March 2, 2020 10:04 AM EST

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0001296445 ORMAT TECHNOLOGIES, INC. false --12-31 FY 2019 0 0 0 0 0 0 38 0 0 0 0 0 0 20 144 1.7 1.1 35 0 7 4.5 6 25 1.52 1.93 4.5 1.35 2.0 2.1 2.87 1.0 4.5 1.35 2.0 2.1 2.87 1.0 5 6 2.99 0 1 1 6 10 6 10 6 2032 2037 2022 2039 2022 2025 2039 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 10 23 0 10 0 0 These amounts relate to currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, net of contracted rates and then multiplied by notional amounts, and are included within "Receivables, other" and "Accounts payable and accrued expenses", as applicable, on December 31, 2019 and December 31, 2018, in the consolidated balance sheet with the corresponding gain or loss being recognized within "Derivatives and foreign currency transaction gains (losses)" in the consolidated statement of operations and comprehensive income. Electricity segment revenues in the United States are all accounted under lease accounting, except for $61.3 million and $26.9 million for the years December 31, 2019 and 2018 that are accounted under ASC 606 starting in 2018. Product and Energy Storage and Management Services segment revenues in the United States are accounted under ASC 606, as further described under Note 1 to the consolidated financial statements. Including unconsolidated investments 81,140 — — 81,140 Revenues as reported in the geographic area in which they originate. Including unconsolidated investments 34,084 — — 34,084 Subsidiaries of NV Energy, Inc. An RSU represents the right to receive one share of common stock once certain vesting conditions are met. The value of an RSU is identical to the value of the underlying stock. Goodwill is primarily related to the expected synergies in operations as a result of the purchase transaction. The goodwill is allocated to the Electricity segment and not deductible for tax purposes. Contract assets and contract liabilities are presented as "Costs and estimated earnings in excess of billings on uncompleted contracts" and "Billings in excess of costs and estimated earnings on uncompleted contracts", respectively, on the consolidated balance sheets. The contract liabilities balance at the beginning of the year was fully recognized as product revenues during the years ended December 31, 2019 and 2018 as a result of performance obligations satisfied. Upon exercise, SARs entitle the recipient to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date. These amounts relate to contingent receivables and payables and warrants pertaining to the Guadeloupe power plant purchase transaction, valued primarily based on unobservable inputs and are included within "Prepaid expenses and other", "Accounts payable and accrued expenses" and "Other long-term liabilities" on December 31, 2019 and 2018 in the consolidated balance sheets with the corresponding gain or loss being recognized within "Derivatives and foreign currency transaction gains (losses)" in the consolidated statement of operations and comprehensive income. Revenues reported in Electricity segment. Electricity segment revenues in foreign countries are all accounted under lease accounting. Product and Energy Storage and Management Services segment revenues in foreign countries are accounted under ASC 606 as further described under Note 1 to the consolidated financial statements. The non-current deferred tax asset has been reduced by the uncertain tax benefit of $0.1 million in accordance with ASU 2013-11, Income Taxes. Intangible assets are primarily related to long-term electricity power purchase agreements and depreciated over an average of 19 years. Electricity segment assets include goodwill in the amount of $20.1 million, $20.0 million and $7.6 as of December 31, 2019, 2018 and 2017, respectively. No goodwill is included in the Product and Energy Storage and Management Services segment assets as of December 31, 2019 and 2018. Energy Storage and Management Services segment assets as December 31, 2017 include goodwill in the amount of $13.5 million. 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Table of Contents


Washington, D.C. 20549


Form 10-K



  For the fiscal year ended December 31, 2019





Commission file number: 001-32347



(Exact name of registrant as specified in its charter)




(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

6140 Plumas Street, Reno, Nevada


(Address of principal executive offices)

(Zip Code)



(Registrant’s telephone number, including area code)


Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock $0.001 Par Value


New York Stock Exchange


Securities Registered Pursuant to Section 12(g) of the Act:



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐     No ☑


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ☐     No ☑


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑     No ☐


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑     No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large  accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller  reporting company 

Emerging growth  company 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No ☑


As of June 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $2,527,613,074 based on the closing price as reported on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: As of February 26, 2020, the number of outstanding shares of common stock, par value $0.001 per share was 51,031,652.


