Monetizing Tax Benefits in Geothermal Projects Case Study Paul Zavesov, Manager Business Development October 1, 200

1. Monetizing Tax Benefits in Geothermal Projects Case Study Paul Zavesov, Manager Business Development October 1, 2007

2. GREEN ENERGY you can depend on 2 Company Profile Focus on Renewable and Sustainable Energy since 1965 Leader in innovative power generation technologies World leader in the use of organic motive fluids (hydrocarbons) in power generation systems Listed on the New York Stock Exchange (ORA) Vertically-Integrated Design, Engineering, Manufacturing, Supply, Installation & Operation Flexible Business Model Equipment only Turnkey (EPC) power plants supply Electricity sales Project financing

3. GREEN ENERGY you can depend on 3 Company Profile  Main Areas of Activities

4. ORMAT Tax Monetization:I. Background II. Description of ProjectsIII. Process and ConsiderationsIV. Lessons LearnedV. Conclusions

5. GREEN ENERGY you can depend on 5 I. Background Partnership Tax Structures Government tax incentives (PTC and MACRS) Developers� tax position constraints Ormat Business Model of Development Initial development and construction with equity Refinancing of completed projects Tax Monetization as Additional Vehicle to Finance Development of Renewable Projects Maximizing the value of qualifying projects for developers Flexibility and (relative) freedom of operation

6. GREEN ENERGY you can depend on 6 II. Description of Projects

7. GREEN ENERGY you can depend on 7 III. Process and Considerations Preparations: Select right advisors Shape a working group (legal, tax, accounting, technical) Develop a timetable and plan of due diligence

8. GREEN ENERGY you can depend on 8 III. Process and Considerations � Cont�d Implementation Phases: Determine a structure with the best value Run a process to achieve the lowest cost Close the transaction smoothly with minimum interference with operations of the projects

9. GREEN ENERGY you can depend on 9 1) Best Value � Choosing the Right Structure Define your objectives: Lowest after-tax cost of financing Greatest certainty of closing Lowest tax / indemnity risk Accounting transparency Ease of future operations Develop a standard method of getting the projects into any analysis Analyze each project Set key parameters

10. GREEN ENERGY you can depend on 10 1) Best Value � Choosing the Right Structure (Cont�d) Develop a financial model to evaluate impacts of different structures Cashflow Projects� revenue and cost forecasts Sensitivity analysis under different assumptions Tax treatment PTC based on production Effect of MACRS Tax impact of creating/ selling partnership interest Partnership capital accounts Flip structures to optimize returns Compliance with tax partnership rules Accounting treatment Effect on publically released financial statements

11. GREEN ENERGY you can depend on 11 1) Best Value � Choosing the Right Structure (Cont�d) Chosen Structure: PAPS (�Pre tax After tax Partnership Structure�) Features: Partnership between a developer (Class A Investor) and an outside investor (Class B Investor). Class B Investor buys its interest in the partnership from the Class A investor by making a cash payment at closing. Tax income (loss) is allocated 99.9% to Class B Investor and 100% of distributable cash is allocated to Class A Investor until its capital account is zeroed. After it, the cash will be allocated 100% to the Class B Investor until he reaches an agreed after-tax IRR (�Flip Point�) After the Flip Point, everything is allocated 95% to Class A Investor and 5% to Class B Investor. Class A Investor has an option to buy out the Class B investor at the higher of his capital account balance or FMV.

12. GREEN ENERGY you can depend on 12 2) Lowest Cost � Running a Competitive Process Prepare an information memorandum for investors Prepare a list of potential investors Execute confidentiality agreements with investors Send information memorandums to investors who indicated interest in the deal Receive bids from interested parties Identify finalists and run a round of negotiations with each of them to determine the best and final bid Award the transaction Statistics: 17 potential investors 5 full bids and 3 partial investments 4 finalists Two winners: Morgan Stanley and Lehman Brothers

13. GREEN ENERGY you can depend on 13 3) Smooth Closing � Four Weeks From the Award! Detailed term sheet to shorten a documentation process Projects� information is easily accessible through an efficient online data room Adherence to the timetable and plan of due diligence Common and aligned objectives of the sponsor and investors No accounting surprises due to a prep work by our audit firm

14. GREEN ENERGY you can depend on 14 Success Factors: Knowledge and experience of our financial advisers - Capstar Partners Capital Strong market demand for tax advantageous investments Strong projects� fundamentals (proven technology, long term PPAs, reliable geothermal resource) Ormat�s reputation as an experienced developer and operator Open and clear bidding process IV. Lessons Learned

15. GREEN ENERGY you can depend on 15 Advantages of tax partnership structures for a developer Ability to monetize both PTC and MACRS to finance future growth Flexibility to optimize returns Sharing of both operational and tax risk, no risk of default Raising money at low after tax rates Keeping an effective control of the projects Advantageous accounting treatment with full consolidation IV. Lessons Learned � Cont�d

16. GREEN ENERGY you can depend on 16 IV. Lessons Learned � Cont�d Shortfalls /Risks Project must qualify for PTCs Experienced developer/ operator Transaction complexity and cost Risk of tax legislation change Partnership management issues

17. GREEN ENERGY you can depend on 17 V. Conclusions Transaction successfully concluded in six months from its start Total of $71,800,000 raised at the first closing with additional $48,600,000 expected at the second one in 2008 New and powerful tool to finance future growth through more efficient and timely use of the PTC and MACRS Ormat�s objectives in terms of price, timetable and transaction costs achieved

18. GREEN ENERGY you can depend on 18 We hope that our experience will serve other developers and will further promote development of new geothermal projects in the United States. THANK YOU!