Doral Group Renewable Energy Resources Ltd.

Earnings Release • Sep 11, 2022

INDEPENDENT EQUITY RESEARCH

Doral Energy – Update Report 11.09.2022

Established its global position with a portfolio of more than 12 GW in the US; continues to establish the Indiana North project after financial closure of approx. USD 390 million and an agreement with a tax partner of approx. USD 175 million; continues establishing competitive procedures for solar combined with storage after the MoU for financing of approx. NIS 2.2 billion; growth in the company's revenues; price target is updated to NIS 24.5

Doral shows additional growth in its operations alongside revenue growth. Doral ended Q2 2022 with revenues of approx. NIS 36.6M according to Non-Gaap data. The company presents a significant increase in its portfolio to approx. 15.9 GW, of which about 3 GW are due (projects in commercial operation and ready for connection, under construction or nearing construction and/or after winning competitive procedures or signing a PPA). It should be noted that in the past months the company has demonstrated accelerated progress in its activities in the field of PV in the US, with the addition of approx. 1 GW to the backlog of PV projects in the US and 2 GWh of storage facilities, the beginning of the construction of the first part of the Mammoth project in Indiana, Mammoth North (480 MWp) which will be connected and commercially operational in 2023, and the completion of electricity sales agreements for each Indiana project, with a capacity of approx. 1.6 GW for 15 years, alongside additional Merchant revenues. The company started the construction of the first competitive procedure projects for solar facilities combined with storage and operates in a variety of different technologies, including solar, solar + storage, stand-alone storage, wind and biogas.

As one of the dominant players in Israel, Doral enjoys advantages of scale in procurement and more. In addition, the company established the Doral Tech arm, which invests in start-up companies engaged in the development of synergistic technologies for the group's activities.

Additional significant events in Q2 2022:

• Signed a financial closing and tax partner agreement for the Indiana North project.
• Signed a MoU to finance solar projects combined with storage.
• Signed an agreement with Phoenix and Ampa for cooperation in the field of electricity storage and battery charging management for electric vehicles.
• Sold its entire holdings (24.24%) in Enerpoint Israel Ltd. for a profit of approx. NIS 36 million.
• Acquired all of Invenergy's holdings in the Hadrei Sha'an project.

Recall that global growth potential is far from being exhausted. Investment in renewable energy peaked at \$350 billion in 2020, of which solar and wind energy account for \$290 billion. In addition, we see potential for renewable energy in the US by huge programs promoted by the Biden administration totaling \$3 trillion.

We expect significant growth in the company's activity in 2023, along with entry into commercial activity of projects in the U.S. and the entry of storage activity in Israel. We update the economic model based on the company's progress in various projects.

On the following page, we include details of major events in Q2 2022 and recent months.

	Revenues*	EBITDA*
Year	(M NIS)	(M NIS)
2020A	59.9	55.2
2021A	71.7	63.5
2022E	124	101

*Expected annual revenues/EBOTDA from projects (representing 100% holdings in projects), not including management fees and additional income at the corporation level.

Doral 11.09.2022

Key events in Q2 2022 and in recent months:

• On August 23, the company completed a transaction for the purchase of all of Invenergy Solar Development LLC's holdings (33%, in chain) in the Hadrei Sha'an project, and this, to the best of the company's knowledge, against the background of strategic changes in Invenergy's operations in Israel.
• On August 10, the company signed a MoU to finance solar projects combined with storage for approx. NIS 2.2 billion (senior debt and other frameworks). During the month of August, the company entered into a MoU with Bank Mizrahi Tefahot to finance senior debt for a group of projects whose construction costs estimated at approx. NIS 1.5 billion through a consortium of lenders that will be formed under the leadership of the bank. On June 23, the company entered into a cooperation agreement with companies controlled by Phoenix Holdings Ltd. and Ampa Partnerships LP for the initiation, development, construction, operation, or sale of facilities for storing electricity and/or managing the charging of batteries for electric vehicles, provided that these facilities are used for the electricity consumption at the site where they are located, and all within the territory of Israel, including the aforementioned facilities which will be located in residential buildings, parking lots, hospitals, office buildings and commercial, industrial and tourist centers with an expected scope of hundreds of megawatt hours.
• On June 13, the company entered into a financing agreement with a consortium of lenders led by Deutsche Bank AG in New York, under which the lenders will provide an amount of approx. USD 390 million to finance the Indiana North project.
• On June 13, the company entered into a set of agreements under which Bank of America will serve as the tax partner in the Indiana North project. As part of the tax partner agreement, it was determined that the bank will invest a total of approx. USD 175 million in the corporation which will own 100% of the Indiana North project company, subject to the existence of acceptable preconditions, in exchange for 99% of the federal tax benefits expected to be received in connection with the project.
• On April 7, the company entered into interrelated agreements, for the sale of its entire holdings (24.24%) in Enerpoint Israel Ltd. to a third party, for the redemption of the options held by the remainder of the company's obligation to transfer Enerpoint, and for the disposition to purchase additional shares of the company for Enerpoint projects in the initiative, which will remain the property of the company. The total amount of consideration to the company for its entire holdings in Enerpoint, including the options, is approx. 42 million NIS, and after the settlement of the balance of the company's obligation to Enerpoint, the company will be left with a total of approx. NIS 36 million in cash. The transaction is completed on June 9.
  • o The company recognized in its financial statements for H1 2022, a profit (before tax) of approx. NIS 16.7 million.

Executive Summary

Investment Thesis

Globally, the renewable energy sector is in growth momentum in most countries as a result of government decisions and organizations to reduce dependence on polluting fuels and reduce greenhouse gas emissions, which are reflected in governments' actions to meet renewable energy targets they are committed to according to the Paris 2015 agreement.

The implementation of government decisions translates into policies, regulations, and licensing processes of companies that build renewable energy electricity generating facilities that are supposed to provide electricity over many years in a reliable, safe and economical manner.

Doral is well respected in its industry, both locally and globally. Their reputation extends across the Renewable Energy value and supply chains, as well as within their specific business ecosystem. The company has successful experience across all steps and stages of renewable energy projects, including initiation, development, financing, construction, management, operation, ownership, and sale of assets.

The company aims to continue creating value by leveraging its significant land reserves and proven expertise in working with landlords, in Israel and internationally. The company's strategy is to select and operate in markets that demonstrate a combination of factors with specific emphasis on; supportive policy, regulations, favorable natural resources, an opportunity to optimize the development, and market size that supports future growth. In international markets the company partners with local entities that provide advantages in the initial early stages of development.

Doral's strategy is to target Israel, the USA, and Europe as its main markets for the foreseeable future. It has the experience, the capital and knowledge to promote its projects; however, the test will be in converting pipeline projects due in 1-5 years to grid connected facilities. Thus, in our economic model we used probabilities to quantify this conversion. Specifically, the company's strategy is to select and operate in markets that demonstrate a combination of factors, with specific emphasis on supportive policy, regulations, favorable market conditions, an opportunity to optimize technology and increase installed capacity. In international markets, the company partners with local entities that have competitive advantages at the initial and early stages of development.

Doral's value proposition to investors, partners, and suppliers include:

• Capabilities of developing and initiating renewable energy facilities, from identifying the appropriate land for the project to connecting the facility to the electricity grid and holding it in the long-term.
• Creating larger profit margins due to exceptional accessibility to land in Israel, Europe, and the United States and optimizing the development processes.

• Focus on markets that are mature or maturing in terms of renewable energy policy and regulation, and such markets where renewable energy sources provide competitive electricity prices without the need for subsidies.

• Size advantage in the purchase of equipment for projects, financing of projects, and contracts with entities to sell electricity.

• High probability of obtaining financing due to a positive reputation and established business relationships in the industry.
• Identifying opportunities, creativity, innovation, and daring.

We forecast that Doral's projects' (representing 100% holdings in projects assuming a full year of operation) will generate revenues of NIS 124 million by the end of 2022.