Documents incorporated by reference: Part III (Items 10, 11, 12, 13 and 14) incorporates by reference portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders, which will be filed not later than 120 days after December 31, 2019.



























































ITEM 10.



ITEM 11.



ITEM 12.



ITEM 13.



ITEM 14.




ITEM 15.







Glossary of Terms


Unless the context otherwise requires, all references in this annual report to “Ormat”, “the Company”, “we”, “us”, “our company”, “Ormat Technologies”, or “our” refer to Ormat Technologies, Inc. and its consolidated subsidiaries. A glossary of certain terms and abbreviations used in this annual report appears at the beginning of this report. When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:





Atlantic County Utilities Authority

Amatitlan Loan

$42,000,000 in initial aggregate principal amount borrowed by our subsidiary Ortitlan Limitada from Banco Industrial S.A. and Westrust Bank (International) Limited.


Administrador del Mercado Mayorista (administrator of the wholesale market — Guatemala)


American Recovery and Reinvestment Act of 2009

Auxiliary Power

The power needed to operate a geothermal power plant’s auxiliary equipment such as pumps and cooling towers


The ratio of the time a power plant is ready to be in service, or is in service, to the total time interval under consideration, expressed as a percentage, independent of fuel supply (heat or geothermal) or transmission accessibility

Balance of Plant equipment

Power plant equipment other than the generating units including items such as transformers, valves, interconnection equipment, cooling towers for water cooled power plants, etc.


Base Erosion Anti-Abuse Tax


Battery Energy Storage Systems


Bureau of Land Management of the U.S. Department of the Interior


Build, operate and transfer


Battery Storage as a Service


The maximum load that a power plant can carry under existing conditions, less auxiliary power

Capacity Factor

The ratio of the actual MWh generated and the generating capacity times 8760 hours expressed in percentage


Community Choice Aggregator


Caisse des Dépôts et Consignations, a French state-owned financial organization


Chief Executive Officer


Chief Financial Officer


Refers to the Commercial and Industrial sectors, excluding residential


National Electric Energy Commission of Guatemala


Commercial Operation Date


Ormat Technologies, Inc., a Delaware corporation, and its consolidated subsidiaries


Committee of Sponsoring Organizations of the Treadway Commission


Consumer Price Index


California Public Utilities Commission


Deutsche Investitions-und Entwicklungsgesellschaft mbH


Development Finance Institutions


U.S. Department of Energy


California Division of Oil, Gas, and Geothermal Resources


Debt Service Coverage Ratio


Earnings before interest, taxes, depreciation and amortization


Electricite de France S.A.


Enhanced Geothermal Systems


European Investment Bank


Energy Market Regulatory Authority in Turkey





Empresa Nacional de Energía Eléctrica


The total energy content of a fluid; the heat plus the mechanical energy content of a fluid (such as a geothermal brine), which, for example, can be partially converted to mechanical energy in an Organic Rankine Cycle.


U.S. Environmental Protection Agency


Engineering, procurement and construction


Earnings per share


Kenyan Energy Regulatory Commission


Electric Reliability Council of Texas, Inc.

ERPA Energy and Petroleum Regulatory Authority

Exchange Act

U.S. Securities Exchange Act of 1934, as amended


Financial Accounting Standards Board


U.S. Federal Energy Regulatory Commission


Feed-in Tariff


U.S. Federal Power Act, as amended


Generally accepted accounting principles


Geothermal Combined Cycle Unit


Geothermal Development Company


Geothermal Energy Association

Geothermal Power Plant

The power generation facility and the geothermal field

Geothermal Steam Act

U.S. Geothermal Steam Act of 1970, as amended


Greenhouse gas


Giga watt


Giga watt hour


Hawaii Electric Light Company


Idaho Department of Water


International Geothermal Association


Imperial Irrigation District


Instituto Nacional de Electrification


Investor-Owned Utilities


Independent Power Producers


The Independent Electricity System Operator (IESO) works at the heart of Ontario's power system.


