was partly offset by repayment of the project credit in Israel based on the repayment schedule, in the amount of about NIS 96 million, repayment of debentures (Series B) of the Company, in the amount of about NIS 22 million, and payment of the project credit in the United States, in the amount of about NIS 21 million.
             
Trade payables
 
359
 
298
 
Most of the increase derives from an increase in the balance with the Zomet construction contractor, in the amount of about NIS 58 million, an increase of about NIS 18 million due to the first‑time consolidation of the CPV Group, and an increase, in the amount of about NIS 17 million, deriving from acquisition of energy in virtual supply framework (for additional details – see Note 9B(6) to the Interim Statements).
 
This increase was partly offset by a decrease stemming from a decrease in the balance of Israel Electric Company, in the amount of about NIS 35 million, mainly due to timing differences and a decrease in the scope of electricity purchases from Israel Electric Company.
             
Payables and other credit balances
 
73
 
96
 
Most of the decrease derives from a decrease in the accrued expenses, in the amount of about NIS 42 million (mainly in light of payment of transactions costs relating to acquisition of the CPV Group).
 
This decrease was partly offset by an increase, in the amount of about NIS 12 million, due to the first‑time consolidation of the CPV Group, and an increase of about NIS 8 million relating to payables relating to salary and salary‑related expenses in the CPV Group.
             
Short-term derivative financial instruments
 
36
 
126
 
Most of the decrease stems from repayment of hedging transactions that served to hedge the Company’s investment in acquisition of the CPV Group. For additional details – see Note 22D to the consolidated financial statements for 2020.

32

OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Current Liabilities (Cont.)
           
             
Current maturities of lease liabilities
 
57
 
45
 
Most of the increase stems from an increase in the balance of Zomet’s liabilities in respect of capitalization fees for the land, in the amount of about NIS 7 million, this being in light of a refund received from Israel Lands Authority in March 2021 (for additional details – see Note 9C(1) to the Interim Statements). In addition, there was an increase of about NIS 3 million due to the first‑time consolidation of the CPV Group.
             
Current taxes payable
 
1
 
   
             
Total current liabilities
 
1,911
 
714
   

33


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Non-Current Liabilities
           
             
Long-term loans from banks and others
 
1,745
 
1,851
 
The decrease, in the amount of about NIS 1,019 million, derives from reclassification to short term of the balance of the outstanding credit of Rotem in light of the early repayment in October 2021. For additional details – see Note 10A to the Interim Statements. There was an additional decrease stemming from update of current maturities of Hadera’s senior debt, in the amount of about NIS 27 million.
 
On the other hand, as at September 30, 2021, the balance includes long‑term loans of the CPV Group, in the amount of about NIS 649 million, where the amount of about NIS 175 million, is in respect of a seller’s loan that was repaid in October 2021 (for additional details – see Notes 6 and 7A to the Interim Statements), the amount of about NIS 291 million in respect of the new financing agreement of the Keenan project (for additional details – see Note 3K(3)(d) to the Interim Statements) and, for purposes of acquisition of the CPV Group, a loan was received from the holders of non‑controlling interests, which as at the date of the report amounts to about NIS 183 million. In addition, there was an increase stemming from a withdrawal in the framework of the Zomet Financing Agreement, in the amount of about NIS 262 million, and an increase in the linkage differences in respect of the senior debt of Rotem and Hadera, in the amount of about NIS 34 million.
             
Debentures
 
1,788
 
952
 
The increase stems from issuance of debentures (Series C) of the Company, in the amount of about NIS 842 million (net of issuance expenses). For additional details – see Note 9B(8) to the Interim Statements. In addition, there was an increase in the linkage differences in respect of the debentures (Series B), in the amount of about NIS 16 million.
 
This increase was partly offset by a decrease stemming from update of the current maturities of the debentures (Series B), in the amount of about NIS 22 million.
             
Long-term lease liabilities
 
42
 
14
 
The increase is due to the first‑time consolidation of the CPV Group.
             
Long-term derivative financial instruments
 
1
 
22
 
As at December 31, 2020, the balance represents mainly the fair value of interest SWAP contracts in the Company.
             