Company Overview

Doral Renewable Energy Resources Group (TASE:DORL) initiates, develops, builds and operates renewable energy projects across Israel, the US and Europe. The company's vision is to implement their renewable energy projects globally. The company has 15.19 GW worth of energy projects in various stages of initiation and development; at the beginning of 2022, the company updated its goal from the previous year to reach a total portfolio of approx. 15,000 MW from projects that are in initiation to projects that are under construction and connected to the grid until 2025/2026. Doral believes in the implementation of innovative technologies in various areas of renewable energy, including a combination of solar energy + storage. Doral is the biggest winner of the Competitive Procedures No. 1 and 2 for the construction of solar facilities that combine energy storage, with the total portfolio including approx. 7,026 MW/h of energy storage facilities.

Project pipeline overview

Update of the company's goals for the coming years

The Company has five main divisions of activity:

• 1. The Israel Division, in which solar energy predominates the energy portfolio.
• 1. The US Division, in which large solar projects and large solar projects combined with storage capacity are expected to increase the company's portfolio substantially.
• 1. The European Division, in which joint ventures in Italy, Poland and Romania are expected to further increase the Company's renewables portfolio substantially.
• 1. The Doral-Tech Division is the innovation division that invests in synergistic technological ventures for the company's operations that are in various stages of growth.
• 1. The Environmental Infrastructure Division, which operates in the fields of biogas, waste management and wastewater treatment.

To support these divisions Doral's strategic strengths include:

• 1. A well-seasoned team with vast experience and professional knowledge.
• 1. The ability to navigate regulatory requirements and authorities.
• 1. Working closely with first-class technological equipment manufacturers.
• 1. Established relations with financing banks and Institutional Investors.
• 1. Partnership agreements with the majority of kibbutzim throughout Israel, for the establishment of energy production systems.

All of these strengths have allowed Doral to come to the table and offer truly competitive value that has led to long lasting partnerships.

Corporate Responsibility

In May 2022, the company first published a corporate responsibility report with the aim of maximizing the positive impact and producing long-term value for all stakeholders. Doral chose to centralize the management of the ESG area in a systemic way and report transparently to their stakeholders, reflecting their perception that they must conduct their activities with fairness and maximum transparency, along with striving to bring value to their stakeholders. The company shows the significant environmental impact of its projects:

Prevention of equivalent carbon dioxide emissions (tons)

Israel Activity

In 2008, Doral was the first company to connect a solar photovoltaic system to the national electricity grid in Israel. The company is a market leader in storage activities and is engaged in technologically advanced projects combining solar energy with energy storage capacity. The company has large Israeli projects in preparation for construction, which are the product of the first and second competitive procedures that combine facilities for generating electricity from solar energy with energy storage. Currently, Doral initiates, establishes, maintains, and operates renewable energy facilities in Israel with a capacity of approximately 2.03 GW (DC), including hundreds of solar systems of ground, reservoirs, pools, and roofs projects. The Company has established PV systems on various scales, from large infrastructure projects to small systems designed for self-consumption.

Among others, Doral holds Hadarei She'an one of the biggest PV power stations in the Middle-East located in the Beit She'an Valley. Doral has a partnership agreement with Invenergy LLC one of the largest privately held power producer in the United States and 11 kibbutzim from Beit She'an Valley. The project represents an investment of NIS 537 million, is projected to produce revenues of 55 million NIS per year, and expected to be commercially operational in 2023/24. Doral owns 32.5% of this project.

Energy Storage Tender – Doral is a major player in the Israeli energy storage market and has won 300 MW (AC) of PV and 1400MW/h of storage capacity out of the 777 MW tender presented by the electricity authority. The projects are projected to bring in NIS 274 million per year, has a total capacity of 714MW (DC), an EBITDA of NIS 194 million, and FFO of NIS 137 million. Doral owns ~64% approximate and chained (weighted average) of these projects.

Doral is a leader in the field of PV combined with storage in Israel - the company holds about 40% of the total solar + storage quotas in Israel.

