“A VIEW FROM THE FIELD”

THE DEVELOPER’S APPROACH TO GEOTHERMAL PROJECTS

Daniel N. Schochet, Vice President Daniel N. Schochet, Vice President ORMAT Nevada, Inc.ORMAT Nevada, Inc.

January 20, 2004January 20, 2004

ORMAT -ORMAT - COMPANY PROFILE COMPANY PROFILE

• RENEWABLE & SUSTAINABLE ENERGY SINCE 1965..DESIGN, ENGINEER, SUPPLY, INSTALL & OPERATE

750 MW OF POWER GENERATION IN 21 COUNTRIES, 25O MW OF GEOTHERMAL GENERATION IN USA.

FIELD PROVEN TECHNOLOGY

MODULAR POWER PLANTS FROM 0.3 TO 130 MW GEOTHERMAL, WASTE HEAT, BIOMASS & SOLARREPOWERING / REHABILITATION OF EXISTING PLANTS

OVER US$1B IN IPP PROJECT FINANCING

WHY GEOTHERMAL WHY GEOTHERMAL COST EFFECTIVE FROM 300 kW TO 0VER 100 MWCOST EFFECTIVE FROM 300 kW TO 0VER 100 MW

Modular power plants are easily expanded as needs increase

Power costs competitive with hydro, coal and diesel

RELIABLE, SUSTAINABLE & ENVIRONMENTALLY SAFERELIABLE, SUSTAINABLE & ENVIRONMENTALLY SAFE Many projects operating over 10 yrs at 98%+ availability

Geothermal is non-combustion - near zero emissions

MINIMAL SURFACE USE- INDEPENDENT OF WEATHERMINIMAL SURFACE USE- INDEPENDENT OF WEATHER

FIELD PROVEN TECHNOLOGY - 8,000 MW WORLD WIDEFIELD PROVEN TECHNOLOGY - 8,000 MW WORLD WIDE

EASY TO INSTALL, OPERATE AND MAINTAINEASY TO INSTALL, OPERATE AND MAINTAIN Plants constructed in 6 to 12 months- O&M by local staff

ORMAT GEOTHERMAL POWER PLANTSFang, THAILAND

1989 300 kW

Upper Mahiao, The Philippines

1996 125 MW

Zunil, GUATEMALA

1999 24 MW

Olkaria, KENYA

2000 8 MW

1966

Thailand The Philippines

KenyaGuatemala

GEOTHERMAL TECHNOLOGY OVERVIEW GEOTHERMAL TECHNOLOGY OVERVIEW RESOURCE TEMPERATURES FROM 250RESOURCE TEMPERATURES FROM 250O O TO 350TO 350O O FF

Binary Technology most appropriate Most untapped resources are in this category Air cooled condensers possible – 100% injection of all fluids/gases Lowest environmental impact

RESOURCE TEMPERATURES OVER 350RESOURCE TEMPERATURES OVER 350O O FF Flash technology produces steam for driving turbine Condensing steam cycle requires water cooled condensers Combined steam & binary system allows for air cooling

DRY HIGH PRESSURE STEAM PRODUCTIONDRY HIGH PRESSURE STEAM PRODUCTION Conventional steam turbine technology most appropriate Geysers (CA), Italy, Iceland, Indonesia & New Zealand Water cooled condensers needed Higher environmental impact

12 MW binary geothermal power plant, comprising 3 air- cooled ORMAT® Energy Converters (OEC)

The OEC units utilize two-phase geothermal fluid consisting of steam and separated brine

GENERATORTURBINE

CONDENSER

COOLED GEOTHERMALFLUID

INJECTION WELL PRODUCTION WELLINJECTION PUMP

MOTIVE FLUIDPUMP

PRODUCTION PUMP

ORMAT Air Cooled Binary Geothermal Power Plant

Kenya, 2000

Olkaria III Geothermal Power Plant, Phase 1

30 MW plant comprising 10 combined cycle OEC unitsUtilizes saturated steam and injects 100% of spent fluid to reservoir

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GENERATOR

TURBINE

CONDENSER

PREHE

COOLED GEOTHERMALFLUID

INJECTION WELLSTEAM PRODUCTION WELL INJECTION PUMP

MOTIVE FLUIDPUMP

NONCONDENSABLE(NCG)COMPRESSOR

ORMAT Geothermal Combined Cycle Power Plant

HOT GEOTHERMALFLUID

Geothermal Renewable Grid Connected Base Load Power

PUNA (Hawaii), since 1993

Consumes Water: Aquifer Depletion, Power reductionEffluents or Expensive AbatementPlumeVisual ImpactWater Treatment Needed: Use and Disposal of Chemicals

PROBLEMS: SOLUTIONS:

All Fluids Reinjected: Sustainable, No Power ReductionNo Emissions (No Abatement Needed)No Plume (Air Cooled Condensers)Low ProfileNot Sensitive to Quality of Brine & Steam

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Conventional Geothermal Conventional Geothermal Steam Power PlantSteam Power Plant

Combined Cycle Combined Cycle Geothermal Power PlantGeothermal Power Plant

Sustainable Geothermal

Water Consuming Sustainable

TECHNOLOGIES

Current Mainland U.S. Geothermal Power Production

Total Existing Capacity =2900 MW25,000 GWhs

Geysers2070 MW

NevadaProduction196 MW

COSO240 MW

Utah Production33 MW

Imperial Valley403 MW

Mammoth40 MW

GeothermalHigh Capacity Factor Resource

0

10

20

30

40

50

60

70

80

90

100

Geothermal Gas Coal Nuclear Wind

Capacity Factor

11 21/04/23

Biomass - Energy Forestry Energy Crops

22000

Average Capital and Delivered Costs

Capital Cost (US$/kW)