Other long-term liabilities
 
77
 
2
 
As at September 30, 2021, the balance represents mainly the obligations recorded as a result of acquisition of the CPV Group, where about NIS 34 million is in respect of an equity compensation benefit for employees of the CPV Group, the amount of about NIS 19 million is in respect of an obligation relating to clearance and removal in the Kennan project and about NIS 22 million relates to deferred liabilities of additional projects in the United States.

34


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

2.
Financial Position as at September 30, 2021 (in millions of NIS) (Cont.)

Category
 
9/30/2021
 
12/31/2020
 
Analysis
             
Non-Current Liabilities (Cont.)
           
             
Liabilities for deferred taxes, net
 
370
 
309
 
The increase, in the amount of about NIS 21 million, is due to acquisition of the activities of the CPV Group, and an increase of about NIS 40 million stemming from update of the deferred taxes as a result of recording of deferred taxes relating to temporary differences in Israel.
             
Total non-current liabilities
 
4,022
 
3,150
   
             
Total liabilities
 
5,933
 
3,864
   
35

OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS)


The Group’s activities are subject to seasonal fluctuations. For additional details regarding seasonal impacts – see Note 1A to the Interim Statements. The said seasonal impact also impacted the results of the Company’s activities in Israel and in the United States in the period of the report. In Israel, the third quarter of 2021 includes two months of the summer tariffs, which are higher than the average tariffs for the year. In the U.S, the third quarter of 2021 is characterized by the summer months with higher‑than‑average demand for electricity. In the U.S., the summer months in 2021 were hotter than the average and the demand for average was a bit higher than the average.


The results of the associated companies in the U.S. are presented in the category “Company’s share in income (losses) of associated companies”.


It is noted that the results of the CPV Group are consolidated in the Company Interim Statements commencing from the completion date of the transaction for acquisition of the CPV Group on January 25, 2021. For details regarding the agreement covering acquisition of the CPV Group – see Note 6 to the Interim Statements.


For an analysis of proforma data – see Note 8 below.

   
For the
 
   
Nine Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Revenues from sales in Israel
 
1,025
 
978
 
For an explanation regarding the change in the sales in Israel – see Section 5, below.
             
Revenues from sales and provision of services in the U.S.
 
123
 
 
The result stems from activities of the CPV Group. Revenues from sale of electricity from the power plant in the Keenan project (which is included in the financial statements) amount to about NIS 59 million, and revenues from provision of management services amount to about NIS 64 million. It is noted that these revenues do not include revenues of projects that are not controlled by the CPV Group that are presented in the results of associated companies.
             
Cost of sales (less depreciation and amortization) in Israel
 
722
 
702
 
For an explanation regarding the change in the cost of sales – see Section 5, below.
             
Cost of sales and provision of services (less depreciation and amortization) in the U.S.
 
55
 
 
The results stem from activities of the CPV Group. The total cost of the sales and provision of services in the U.S. includes expenses in the amount of about NIS 16 million in respect of operating costs and about NIS 38 million in respect of expenses for salaries and provision of services.
             
Depreciation and amortization in Israel
 
103
 
80
 
Most of the increase stems from an increase in depreciation expenses of the Hadera Power Plant, in the amount of about NIS 20 million, as a result of the commercial operation in July 2020.
             
Depreciation and amortization in the U.S.
 
28
 
 
The result stems from activities of the CPV Group in respect of depreciation in the Keenan project.
             
Gross profit
 
240
 
196
   

36


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Nine Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Administrative and general expenses in Israel and headquarters expenses
 
56
 
38
 
Most of the increase stems from an increase in salary expenses and headquarters expenses, in the amount of about NIS 12 million (which includes about NIS 3 million of non‑cash equity remuneration), in light of, among other things, expansion of the Company’s activities, and insurance costs in Hadera, in the amount of about NIS 4 million.
             
Administrative and general expenses in the U.S.
 
86
 
 
The result stems from activities of the CPV Group. The administrative and general expenses in the U.S. include equity compensation of about NIS 34 million, salary expenses of about NIS 25 million, and office maintenance and professional services, in the amount of about NIS 25 million.
             
