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“ A VIEW FROM THE FIELD” THE DEVELOPER’S APPROACH TO GEOTHERMAL PROJECTS

“ A VIEW FROM THE FIELD” THE DEVELOPER’S APPROACH TO GEOTHERMAL PROJECTS. Daniel N. Schochet, Vice President ORMAT Nevada, Inc. January 20, 2004. ORMAT - COMPANY PROFILE. RENEWABLE & SUSTAINABLE ENERGY SINCE 1965 . DESIGN, ENGINEER, SUPPLY, INSTALL & OPERATE

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“ A VIEW FROM THE FIELD” THE DEVELOPER’S APPROACH TO GEOTHERMAL PROJECTS

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  1. “A VIEW FROM THE FIELD”THE DEVELOPER’S APPROACH TO GEOTHERMAL PROJECTS Daniel N. Schochet, Vice President ORMAT Nevada, Inc. January 20, 2004

  2. ORMAT - 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 & SOLAR REPOWERING / REHABILITATION OF EXISTING PLANTS • OVER US$1B IN IPP PROJECT FINANCING

  3. WHY GEOTHERMAL  COST 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 SAFE Many projects operating over 10 yrs at 98%+ availability  Geothermal is non-combustion - near zero emissions  MINIMAL SURFACE USE- INDEPENDENT OF WEATHER  FIELD PROVEN TECHNOLOGY - 8,000 MW WORLD WIDE  EASY TO INSTALL, OPERATE AND MAINTAIN Plants constructed in 6 to 12 months- O&M by local staff

  4. ORMAT GEOTHERMAL POWER PLANTS Fang, THAILAND Upper Mahiao, The Philippines 1989 300 kW 1996 125 MW The Philippines Thailand Zunil, GUATEMALA Olkaria, KENYA 1999 24 MW 2000 8 MW Guatemala Kenya 1966

  5. GEOTHERMAL TECHNOLOGY OVERVIEW  RESOURCE TEMPERATURES FROM 250O TO 350O F • 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 350O F • 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 PRODUCTION • Conventional steam turbine technology most appropriate • Geysers (CA), Italy, Iceland, Indonesia & New Zealand • Water cooled condensers needed • Higher environmental impact

  6. Olkaria III Geothermal Power Plant, Phase 1 Kenya, 2000 CONDENSER GENERATOR TURBINE MOTIVE FLUID PUMP 12 MW binary geothermal power plant, comprising 3 air- cooled ORMAT® Energy Converters (OEC) INJECTION PUMP INJECTION WELL PRODUCTION WELL The OEC units utilize two-phase geothermal fluid consisting of steam and separated brine PRODUCTION PUMP COOLED GEOTHERMAL FLUID ORMAT Air Cooled Binary Geothermal Power Plant

  7. Geothermal Renewable Grid Connected Base Load Power PUNA (Hawaii), since 1993 CONDENSER GENERATOR NON CONDENSABLE (NCG) COMPRESSOR TURBINE PREHE MOTIVE FLUID PUMP 30 MW plant comprising 10 combined cycle OEC units STEAM PRODUCTION WELL INJECTION PUMP INJECTION WELL HOT GEOTHERMAL FLUID COOLED GEOTHERMAL FLUID Utilizes saturated steam and injects 100% of spent fluid to reservoir ORMAT Geothermal Combined Cycle Power Plant 1147

  8. TECHNOLOGIES Sustainable Geothermal Conventional Geothermal Steam Power Plant Combined Cycle Geothermal Power Plant All Fluids Reinjected: Sustainable, No Power Reduction No Emissions (No Abatement Needed) No Plume (Air Cooled Condensers) Low Profile Not Sensitive to Quality of Brine & Steam Water Consuming Sustainable PROBLEMS: SOLUTIONS: Consumes Water: Aquifer Depletion, Power reduction Effluents or Expensive Abatement Plume Visual Impact Water Treatment Needed: Use and Disposal of Chemicals 1584

  9. Current Mainland U.S. Geothermal Power Production Geysers 2070 MW Nevada Production 196 MW Mammoth 40 MW Utah Production 33 MW COSO 240 MW Imperial Valley 403 MW Total Existing Capacity = 2900 MW 25,000 GWhs

  10. GeothermalHigh Capacity Factor Resource

  11. Biomass - Energy Forestry Energy Crops Solar Thermal Power Average Capital and Delivered Costs 22000 Capital Cost (US$/kW) Solar Photovoltaic 4000 3000 Geothermal 2000 Coal Wind 1000 Cost of delivered energy (US$/kWh) Gas 0 0.16 0.18 0.86 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.20 0.88 0 Source: International Energy Agency & Others

  12. Geothermal Modular Development AZORES ISLAND (Portugal) Sao Miguel Geothermal Power Plant 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 1497

  13. 60 MW Geothermal Power Plant MOKAI, New Zealand 1999 Combined cycle OEC power plant owned by Maori Trust 1656

  14. IMPLEMENTING GEOTHERMAL PROJECTS 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.

  15. EXPLORATION AND RESOURCE ASSESSMENT “Greenfield Project”- High risk - 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 M Federalgrants 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”

  16. EXPLORATION 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

  17. DRILLING AND WELL FIELD DEVELOPMENT Medium risk – Investor Financing Possible  Production/injection wells $1.0 to $3.0M each Production 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

  18. PROJECT RISK PROFILE PROJECT RISKMITIGATION 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

  19. PROJECT 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: 5.0 • Commitment fees • Legal & Accounting fees • Consultants, and • Interest during construction • Debt service and operating reserve TOTAL FINANCED COST FOR 20 MW PROJECT$ 55 M To be provided as construction phase financing

  20. GOVERNMENTAL SUPPORTS • PRODUCTION TAX CREDIT (PTC) • Legislation in Senate-House Conference • Possible 5 or 10 year tax credit to developer/owner • $0.018/kwh tax credit for energy sold • Reduces cost of production by up to $0.018/kWh • Depends on tax liability of developer/owner • RENEWABLE PORTFOLIO STANDARD (RPS) • Utilities will need up to 20% renewable energy for sale • Native American Projects may get double RPS credit • Renewable Energy Credit (REC) is worth: • Renewable Energy Price – Utility Avoided Cost • In Nevada Typically [REC = $0.05 - $0.04 = $0.01/kWh]

  21. CONCLUSIONS 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

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