Cost of deliveredenergy (US$/kWh)

Coal

Gas

Wind

0

1000

2000

3000

0 0.02 0.04 0.06 0.08 0.10 0.14 0.16

Solar Thermal Power

Solar Photovoltaic

0.12

4000

0.86 0.880.18 0.20

Geothermal

Source: International Energy Agency & Others

Phase B of a 14 MW geothermal power plant comprising 4 air cooled ORMAT® Energy Converters (OEC)

The OEC units use two phase geothermal fluid, steam and separated brine

Phase A (5 MW) commissioned in March 1994 -Phase B commissioned in October 1998

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AZORES ISLAND (Portugal)

Geothermal Modular Development

Sao Miguel Geothermal Power Plant

60 MW Geothermal Power Plant60 MW Geothermal Power Plant

Combined cycle OEC power plant owned by Maori Trust 1656

MOKAI, New ZealandMOKAI, New Zealand

1999

IMPLEMENTING GEOTHERMAL PROJECTS

Credit Support for Project Financing:Credit Support for Project Financing:

1. Proven geothermal resource with bankable report.

2. Creditworthy purchaser for power payments.

3. Financible take or pay Power Purchase Agreement.

4. Credible developer with proven track record.

5. Site control & rights to geothermal energy supply.

EXPLORATION AND RESOURCE ASSESSMENT EXPLORATION AND RESOURCE ASSESSMENT “Greenfield Project”- “Greenfield Project”- High High risk - Financing Difficultrisk - Financing Difficult

Probability of success in exploration is about 50%Based on experience in developing Nevada prospects

Exploration, including temp. gradient wells, est. $0.5-1 MFederal grants or assistance may be available

Resource assessment, including drilling & flow testing 2 full size wells, est. $ 3 M for 15 to 20 MW project

Equity investment required, government assist may be available

Result to be “bankable” report on geothermal resource – “resource can reasonably be expected to support __ MW of electricity production for over 30 years”

EXPLORATION AND RESOURCE ASSESSMENTEXPLORATION AND RESOURCE ASSESSMENT

Permitting and development expenses add additional $0.5 M, for prelim design, feasibility study, resource

modeling, permit applications and PPA negotiation. These are equity investor expenses.

Timetable for exploration and resource assessment activities, is typically about 6 to 12 months

SUMMARY:

Exploration & Resource Assessment , approx. $ 4 - 5 M Overall timetable to Bankable Report & PPA 12 Mos

DRILLING AND WELL FIELD DEVELOPMENT DRILLING AND WELL FIELD DEVELOPMENT Medium risk – Investor Financing PossibleMedium risk – Investor Financing Possible

Production/injection wells $1.0 to $3.0M eachProduction wells provide between 3 MW and 30 MW

Binary wells typically 3 to 5 MW per production well

One injection well serves two or more production wells

Well drilling success averages over 70%

3,000 foot average depth - Assume $ 1.5 M per well

20 MW Binary project: 7 prod.& 3 inject. wells. Budget for 10 wells @ 2,000 feet depth is $ 12 - 15 M

Timetable including permitting would be 12 - 18 months

PROJECT RISK PROFILE PROJECT RISK PROFILE

PROJECT RISK MITIGATION

Exploration – Lack of heat/fluid Max use of surface technologies Go-No Go exploration steps

Resource Capacity Risk Drill & Test deep wells Develop resource model

Regulatory Risk Use experienced permitting consultant Apply early & take no short cuts

Drilling Risks (dry well) Use all data & resource model for drill targets(blow out) Use blow out protection &

control of well insurance

Plant Construction Risk Use credible supplier/contractor Get turn-key fixed price/date certain contract Use Field Proven technology supplier Get start-up performance guarantee

Financing Risk Execute financible take or pay PPA with utility Execute binding commitment with lender

PROJECT DEVELOPMENT BUDGET 20MWPROJECT DEVELOPMENT BUDGET 20MW

Exploration & resource assessment $ 5.0 M

Well field drilling and development 15.0

Power plant, surface facilities, & transm. 30.0

Financing “soft costs” including: 5.0o Commitment feeso Legal & Accounting fees o Consultants, and o Interest during constructiono Debt service and operating reserve

TOTAL FINANCED COST FOR 20 MW PROJECT $ 55 MTo be provided as construction phase financing

GOVERNMENTAL SUPPORTS GOVERNMENTAL SUPPORTS

1. PRODUCTION TAX CREDIT (PTC)

o Legislation in Senate-House Conferenceo Possible 5 or 10 year tax credit to developer/ownero $0.018/kwh tax credit for energy soldo Reduces cost of production by up to $0.018/kWho Depends on tax liability of developer/owner

2. RENEWABLE PORTFOLIO STANDARD (RPS)

o Utilities will need up to 20% renewable energy for saleo Native American Projects may get double RPS credito Renewable Energy Credit (REC) is worth:

Renewable Energy Price – Utility Avoided Cost In Nevada Typically [REC = $0.05 - $0.04 = $0.01/kWh]

CONCLUSIONSCONCLUSIONS

GEOTHERMAL PROJECT DEVELOPMENT IS VERY CHALLENGING AND TIME CONSUMING.

(Prepare for the unexpected)

DEVELOPERS NEED INTERNAL RESOURCES TO COVER DEVELOPMENT EXPENSES.

(Double all your best estimates)

PRIVATE PUBLIC PARTNERSHIPS ARE POSSIBLE FINANCING SOLUTION BUT PROCESS IS LENGTHY

(The process will take twice as long as your hope it will)

FINANCING AND REGULATORY ACTIVITIES SHOULD START AS EARLY AS POSSIBLE.

(The greatest challenge will be to your patience)1648