US Activity

Doral operates in the US through Doral LLC, a corporation held 41.78% by Doral USA, 20% by a corporation owned by Migdal Insurance Company Ltd. and 38.22% by Clean Air Generation LLC, A local partner, with connections, organizational and managerial ability, and extensive experience in the field of renewable energy in the US. Doral LLC is involved in the initiation, management, development and construction of renewable energy facilities in the US, including solar facilities combined with energy storage and stand-alone storage facilities, and also owns a wind energy project. The company's activities are carried out in various markets, including PJM and MISO (in several countries), with a total volume of approx. 11.1 GW (DC) and a storage capacity of approx. 5 GW/h.

The company recently reported that Doral's huge Indiana project, Mammoth Solar, has entered the construction phase and its first part (480MW) will be connected and commercially operational in 2023. In June 2022, the company announced the completion of the power sale for each Indiana project at 1.6 GW for 15 years. The total expected revenue from the sale of electricity for all agreements signed in the US is approx. USD 1.5 billion, along with significant additional Merchant revenues. The Mammoth Solar project in Indiana covers an area of approx. 50,000 dunams (as large as the municipal area of Tel Aviv-Yafo) and the total capacity estimated at approx. 1,600 MW (DC).The remaining two parts of the project will be commercially operational in 2024.

European Activity

Italy

Doral entered into a cooperation agreement with a third party regarding the initiation, development, and establishment of renewable energy systems at a capacity of approx. 528 MW at an expected establishment cost of €450M and RTB scheduled in 2022-2024. One of the main projects under this cooperation is a 120 MW solar project in southern Italy. The company received a permit to reserve space in the electricity grid for facilities with about 412 MW (DC) capacity from its projects portfolio in the initiation of about 528 MW (DC). Also, the company is preparing to construct photovoltaic projects with a capacity of approximately 18 MW (DC).

Poland

As of the date of this report, the company has entered into agreements with a number of third parties unrelated to the company, in framework agreements for the initiation and establishment of photovoltaic projects that are in various stages of development. In addition, the company has established with Elmore, a dedicated corporation that deals with the engineering, procurement, and construction (EPC) and the maintenance and operation (M&O) of the company's projects, and has already begun construction of projects. As of the date of this report, the company has projects in Poland at various stages of initiation with a capacity of approx. 431 MW (DC), of which approx. 2.5 MW (DC) are ready for connection, approx. 39 MW (DC) in the construction / approaching construction stages, approx. 120 MW (DC) in advanced development, and approx. 269 MW (DC) in initiation.

Romania

Doral has entered into an agreement with a third party for cooperation in the initiation and establishment of photovoltaic projects that are in various stages of development. As of the date of this report, the company has approx. 563 MW (DC) of photovoltaic projects in initiation.

Denmark

Doral Denmark has announced the signing of an agreement to initiate and develop solar projects in Denmark with a combined capacity of approx. 360 MW (DC), which are in the initial development stages. According to the company, the total investment in these projects is estimated at EUR 200 million.

Renewable Energy Activity

Because Doral is a future oriented company, it has spread its reach far beyond just the traditional solar and wind renewable solutions to energy storage, environmental infrastructure (waste and wastewater treatment) i.e. bio-gas.

In addition, the company established Doral Tech, a limited partnership owned by the company. Doral Tech works to find entrepreneurial, innovative companies that develop groundbreaking green technologies to address significant sustainability challenges and whose activities are synergistic with Doral's activities (hereinafter: "target companies"). The target companies are in various stages of raising capital, and Doral group invests in them, both in capital and in management resources. Doral Tech's activity purpose is to provide the target companies with an encompassing infrastructure for project development, accompany the projects at all stages of development, assist them in creating the necessary connections for development, and accelerate their growth path. Doral Tech provides capital, development and testing sites, technological capabilities, guidance regarding products, academic collaborations, marketing, and business development. At last, Doral would have the primary right to benefit from the mentioned technologies.

Below we will introduce the global renewables market in detail and focus heavily on solar energy because the lion's share of Doral's activities is within this domain. We will further specifically detail the US market and give a comprehensive overview of the Israeli renewables ecosystem to give readers a solid understanding of Doral's landscape.

