Ormat Technologies, Inc.

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Ormat Technologies, Inc.

PIONEERS LOOKING FOR A MARKET IN 1965

SETTING UP SHOP IN THE UNITED STATES: 1983

EXPANDING WORLDWIDE IN 1993

REINVESTING IN THE UNITED STATES: 2001

GAINING STEAM IN 2004

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

PIONEERS LOOKING FOR A MARKET IN 1965

Ormat Technologies, Inc., was officially founded as a U.S. corporation on September 15, 1994, but the Ormat story really began in 1965 when Lucien and Yehudit Bronicki, a husband-and-wife team, established Ormat Turbines Ltd. in Yavne, Israel. After learning the Israeli science agency he worked for was abandoning his experimental work on a solar-powered turbo-generator, the 31-year-old Lucien sold his most valuable possession, his apartment, and used the proceeds to start a company and continue his research.

The persistent engineer quickly devised the Organic Rankine Cycle (ORC), which according to company literature “is a thermodynamic process where heat is added to a fluid at a constant pressure, the fluid is vaporized and then expanded in a vapor turbine, which drives a generator, producing electricity.” The company’s Organic Rankine Cycle modular power plants, known as Ormat Energy Converters (OECs), were capable of generating electricity from locally available heat sources, including steam and hot water, industrial waste heat, solar energy, and biomass, or low-grade fuels.

Ormat initially found a market for its OEC technology in remote power generators called Closed Cycle Vapor Turbogenerators (CCVTs). Ormat’s CCVTs generated 200 to 4, 500 watts and operated on natural gas, propane, diesel fuel, or kerosene in extreme heat or cold. The small but powerful units were virtually maintenance-free and found worldwide use in telecommunications, lighting and security systems, battery-charging, and other remote power applications. The Russian company Gazprom, one of the world’s largest natural gas production and transmission firms, began using Ormat CCVTs in 1973. In 1976, Ormat began supplying offshore gas platforms with CCVTs and 122 of the remote power units were installed along the Trans-Alaska Pipeline. In 1979, the Siberian railway began powering their communications system with Ormat CCVTs.

In the late 1970s, the company built a small salinity gradient solar-pond power plant near the Dead Sea, but Mr. Bronicki was unable to convince the Israeli government to fund a more ambitious solar energy project. It was then that the company began to develop geothermal systems to harness steam, heat, or hot water from geysers or hot springs on the earth’s surface. The company’s patented turbines were uniquely suited to the task. Conventional steam turbines required water temperatures of at least 160 degrees Celsius to produce grid-level power. Ormat’s OECs permitted grid-level power generation with water or steam at temperatures as low as 80 degrees Celsius.

SETTING UP SHOP IN THE UNITED STATES: 1983

In late 1983, Ormat formed a partnership with Pennsylvania-based LFC Financial Corp. and established Ormat Energy Systems, Inc. In 1984, the subsidiary opened an office in Sparks, Nevada, and acquired the development rights to California’s East Mesa Geothermal Field. The 24 megawatt (MW; one MW equals the amount of electricity it takes to power 1, 000 homes) Ormesa I Project delivered power to the grid in December 1986 as planned and paid back a $50 million U.S. Department of Energy loan a year ahead of schedule. Its success at the time demonstrated the technical and economic feasibility of larger-scale geothermal power plants.

In 1986, Ormat once again partnered with LFC Financial in the formation of the Sparks, Nevada-based OESI Power Corporation. In April 1988, Ormat Energy Systems acquired a 25 percent interest in Puna Geothermal Ventures on the island of Hawaii. In June, the company bought the other 75 percent and became the sole owner of the site-specific subsidiary. The proposed $100 million plant was the first privately owned and operated commercial geothermal project licensed in the state and was scheduled to begin delivering up to 12.5 MW to Hawaiian Electric Industries Inc. by 1990. In February 1990, 11 months after a contract was signed, electricity began flowing from two OEC modular units, part of New Zealand’s first geothermal power plant.

In April 1991, OESI reported net income for 1990 of $2.7 million on revenue of $66.1 million, and in May, the company raised $31.5 million in an initial public offering (IPO) on the American Stock Exchange. Ormat Turbines’ stake in OESI fell from 32.9 percent to 22.9 percent after the company’s sale of 2.25 million shares at $14 per share. At the time, OESI operated and maintained five geothermal projects in the United States totaling 49.9 MW. In addition, three units representing 29.5 MW were under construction and another five projects totaling 102 MW were under active development. On November 22, OESI halted stock sales after the share price dropped from $9.50 to $6.50, the result of investor concerns over delays and significant cost overruns in the Puna project caused by an explosion at a well drilling site in June. In December, OESI acquired 20 percent of Portland, Oregon-based LFC Power Systems Corp., operator of nine power plants in four states, including the Ormesa I geothermal facilities in California’s Imperial Valley.