Share in income of associated companies in the United States
 
23
 
 
The result stems from acquisition of the CPV Group. The result includes a loss of about NIS 48 million (before taxes) in respect of changes in the fair value of derivative financial instruments in hedge plans in the CPV Group (for additional details regarding the results of associated companies – see Section 6 below and Note 7 to the Interim Statements).
             
Transaction expenses in respect of acquisition of the CPV Group
 
2
 
4
   
             
Business development expenses in Israel
 
1
 
6
 
Most of the decrease stems from the start of capitalization of expenses to projects under construction.
             
Business development expenses in the U.S.
 
3
 
   
             
Other (expenses) income in Israel
 
(1)
 
1
   
             
Other expenses in the U.S.
 
(39)
 
 
The result stems from acquisition of the balance of the rights of the tax‑equity partner in the Keenan project (for details – see Note 9K(6) to the Interim Statements).
             
Operating income
 
75
 
149
   

37


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Nine Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Financing expenses, net, in Israel
 
(348)
 
(83)
 
Most of the increase stems from a non‑recurring early repayment loss, in the amount of about NIS 244 million, due to execution of early repayment of the full balance of the outstanding credit of Rotem in October 2021 (for additional details – see Note 10A to the Interim Statements). In addition, there was an increase in interest expenses and linkage differences on Hadera’s senior debt, in the amount of about NIS 20 million (including the results of the hedge of linkage to the CPI), as a result of the commercial operation of the Hadera Power Plant and discontinuance of capitalization of the financing expense to the cost of the asset under construction and an increase stemming from interest and linkage differences on debentures, in the amount of about NIS 14 million (mainly as a result of an increase in linkage differences).

This increase was partly offset by a decrease in the financing expenses stemming from the impact of the changes in the shekel/dollar exchange rate, in the amount of about NIS 16 million, and financing income recorded in 2021 as a result of interest SWAP contracts (the non‑effective part), in the amount of about NIS 3 million.
             
Financing expenses, net, in U.S.
 
(15)
 
 
The result stems from acquisition of the CPV Group. The financing expenses, net, in the U.S. include interest expenses of about NIS 20 million, financing expenses stemming from the impacts of the changes in the dollar/shekel exchange rate, in the amount of about NIS 4 million, and financing income stemming from amortization of excess cost, in the amount of about NIS 10 million, as a result early repayment of the balance of the credit in Keenan.
             
Income (loss) before taxes on income
 
(288)
 
66
   
             
Taxes on income (tax benefit) in Israel
 
(41)
 
26
 
The decrease derives from lower results in Israel in the first nine months of 2021 compared with the corresponding period last year.
             
Tax benefit in the U.S.
 
(32)
 
 
The result stems from activities of the CPV Group.
             
Income (loss) for the period
 
(216)
 
40
   

38


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Nine Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Elimination of the fair value of derivative financial instruments
 
     48
 
 
Derivative financial instruments that are used for hedging plans of the CPV Group as described in Part 4A of this Report.
             
Elimination of loss in respect of acquisition of rights of the tax partner in Keenan
 
     39
 
 
For additional details – see Note 9K(6) to the Interim Statements.
             
Elimination of loss in respect of early repayment of loans
 
   244
 
 
For additional details – see Note 10A to the Interim Statements.
             
Elimination of tax impact in respect of the adjustments
 
     (79)
 
   
             
Adjusted net income49
 
     36
 
  40
   
             
Income (loss) attributable to:
           
The owners of the Company
 
   (169)
 
  20
   
Non-controlling interests
 
     (47)
 
  20
   
             
Adjusted net income attributable to:
           
The owners of the Company
 
     26
 
  20
   
Non-controlling interests
 
     10
 
  20
   


49 It is emphasized that “adjusted income” as stated in this report is not a recognized data item under IFRS or under any other set of generally accepted accounting principles as an index for measuring financial performance and should not be considered as a substitute for income or loss or other terms provided in accordance with IFRS. It is possible that financial indices that are not in accordance with IFRS accounting standards that have similar names are calculated by other companies in a manner different than their calculation by the Company. “Adjusted income” should not be viewed as a substitute for net income attributable to the Company’s shareholders prepared (calculated) pursuant to IFRS. It is possible that the Company’s definitions of “adjusted income” are different than those used by other companies. In addition, other companies might use other indices for purposes of evaluating their performance, and thereby reducing the comparability of the Company’s indices that are not in accordance with IFRS. Nonetheless, the Company believes that the “adjusted income” provides information that is useful to management and investors by means of eliminating certain line items (categories) that do not constitute an indication of the Company’s ongoing activities.

