Financing Geothermal Projects

1

• Financing Geothermal Projects
• in the Capital Markets
• A Developers Perspective
• Eddie Sadan, Manager Business Development
• September 12, 2006

F100 060912
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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

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Company Profile Business Overview
PowerGeneration
Products

• Geothermal generation
• 364 MW in operation
• 131 MW in construction and enhancements
• Visible development pipeline
• Recovered energy generation
• 11 MW in operation
• 16 MW under construction
• Long-term contracts

• Designs, manufactures and sells power equipment,
  and turnkey projects for electricity generation
• Owns 70 patents
• Supplied 800 MW of power plants and2,600
  remote power units
• Installed in 71 countries on 6 continents

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ORMATs Worldwide Presence About 800 MW of
Geothermal Power Plants
1992
30 MW Puna Geothermal Power Plant, Big Island,
Hawaii
1992
1994, 1998
2000, 2005

40 MW Heber Geothermal Power Plant, California,
100 MW Mokai Geothermal Power Plant, New Zealand
14 MW Sao Miguel Geothermal Power Plant, Azores
Islands
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I. Why Go to the Capital Markets ?
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The Basic Need for External Capital

• Developing a geothermal power plant is a capital
  extensive activity.
• External sources of capital enable a developer
• To expand its financial capabilities
• To improve the projects economics

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Financing Projects in the Capital Markets Main
Characteristics Risks

• Deal size at least 100M
• Uniformed transactions market terms
• Sensitivity to markets condition
• Difficulty to handle post closing
• issues

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Financing Projects in the Capital Markets The
Benefits

• Simplicity the other side of uniformity
• Transparency a known path to closing
• Better positioning vis-à-vis the investors
• Efficient execution

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II. Financing Orcal In the Capital Markets
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The OrCal Projects Fact Sheet
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Ownership Structure
Ormat Technologies, Inc. (Parent Company)
Ormat Nevada Inc. (Sponsor)
Senior Secured Notes 165.0 MM due 2020
OrCal Geothermal Inc. (Issuer)
100
100
OrHeber 1
OrHeber 2
50
50
100
100
100
100
Heber 1 Project 38 MW
Heber 2 Project 34 MW
Gould Project 10 MW
HFC

• PPA with SCE

• PPA with SCE

• PPA with SCPPA

• land resource rights ownership

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Financing Geothermal Power ProjectsKey Factors
to Success

• The necessary factors to success in financing
  geothermal projects were present in Orcals case
  
• Fuel high and predictable availability of the
  geothermal resource
• Long term PPAs
• Proven power plant technologies
• Experienced developer

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OrCals Financing TransactionFundamentals
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III. A Capital Markets Transaction The
Process
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Pre-Deal Process The Team

• Structuring and executing a capital market
  transaction requires an army of advisors
• Financial Advisors the Investment Bank
• Legal Advisors SEC, Project Finance, Real
  Estate, etc.
• Technical Advisors Independent Engineers (plant
  resource), Environmental Advisor, etc.
• Auditors

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OrCals Advisors Team
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Pre-Deal Process

• Once the deal team is defined, it focuses on
  preparing the following documents
• Offering Memorandum
• Legal Agreements
• Roadshow Materials
• In parallel, the underwriter is running a due
  diligence process on the issuer as the future
  investors representative.

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Bond Rating - General

• Main rating agencies SP, Moodys and Fitch
• The rating ladder goes from AAA
• to C
• Investment Grade BBB- and above
• A rating agency serves the investors by
• Running a detailed objective due diligence
  process, as it is a true third party.
• Providing them with a detailed report analyzing
  the risks involved with the offered bonds

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To Rate or Not to Rate?

• Benefits
• A rated deal is better marketed and lower priced
• High grade deal will attract more types of
  investors
• Risks
• Rating might be a pacing item
• Uncertainty in the result

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Rating The OrCal Case

• The deals characteristics dictated the decision
  to rate the offered bonds
• Price sensitivity
• The necessary debt served the refinanced amount
  only.
• There was a good chance to get an investment
  grade
• Rating timing fitted the transactions time table
• The Bottom Line An Ormat subsidiary (OrCal) went
  through the rating process for the first time and
  achieved BBB- from Fitch

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The Execution Phase - General

• Once everything is ready, the proposed deal is
  announced to the market by the investment bankers
  and the roadshow begins
• This phase in the process is dominated by the
  capital markets bankers.

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The Roadshow

• Average time frame is between 1-2 Weeks
• Includes face to face meetings and conference
  calls with the company.
• The roadshow route usually focuses on the east
  coast, while other parts of the US are visited
  only if necessary.
• In parallel bankers are working behind the
  scenes, talking to investors.

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Pricing I

• A successful roadshow translates to a sufficient
  amount of investors bidding for the offered
  bonds.
• The bid is placed for a certain amount and a
  spread over the US Treasury rate (the price).
• Pricing day is pre-determined to allow the
  investors enough time to make a decision.
• At that day, general interests has to turn to
  firm commitments by investors that wish to buy
  the offered bonds.

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Pricing II

• The final price is set by the bankers that run
  the book of orders.
• The right price should be able to fill up the
  amount and more, to create competition with some
  reserve demand and to meet last minute
  surprises.
• Despite the fact that the bankers are in control
  of this process, in good deals the company can be
  aggressive and influence the process to a limited
  extent

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OrCals Pricing

• The credit rating and a successful roadshow
  created the necessary interest among investors
• The demand was strong (multiple
  over-subscription) with attractive price bids
• We were successful in attracting high quality
  buy hold investors, with large chunks held by
  major insurance companies
• The company was able to influence the pricing
  process in terms of the actual pricing as well as
  the identity of the chosen investors

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IV. Lessons Learned
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Lessons Learned

• Control over transactions timetable and cost is
  essential
• Rating is beneficial
• Monitoring the investment banker
• is possible
• Experience is important

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ORMAT
Reliable Company
Questions ?
TIME, the only true test of reliability