COMPANY PERSPECTIVES

Over the past four decades, Ormat has pioneered a number of significant advances in the geothermal and recovered energy industries, laying the foundation for the rapid and profitable growth that Ormat Technologies, Inc., is experiencing today. Ormat’s engineers have developed highly original designs for turbines and other generation equipment components, which have been optimized through the rigorous application of advanced thermodynamics and fluid dynamics. Ormat’s unique position of being both an independent power producer, as well as a manufacturer of geothermal and recovered energy equipment, provides the company with a thorough firsthand understanding of customer needs and the ability to develop creative solutions based on field-tested experience.

On the parent company’s home front, in May 1991, Yavne-based Ormat Industries, Ormat Turbines’ newly created parent company, staged a very successful IPO on the Tel Aviv Stock Exchange (TASE). The Bronicki family retained 67.9 percent ownership of the company. May 1991 also brought a partnership with Enin, the Soviet energy institute, to establish geothermal power stations in the Soviet Union and to import Russian technology used in power stations fueled by shale oil. Total revenues for Ormat Industries for the whole of 1991 were $71 million.

OESI moved its headquarters to Portland, Oregon, in the second quarter of 1992 and in September resumed operations at its Puna project in Hawaii. However, the company received bad news in May 1993 when General Electric Capital Corp., the construction lender and minority partner in the company’s $40 million, 12.5 MW Rye Patch geothermal project in Pershing County, Nevada, withdrew its financing for the plant.

EXPANDING WORLDWIDE IN 1993

In September 1993, Ormat landed its biggest deal to date. Another U.S. subsidiary, Ormat Inc. of Sparks, Nevada, signed an agreement with the Philippine National Oil Company (PNOC), a government-owned corporation, to be the turnkey contractor for a 125 MW geothermal plant in the Upper Mahiao geothermal field. The $180 million build-operate-transfer project called for Ormat to manufacture and build the power plant, and California Energy Inc. of Omaha, Nebraska, to manage the financing and operate the facility, which was expected to produce electricity by mid-1996. Two smaller Ormat plants in the Philippines, each under 20 MW, were scheduled to become operational in 1994.

In April 1994, the effects of the Puna delays and the Rye Patch write-off became apparent for OESI. The company reported a net loss for 1993 of $32.1 million on revenues of $38.2 million. On March 29, 1995, OESI saw its stock “bounce back” from a low of 1.6 cents to close at 12.5 cents. August brought the final blow to the company when OESI announced its loss of $51.4 million for 1994. In December, Ormat Inc., which held 86.4 percent of OESI stock, paid remaining shareholders 12 cents per share and took the company private.

In June 1995, Ormat Inc. was awarded another PNOC contract for a $40 million, 49 MW geothermal power plant on the island of Leyte in the central Philippines. Ormat Industries landed a contract in late October to build a 25 MW geothermal power plant in Guatemala. The $65 million Zunil I project also included a 30-year power purchase agreement between Nevada-based Ormat International, Inc., and Guatemala’s state-owned electric utility.

In February 1996, Ormat Industries announced another geothermal project for New Zealand, a turnkey contract to build a $32 million, 20 MW power plant on an active geothermal site in the Rotokawa region. In May, the company said it would build a fourth project in the Philippines, a $65 million, 50 MW geothermal power plant. In August, Ormat finally won a power plant contract in Israel, a $43 million, 30 MW, 50 percent shale-oil powered demonstration plant located in Nahal Zin, in southern Israel. Ormat also announced in August a contract for a $16 million, 7 MW plant for Ethiopia, where the company had been active in the 1970s. In December, Ormat International reached an agreement with state-owned Vietnam Electricity Corp. to build that nation’s first geothermal plant.

KEY DATES

1965:: Lucien and Yehudit Bronicki establish Ormat Turbines Ltd. in Yavne, Israel.
1983:: Ormat opens U.S. subsidiary in Sparks, Nevada.
1986:: California’s 24 MW Ormesa I Project proves feasibility of larger-scale geothermal power plants.
1991:: U.S. subsidiary, OESI, raises $31.5 million with initial public offering (IPO) on the American Stock Exchange.
1993:: Ormat lands contract for $180 million, 125 MW geothermal plant in the Philippines.
1994:: Financial losses pile up and Ormat takes OESI private.
1999:: Ormat creates OPTI Canada, Inc., and forms partnership for synthetic crude oil production plant.
2003:: Company doubles U.S. operations with $214 million acquisition of three California power plants.
2004:: Restructuring and IPO fuel emergence of Ormat Technologies, Inc., as company’s dominant unit.