39


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS)

   
For the
 
   
Three Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Revenues from sales in Israel
 
375
 
401
 
For an explanation regarding the change in the sales in Israel – see Section 5, below.
             
Revenues from sales and provision of services in the U.S.
 
55
 
 
The result stems from activities of the CPV Group. Revenues from operation of the power plant in the Keenan project amount to about NIS 21 million, and revenues from provision of management services amount to about NIS 34 million. It is noted that these revenues do not include revenues of projects that are not controlled by the CPV Group that are presented in the results of associated companies.
             
Cost of sales (less depreciation and amortization) in Israel
 
243
 
289
 
For an explanation regarding the change in the cost of sales – see Section 5, below.
             
Cost of sales and provision of services (less depreciation and amortization) in the U.S.
 
19
 
 
The result stems from activities of the CPV Group. The total cost of the sales and provision of services in the U.S. includes expenses in the amount of about NIS 6 million in respect of operating costs and about NIS 12 million in respect of expenses for salaries and provision of services.
             
Depreciation and amortization in Israel
 
35
 
33
 

             
Depreciation and amortization in the U.S.
 
9
 
 
The result stems from activities of the CPV Group in respect of depreciation in the Keenan project.
             
Gross profit
 
124
 
79
   

40


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Three Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Administrative and general in Israel and headquarters expenses
 
19
 
12
 
Most of the increase stems from an increase in salary expenses and headquarters expenses, in the amount of about NIS 5 million (which includes about NIS 2 million of non‑cash equity remuneration), in light of, among other things, expansion of the Company’s activities.
             
Administrative and general expenses in the U.S.
 
20
 
 
The result stems from activities of the CPV Group. The administrative and general expenses in the U.S. include salaries, in the amount of about NIS 9 million, and expenses for professional services and office maintenance, in the amount of about NIS 11 million.
             
Share in income of associated companies in Israel
 
1
 
   
             
Share in income of associated companies in the United States
 
74
 
 
The result stems from activities of the CPV Group. The result includes income of about NIS 42 million (before taxes) in respect of changes in the fair value of derivative financial instruments in hedge plans of the CPV Group (for additional details regarding the results of associated companies – see Section 6 below and Note 7 to the Interim Statements).
             
Transaction expenses relating to acquisition of the CPV Group
 
–  
 
4
   
             
Business development expenses in the U.S.
 
2
 
   
             
Other expenses (income), net, in Israel
 
(1)
 
1
   
             
Operating income
 
157
 
64
   

41


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Three Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Financing expenses, net, in Israel
 
(285)
 
(36)
 
Most of the increase stems from a non‑recurring early repayment loss, in the amount of about NIS 244 million, due to execution of early repayment of the full balance of the outstanding credit of Rotem in October 2021 (for additional details – see Note 10A to the Interim Statements). In addition, there was an increase in interest expenses and linkage differences on Hadera’s senior debt, in the amount of about NIS 6 million (mainly as a result of an increase in the linkage differences).
 
This increase was partly offset by a decrease in the financing expenses stemming from the impact of the changes in the shekel/dollar exchange rate, in the amount of about NIS 4 million.
             
Financing expenses, net, in U.S.
 
(3)
 
 
The result stems from acquisition of the CPV Group. The financing expenses, net, in the U.S. include interest expenses, in the amount of about NIS 7 million, the financing expenses deriving from the impact of the changes in the dollar/shekel exchange rate, in the amount of about NIS 5 million, and financing income stemming from amortization of excess, in the amount of about NIS 10 million, due to early payment of the balance of the credit in Keenan.
             
Income (loss) before taxes on income
 
(131)
 
28
   
             
Taxes on income (tax benefit) in Israel
 
(44)
 
10
 
The tax benefit derives from lower results in Israel in the third quarter of 2021 compared with the corresponding quarter last year.
             
Taxes on income in the U.S.
 
19
 
 
The result stems from activities of the CPV Group.
             