Global Renewable Market Introduction

Historically, global power generation was dominated by centralized energy sources such as coal, nuclear, oil, and large hydropower plants. These plants were usually state-owned, and the electricity generated would be transmitted across the country via a centralized grid. There was a minimal competition within the market, and the environmental impact was hardly considered. This situation has gradually changed over the past two decades, mainly driven by market decentralization and favorable regulatory frameworks (which boosted competition), concerns over the impact of climate change, and supportive renewable incentive programs.

Driven by the transformation across the energy sector, renewable energy sources (RES), primarily wind energy and solar energy, have become well established low-carbon energy sources to meet global energy demand because of their widespread availability, cost-effective nature, and flexibility compared to other RES. An increase in the adoption of wind and solar energy technologies would significantly mitigate and alleviate issues associated with energy security, climate change, unemployment, etc. and help in reducing global CO2 emissions by more than 50% between now and 2050.

The impact of the renewable revolution has been felt in many global markets, but European nations and the US have been at the forefront, later joined by China. Although the incentives schemes for renewable energy in many markets have gradually become less generous, this has largely been offset by consistent declines in renewable energy technology and project costs, construction and service innovation, and the continuation of favorable regulatory frameworks that ensure renewables have priority access to the grid. Once a wind or solar plant is online it is basic common sense anyway to ensure that the power generated is given priority, as the fuel cost is zero.

Wind power and solar PV dominate global renewable investment (large hydropower, which is still a significant technology in a number of markets, is not considered truly renewable because of the potential environmental damage to the river networks). Global investments in renewable energies accounted for \$282 billion in 2019, with wind and solar energies accounting for ~97% of non-hydro renewable investment in 2019. A total of ~\$3 trillion is forecast to be invested across the next decade in renewable energy sources, with annual renewable energy investment exceeding ~\$300 billion in 2030. Further cost reductions mean that both technologies will reach grid parity (a situation where it is as cheap to build a solar plant as it is a coal plant) in an increasing number of markets over the coming decade, further supporting the business case for investing in renewables.

Figure: Annual Global Investments in Renewable Energies (Billion USD)

Continued Decline in Wind and Solar Technology and Project Costs

The decline in renewable energy project costs started around 2010, with solar PV leading the way. Solar module costs have declined by around 82% across the course of the decade (modules account between 35% and 45% of total project costs). Wind technology cost declines started later, but have also been substantial – the global average price per MW for an onshore wind has declined by 39% and offshore wind by 29% between 2010 and 2019.

Continued cost reductions are forecast for both wind and solar, through a combination of lower core technology costs (larger turbines and taller hub heights are a significant factor for wind projects); a reduction in total project costs (greater efficiencies in construction and commissioning), and lower servicing costs.

Israel Renewables Ecosystem

The growth engine behind renewables in Israel is the government's vision to utilize "natural gas or renewables only" for the production of energy by 2030. In order to realize this vision the government is putting major systems and regulations in place in order to completely replace the energy produced from coal with energy produced from solar sources. This transition is projected to produce a 6 fold increase in renewables and a 10 fold increase in energy storage capacity.

The four major drivers of the renewable energy market in Israel as stated in the Ministry of Energy's economic plan are: 1) the decreasing cost of solar technology 2) the global shift to electric vehicles 3) energy security 4) pollution regulations

These trends propel Israel into a reality that requires a heavy transition to renewable energy sources and therefore promotes the need for energy storage solutions.

Israel is exceptional in its high population growth rate as well as its high electricity consumption. Today, solar power is almost exclusively the country's renewable energy source and this will be true through 2030.

Israel's Energy Source Composition

Renewables Will Replace Coal over the Next 10 Years

In 2030 Israel is positioned to be the world leader in solar energy dependency at a staggering 26% of energy produced by the country. By 2030, during the noon hours, 80% of the electricity generated in Israel will come from solar sources and this solar energy will surpass consumption demands during certain hours of the day.

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