In May 1997, Ormat received an order for its fourth New Zealand geothermal facility, a $24 million, 10 MW plant for the Ngawha geothermal field in Northland. Signaling its strategy to invest directly in power plants instead of just building and supplying them with equipment, Ormat Turbines in July acquired 30 percent of two state-owned 470 MW coal-fired plants in Karaganda, Kazakhstan. Ormat took over operations of the plants with an option to buy up to 70 percent of the facility.

Ormat advanced its Kazakhstan project in June 1998, when it formed Karaganda Power, a partnership with London-based International Power. In September, the partners completed the purchase of 70 percent of the electricity production and transmission company from the Kazakhstan government and committed $110 million to a three-year plan to refurbish the facilities. On another continent, Ormat International signed a deal in November to build the first phase of a $172 million geothermal plant in Kenya.

Ormat Industries landed its first deal in Nicaragua in March 1999, a 15-year contract to operate the 27 MW Momotombo geothermal power plant. The plan called for Ormat to invest $15 million in upgrades, drill additional geothermic wells, and boost the plant’s operating capacity and profitability. In June, Ormat Industries established OPTI Canada, Inc., and partnered with Calgary-based Suncor Energy Inc. to test the commercial viability of Ormat’s technology for producing synthetic crude oil at a pilot plant at one of Suncor’s northern Alberta oil sand leases.

In July 2000, OPTI announced plans to build a $450 million, 30, 000 barrel-a-day, heavy-oil-recovery facility not far from its Burnt Lake pilot plant. The Long Lake Project was based on OrCrude technology, an Ormat-developed steam-assisted gravity drainage process to heat bitumen to its melting point so that it could then be brought to the surface and converted on-site into synthetic crude. The plant was scheduled to start producing 20, 000 barrels per day in 2002, which the company planned to sell in the U.S. refinery market.

REINVESTING IN THE UNITED STATES: 2001

In 2001, Ormat Industries continued its transition from a technology vendor to an independent power producer. In July, the company acquired two geothermal power plants in the United States that it had helped build a decade earlier. In separate deals, Ormat bought the 20 MW Brady Power Partners station for $20.5 million from the Florida Power & Light Energy Company, and the 10 MW Desert Peak plant for $10.5 million from the Mid American Group. Located in Churchill County, Nevada, both plants had long-term power purchase agreements with Sierra Pacific Resources. In November, Calgary-based Nexen Inc. joined OPTI, replacing Suncor, in its heavy oil project in Alberta’s Athabasca oil sands region.

In February 2002, Ormat Industries announced it would build an $18.7 million, 18 MW power plant at the Miravalles geothermal field in Costa Rica. In March, International Power sold Ormat its share in Karaganda Power. In April, Ormat Nevada Inc., yet another Sparks-based subsidiary, bought the 74-megawatt Ormesa complex of geothermal power plants in Imperial County, California, for $41 million. The deal with FPL Energy and Caithness Energy gave Ormat control of six individual power generators and included the 40 MW Ormesa Project and the 20 MW combined Geo East Mesa Units 2 and 3. The Ormesa and GEM plants came with long-term contracts to sell power to Southern California Edison and generated about $30 million in annual revenue. In September, Ormat unloaded its 50 percent stake in a coal-fired power plant in Kazakhstan.

In 2003, Ormat Industries continued its U.S. expansion with the July acquisition of the Ormat-built Steamboat geothermal complex in Steamboat Hills, Nevada, about ten miles from the company’s U.S. headquarters in Sparks. In two separate deals, the company bought four Steamboat power plants with 47 megawatts in total generating capacity and some adjacent land suitable for geothermal development. In October, Ormat Industries signed a contract for its fifth geothermal power plant in New Zealand, a $22 million, 16.5 MW facility. On December 18, 2003, Ormat made its biggest deal to date when it completed a $214 million acquisition of three California geothermal power plants from the bankrupt Covanta Energy Corp. In that one transaction, the company doubled the size of its U.S. operations and became the third largest player in the geothermal sector in North America. The deal included a 52 MW plant in Heber, leasing rights to a 48 MW Second Imperial Geothermal Co. plant, and 50 percent of the Mammoth Pacific Power Plants in the Sierra Nevada Mountains. Sales from the power facilities were expected to generate about $80 million annually.

In February 2004, the company began operating a 4.5 MW Ormat Recovered Energy Generation system at a natural gas processing plant in Louisiana. The heat recovery system, the first of its kind in the United States, used otherwise wasted heat from hot exhaust of two gas turbines. In April, OPTI Canada raised $301.4 million in an IPO under the symbol OPC on the Toronto Stock Exchange to finance part of its 50 percent share of a $3.4 billion oil sands project in northern Alberta. In May, Ormat Nevada paid $20 million to acquire the 12.5 MW Steamboat Yankee geothermal project in Washoe County, Nevada. In June, Ormat Nevada paid $71 million to become the sole owner of the 30 MW Puna geothermal plant in Hawaii, a project Ormat helped build a decade earlier.