Income (loss) for the period
 
(106)
 
18
   

42


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

3.
Results of operations for the nine‑month and three‑month periods ended September 30, 2021 (in millions of NIS) (Cont.)

   
For the
 
   
Three Months Ended
 
Category
 
9/30/2021
 
9/30/2020
 
Analysis
             
Elimination of the fair value of derivative financial instruments
 
     (42)
 
 
Derivative financial instruments that are used for hedging plans of the CPV Group as described in Part 4A of this Report.
             
Elimination of loss in respect of early repayment of loans
 
   244
 
 
For additional details – see Note 10A to the Interim Statements.
             
Elimination of tax impact in respect of the adjustments
 
     (45)
 
   
             
Adjusted net income
 
     51
 
  18
   
             
Income (loss) attributable to:
           
The owners of the Company
 
     (90)
 
  10
   
Non-controlling interests
 
     (16)
 
    8
   
             
Adjusted net income attributable to:
           
The owners of the Company
 
     39
 
  10
   
Non-controlling interests
 
     12
 
    8
   

43


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

4.
EBITDA

The Company defines “EBITDA” as earnings (losses) before depreciation and amortization, changes in the fair value of derivative financial instruments, net financing expenses or income and taxes on income. EBITDA is not recognized under IFRS or under any other generally accepted accounting standards as an indicator for the measurement of financial performance and should not be considered a substitute for profit or loss, cash flows from operating activities or other terms of operational performance or liquidity prescribed under IFRS.

EBITDA is not intended to represent monies that are available for distribution of dividends or other uses, since such monies may be used for servicing debt, capital expenditures, working capital and other liabilities. EBITDA is characterized by limitations that impair its use as an indicator of the Company’s profitability, since it does not take into account certain costs and expenses deriving from the Company’s business, which could materially affect its net income, such as financing expenses, taxes on income and depreciation.

The Company believes that the EBITDA (including EBITDA after making adjustments as detailed below) data provides transparent information that is useful to investors in examining the Company’s operating performances and in comparing them against the operating performance of other companies in the same sector or in other sectors with different capital structures, debt levels and/or income tax rates. This data item is also used by Company management when examining the Company’s performance. The Company believes that these indices, which are not in accordance with IFRS, provide useful information to investors since that improve the comparability of the financial results between periods and provide greater transparency of the main indices used for evaluating the Company’s performance.

Set forth below is a calculation of the EBITDA data item for the periods presented. Other companies may calculate the EBITDA differently. Therefore, the EBITDA presentation herein may differ from those of other companies. In addition, other companies might use other indices for purposes of evaluation their performance, and thereby reducing the comparability of the Company’s indices that are not in accordance with IFRS.

44


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

4.
EBITDA (Cont.)

Calculation of the EBITDA (in millions of NIS):

   
For the
 
   
Nine Months Ended
   
Three Months Ended
 
   
September 30
   
September 30
 
   
2021
   
2020
   
2021
   
2020
 
                         
Revenues from sales and provision of services
   
1,148
     
978
     
430
     
401
 
Cost of sales and provision of services (less
                               
 depreciation and amortization)
   
(777
)
   
(702
)
   
(262
)
   
(289
)
Administrative and general expenses (less depreciation
                               
 and amortization)
   
(137
)
   
(36
)
   
(37
)
   
(11
)
Transaction expenses relating to acquisition of the
                               
 CPV Group
   
(2
)
   
(4
)
   
     
(4
)
Business development expenses
   
(4
)
   
(6
)
   
(2
)
   
 
Other income (expenses)
   
(40
)
   
1
     
(1
)
   
1
 
Consolidated EBITDA*
   
188
     
231
     
128
     
98
 
Proportionate EBITDA of associated companies**
   
237
     
     
93
     
 
EBITDA (тotal consolidated and the
                               
 proportionate amount of associated companies)
   
425
     
231
     
221
     
98
 
Elimination of non-recurring expenses, net50
   
42
     
4
     
1
     
4
 
EBITDA (тotal consolidated and the
                               
 proportionate amount of associated companies)
                               
 after elimination of non-recurring expenses
   
467
     
235
     
222
     
102
 
                                 

*
Presented on the basis of 100% of the companies the financial results of which are consolidated in the Company’s financial statements and commencing from the completion date of the acquisition of the CPV Group on January 25, 2021 (as stated in Section 1 above the Company does not hold full ownership of Rotem and the CPV Group).

**
Presented based on the rate of the holdings of the CPV Group in the associated companies commencing from the completion date of the acquisition of the CPV Group on January 25, 2021. For detail of the results of the associated companies – see Section 6 below.


50 Non‑recurring expenses, for the nine‑month period ended September 30, 2021 include mainly the amount of about NIS 39 million in respect of a loss recorded in light of acquisition of the balance of 30% of the rights in the Keenan project from a Tax Equity partner (for details – see Note 9A(6) to the Interim Statements).
45


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

4.
EBITDA (Cont.)

Set forth below is the EBITDA data net of non‑recurring expenses broken down by the subsidiaries (on a consolidated basis) and the associated companies (on a proportionate basis):

   
Basis of
presentation
in the Company’s
financial
statements
   
For the
 
       
Nine Months Ended
   
Three Months Ended
 
       
September 30
   
September 30
 
       
2021
   
2020
   
2021
   
2020
 
                               
Rotem
 
Consolidated
     
232
     
239
     
93
     
88
 
Hadera
 
Consolidated
     
40
     
12
     
30
     
16
 
Headquarter and others in Israel*
 
Consolidated
     
(24
)
   
(16
)
   
(9
)
   
(2
)
Total in Israel including
                                     
 headquarters
   
     
248
     
235
     
114
     
102
 
                                         
Keenan
 
Consolidated
     
38
     
     
13
     
 
Fairview
 
Associate
     
45
     
     
21
     
 
Towantic
 
Associate
     
70
     
     
26
     
 
Maryland
 
Associate
     
25
     
     
14
     
 
Shore
 
Associate
     
51
     
     
19
     
 
Valley
 
Associate
     
49
     
     
14
     
 
Headquarter and others in the
 
Consolidated and associates
                                 
 United States*
       
(59
)
   
     
1
     
 
Total in the United States
           
219
     
     
108
     
 
                                         
Total EBITDA (consolidated
                                       
 and proportionate amount of
                                       
 the associated companies
   
     
467
     
235
     
222
     
102
 


*
After elimination of management fees between the CPV Group and the Company, in the amounts of about NIS 11 million and about NIS 4 million in the nine‑month and three‑month periods ended September 30, 2021, respectively.

46


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

5.
Additional data regarding activities in Israel

Set forth below is detail of the Company’s revenues from sales in Israel (in NIS millions):

   
For the
 
   
Nine Months Ended
   
Three Months Ended
 
   
September 30
   
September 30
 
   
2021
   
2020
   
2021
   
2020
 
                         
Revenues from sale of energy generated to private
                       
 customers that was generated and/or purchased from
                       
 other generators51 (1)
   
671
     
640
     
236
     
235
 
Revenues from sale of energy purchased at
                               
 the TAOZ (2)
   
21
     
59
     
5
     
47
 
Revenues from private customers in respect of
                               
 infrastructures services (3)
   
214
     
204
     
76
     
85
 
Revenues from sale of energy to the System
                               
 Administrator, including at cogeneration tariffs (4)
   
60
     
32
     
27
     
20
 
Revenues from sale of steam
   
42
     
43
     
14
     
14
 
Revenues from virtual supply
   
17
     
     
17
     
 
Total revenues
   
1,025
     
978
     
375
     
401
 

In Israel, the Company’s net revenues from the sale of electricity to its private customers stem mainly from electricity sold at the generation component tariffs, as published by the Electricity Authority, with a certain discount from the tariff. The weighted‑average generation component tariff for 2021, as published by the Electricity Authority, is NIS 0.2526 per KW hour. This weighted‑average is attributed to the mix of consumption in the market, which differs from that of the customers of Rotem and Hadera. In 2020, the weighted‑average of the generation component tariff was NIS 0.2678 per KW hour. In addition, the Company’s revenues from sale of steam are linked partly to the price of gas and partly to the Consumer Price Index. The reduction in the generation component has had a negative impact on the Company’s income in 2021 compared with 2020.