GAINING STEAM IN 2004

Ormat Technologies, Inc.’s November 2004 IPO on the New York Stock Exchange capped a two-year restructuring for Ormat Industries and its worldwide holdings and subsidiaries. OTI emerged in the new order as the owner and operator of Ormat Industries’ entire portfolio, which at the time included 12 geothermal power stations in the United States, Israel, Guatemala, Kenya, Nicaragua, and the Philippines, and another three projects under construction. Opening at $15.20 per share and trading under the ticker symbol ORA, the sale of 7.18 million shares of common stock, about 26 percent of the company, netted Ormat Technologies $100.2 million. TASE-traded, Yavne-based Ormat Industries, where the majority of Ormat’s senior management and all of its production and manufacturing facilities remained, essentially became a holding company with shares in OTI and a 30 percent stake in OPTI Canada. At the time, the Bronicki family collectively owned 34.9 percent of Ormat Industries; Lucien Bronicki remained company chairman and chief technology officer, and Yehudit Bronicki continued to serve as CEO and president.

In February 2005, OTI won a contract to build a $25 million, 14 MW geothermal power plant on São Miguel Island in the Azores, its third island project. In March, OTI subsidiary Ormat Nevada, Inc., broke ground on the 20 MW Galena Geothermal Project No. 1, the first geothermal plant built at the Steamboat, Nevada, location since 1991. OTI reported in March that total revenues of $219.2 million for 2004 were up 83.5 percent from 2003. Net income rose year to year from $15.5 million to $17.8 million. May brought another groundbreaking for a geothermal plant at the Heber Geothermal Facilities Complex. The 10 MW plant was part of an 18 MW enhancement of Ormat’s Heber facility. In June, OTI signed a 25-year agreement to sell Basin Electric Power Corp. 22 MW of Recovered Energy Generation systems for its gas compressor stations along the Northern Border Pipeline in North and South Dakota.

From December 2004 to January 2006, OTI’s share price rose 143 percent. In March 2006, OTI reported record total revenues for 2005 at $238 million but said net income fell from $17.8 million to $15.2 million. In April, OTI netted $117.2 million from the sale of 3.5 million shares at $35.50 per share in a follow-on public offering, and in the same month moved its headquarters from Sparks to Reno, Nevada. Ormat returned to its solar roots in May when a 1 MW OEC became operational as part of the first solar trough power plant in Arizona. OTI’s Recovered Energy Generation (REG) business continued to grow in June with a $29 million supply and construction contract for three REG power plants from an independent power producer in Western Canada. In June, OTI became the sole owner of the 24 MW Ormat-built Zunil Geothermal Project in Guatemala.

In July 2006, OTI subsidiary Ormat International, Inc., became a one-third partner in the largest single-contract project to date in the geothermal industry worldwide, a $600 million, 340 MW power plant for Sarulla, Indonesia. In September, Ormat Industries announced that it would invest $63.5 million over the next five years to build a demonstration biodiesel plant, and in December, the company sold four million shares in OPTI Canada Inc. for $69 million to fund its experiment. Ormat’s stake in OPTI fell to 5.3 percent after the sale. In late December, OTI secured significant geothermal leases in North Brawley, California, where it planned to build a 50 MW plant by 2008.

January 2007 brought Ormat its tenth New Zealand supply contract, a deal to build a $20 million, 12 MW geothermal power plant in Ngawha. In February, OTI began a $32 million, 35 MW expansion of its Olkaria III geothermal power plant in Kenya. On February 28, OTI reported that annual revenues for 2006 were up 13 percent to $268.9 million and net income jumped 127 percent to $34.4 million. Revenues from electricity generation totaled $195.5 million. In March, parent company Ormat Industries reported $290.9 million in total revenue for 2006. The company said net profits of $198.1 million were up 478.4 percent due to capital gains from the dilution in the company’s stake in OTI and the sale of investments in OPTI Canada, Inc.

As 2007 began, geothermal energy was being used as a source of direct heat and electrical power generation in over 30 countries, but it represented less than 2 percent of worldwide electricity production. The International Energy Agency had predicted that geothermal power could triple in market share by 2030, to 167 terawatt hours each year, equal to nearly half of the electricity produced in an average-sized European country. With more than 40 years of alternative energy experience and a consistent revenue stream as an established independent power producer of geothermal energy, OTI and its subsidiaries appeared well positioned to take advantage of the worldwide trend away from fossil fuels and toward more environmentally friendly energy production and consumption.

Ted Sylvester

PRINCIPAL SUBSIDIARIES

Ormat Inc.; Ormat International, Inc.; Ormat Nevada, Inc.

PRINCIPAL COMPETITORS

CalEnergy Generation; Calpine Corporation; Fuji Electric Corp. of America; Mitsubishi Heavy Industries America, Inc.; Siemens AG (Germany); Caithness Energy, L.L.C.