In addition, in September 2021 the Company commenced supplying electricity to customers through purchase of energy from the System Administrator that was purchased at a tariff that includes a component of the supplier’s tariff and SMP in the framework of the virtual supply.

For the nine‑month periods ended September 30, 2021 and 2020:


(1)
The increase stems from an increase in sales to private customers of energy produced due to the commercial operation of the Hadera Power Plant in July 2020, in the amount of about NIS 53 million and from an increase in availability (capacity) of the Rotem Power Plant in the amount of about NIS 15 million. On the other hand, there was a decrease, in the amount of about NIS 37 million, due to a decline in the generation component tariff.


(2)
A decrease of about NIS 42 million stemming from an increase in availability (capacity) at the Rotem Power Plant that caused by a decrease in the purchase of energy at the TOAZ rates, and as a result of adjusting the customer profile. On the other hand, there was an increase in sales of energy purchased for customers of Hadera, in the amount of about NIS 4 million.


51 Including during load reductions.
47


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

5.
Additional data regarding activities in Israel (Cont.)

For the nine‑month periods ended September 30, 2021 and 2020: (Cont.)


(3)
The increase derives from an increase in sales to private customers, in the amount of about NIS 23 million, due to the commercial operation of the Hadera Power Plant in July 2020. On the other hand, there was a decrease, in the amount of about NIS 7 million, due to a decline in the infrastructure tariffs in 2021, and a decline in revenues due to adjustment of the customer profile of Rotem’s customers, in the amount of about NIS 6 million.


(4)
Most of the increase is due to sale of energy at a cogeneration tariff of the Hadera Power Plant to the System Administrator, in the amount of about NIS 26 million, and an increase in sales of energy to the System Administrator from Rotem, in the amount of about NIS 2 million.

For the three‑month periods ended September 30, 2021 and 2020:


(1)
There was an increase in revenues from sales to customers stemming from an increase in availability (capacity) in the Rotem Power Plant, in the amount of about NIS 15 million, which was offset by a decline in revenues due to a decrease in the generation component tariff, in the amount of about NIS 14 million.


(2)
A decrease, in the amount of about NIS 39 million, stemming from an increase in availability (capacity) of the Rotem Power Plant that caused a decline in the purchase of electricity at the TOAZ tariff, and due to adjustment of the customer profile. In addition, there was a decline in sales of energy purchased for Hadera customers, in the amount of about NIS 3 million.


(3)
The decrease derives from a decrease, in the amount of about NIS 3 million, due to a decline in the infrastructure tariffs for 2021 and a decline in revenues as a result of adjustment of the customer profile of Rotem’s customers, in the amount of about NIS 6 million.


(4)
The increase is due to sales of energy at a cogeneration tariff of the Hadera Power Plant to the System Administrator, in the amount of about NIS 3 million, and an increase of about NIS 4 million from sales to the System Administrator from the Rotem Power Plant.

48

OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

5.
Additional data regarding activities in Israel (Cont.)

Set forth below is detail of the Company’s cost of sales in Israel (less depreciation and amortization) broken down into the following components (in NIS millions):

   
For the
 
   
Nine Months Ended
   
Three Months Ended
 
   
September 30
   
September 30
 
   
2021
   
2020
   
2021
   
2020
 
                         
Gas and diesel oil (1)
   
368
     
351
     
114
     
126
 
Expenses to IEC for infrastructure services and
                               
 purchase of electricity (2)
   
252
     
278
     
85
     
133
 
Gas transmission costs
   
24
     
25
     
7
     
9
 
Operating expenses (3)
   
61
     
48
     
20
     
21
 
Expenses for purchase of electricity for virtual supply
   
17
     
     
17
     
 
Total cost of sales (less depreciation and
                               
 amortization)
   
722
     
702
     
243
     
289
 

For the nine‑month periods ended September 30, 2021 and 2020:


(1)
There was an increase in the gas expenses, in the amount of about NIS 34 million, due to the commercial operation of the Hadera Power Plant and an increase in the gas consumption by the Rotem Power Plant, in the amount of about NIS 20 million, deriving from an increase in the quantity generated at the power plant as a result of a decline in the scope of the load reductions and an increase in the plant’s capacity. On the other hand, there was a decrease, in the amount of about NIS 21 million, in the gas price as a result a decline in the dollar/shekel exchange rate and a decrease in expenses, in the amount of about NIS 16 million, due to compensation in respect of delay of the commercial operation of the Energean (for additional details – see Note 9D(3) to the Interim Statements).


(2)
Energy purchases – a decrease in the purchases of energy, in the amount of about NIS 50 million, for Rotem customers, mainly due to a decline in the load reductions and an increase in the plant’s availability (capacity). On the other hand, there was an increase in purchases of energy, in the amount of about NIS 14 million, for Hadera customers mainly due to the commercial operation of the Hadera Power Plant.

Expenses for infrastructure services – an increase in purchases for private customers, in the amount of about NIS 23 million, as a result of the commercial operation of the Hadera Power Plant in July 2020. On the other hand, there was a decrease, in the amount of about NIS 7 million, due to a decrease in the infrastructure tariffs for 2021 and a decrease due to adjustment of the profile of Rotem customers, in the amount of about NIS 6 million.


(3)
Most of the increase stems from current operating costs due to the commercial operation of the Hadera Power Plant.

49


OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

5.
Additional data regarding activities in Israel (Cont.)

For the tree‑month periods ended September 30, 2021 and 2020:


(1)
There was a decrease, in the amount of about NIS 7 million, deriving from a decline in the gas price as a result of a fall in the dollar/shekel exchange rate. In addition, there was a decrease in expenses of about NIS 16 million due to compensation in respect of delay in the commercial operation of Energean (for additional details – see Note 9D(3) to the Interim Statements). On the other hand, there was an increase gas consumption expenses at the Rotem Power Plant, in the amount of about NIS 12 million, deriving from an increase in the quantity generated by the plant as a result of a decline in the scope of the load reductions and an increase in the plant’s capacity compared with the corresponding period last year.


(2)
Energy purchases – a decrease in the purchases of energy, in the amount of about NIS 34 million, for Rotem customers, mainly due to a decline in the load reductions and an increase in the plant’s availability (capacity), along with a decrease in purchases of energy, in the amount of about NIS 5 million, for Hadera customers due to an increase in the plant’s availability (capacity) compared with the corresponding period last year.

Expenses for infrastructure services – a decrease of about NIS 9 million relating infrastructure expenses in Rotem due to a decline in the infrastructure tariffs for 2021 and a decline in the scope of consumption of Rotem customers.
50

OPC Energy Ltd.
Report of the Board of Directors

Explanations of the Board of Directors regarding the State of the Group’s Affairs (Cont.)

6.
Additional data regarding activities in the United States (Cont.)

Set forth below is the EBITDA data of the power plants that are operating commercially. For explanations of the results – see Section 3 above. The EBITDA data presented below is based on results in accordance with IFRS and are presented in millions of NIS.

   
EBITDA
for the
nine-month
period ended
September 30,
2021
   
Rate of
holdings
of the
CPV Group
   
Proportionate
EBITDA for
the nine-month
period ended
September 30,
2021
   
Proportionate
EBITDA for
the period from
January 25, 2021
and up to
September 30, 2021
 
                 
                 
                 
                 
                 
                         
Fairview
   
204
     
25
%
   
51
     
45
 
Towantic
   
299
     
26
%
   
78
     
70
 
Maryland
   
110
     
25
%
   
27
     
25
 
Shore
   
151
     
37.53
%
   
56
     
51
 
Valley
   
104
     
50
%
   
53
     
49
 
Keenan
   
42
     
100
%
   
*42
     
*38
 
Total active plants
                               
 in the U.S.
   
910
             
307
     
278
 

   
EBITDA
for the
three-month
period ended
September 30,
2021
   
Rate of
holdings
of the
CPV Group
   
Proportionate
EBITDA for
the three-month
period ended
September 30, 2021
 
             
             
             
             
             
                   
Fairview
   
84
     
25
%
   
21
 
Towantic
   
100
     
26
%
   
26
 
Maryland
   
58
     
25
%
   
14
 
Shore
   
50
     
37.53
%
   
19
 
Valley
   
27
     
50
%
   
14
 
Keenan
   
13
     
100
%
   
13
 
Total active plants
                       
 in the U.S.
   
332
             
107