Internal Revenue Service


International Organization for Standardization


Investment Tax Credit

ITC Cash Grant

Payment for Specified Renewable Energy property in lieu of Tax Credits under Section 1603 of the ARRA


Japan Bank for International Cooperation

John Hancock

John Hancock Life Insurance Company (U.S.A.)


Joined operation contract


JPM Capital Corporation


Kenya Electricity Generating Company Ltd.

Kenyan Energy Act

Kenyan Energy Act, 2006


Kenya Electricity Transmission Company Limited


Known Geothermal Area


Kapoho Land Partnership


Kenya Power and Lighting Co. Ltd.




Kilowatt - A unit of electrical power that is equal to 1,000 watts




Kilowatt hour(s), a measure of power produced


Los Angeles Department of Water and Power


Levelized Costs of Energy

Mammoth Pacific

Mammoth-Pacific, L.P.


Modified Accelerated Cost Recovery System


Megawatt - One MW is equal to 1,000 kW or one million watts


Megawatt hour(s), a measure of energy produced


Northern Border Pipe Line Company


New Israeli Shekel


Network Operations Center

NV Energy

NV Energy, Inc.


New York Stock Exchange


New York Independent System Operator, Inc.


Ormat Energy Converter


Ormat Funding Corp., a wholly owned subsidiary of the Company

OFC Senior Secured Notes

$190,000,000 8.25% Senior Secured Notes, due 2020 issued by OFC


OFC 2 LLC, a wholly owned subsidiary of the Company

OFC 2 Senior Secured Notes

Up to $350,000,000 Senior Secured Notes, due 2034 issued by OFC 2

Opal Geo

Opal Geo LLC


OPC LLC, a consolidated subsidiary of the Company

OPC Transaction

Financing transaction involving four of our Nevada power plants in which institutional equity investors purchased an interest in our special purpose subsidiary that owns such plants.


Overseas Private Investment Corporation


OrCal Geothermal Inc., a wholly owned subsidiary of the Company

OrCal Senior Secured Notes

$165,000,000 6.21% Senior Secured Notes, due 2020 issued by OrCal


Organic Rankine Cycle - A process in which an organic fluid such as a hydrocarbon or fluorocarbon (but not water) is boiled in an evaporator to generate high pressure vapor. The vapor powers a turbine to generate mechanical power. After the expansion in the turbine, the low-pressure vapor is cooled and condensed back to liquid in a condenser. A cycle pump is then used to pump the liquid back to the vaporizer to complete the cycle. The cycle is illustrated in the figure below:




Ormat International

Ormat International Inc., a wholly owned subsidiary of the Company

Ormat Nevada

Ormat Nevada Inc., a wholly owned subsidiary of the Company

Ormat Systems

Ormat Systems Ltd., a wholly owned subsidiary of the Company


ORIX Corporation


ORPD LLC, a holding company subsidiary of the Company in which Northleaf Geothermal Holdings, LLC holds a 36.75% equity interest

ORPD Transaction

Financing transaction involving the Puna complex and Don A. Campbell, OREG 1, OREG 2 and OREG 3 power plants in which Northleaf Geothermal Holdings, LLC purchased an equity interest in our special purpose subsidiary that owns such plants.

OrPower 4

OrPower 4 Inc., a wholly owned subsidiary of the Company


Ortitlan Limitada, a wholly owned subsidiary of the Company


ORTP, LLC, a consolidated subsidiary of the Company



ORTP Transaction

Financing transaction involving power plants in Nevada and California in which an institutional equity investor purchased an interest in our special purpose subsidiary that owns such plants.


Orzunil I de Electricidad, Limitada, a wholly owned subsidiary of the Company


Portfolio Energy Credits


Pacific Gas and Electric Company


Puna Geothermal Venture, a wholly owned subsidiary of the Company


PJM Interconnection, L.L.C.


PT Perusahaan Listrik Negara

Power plant equipment

Interconnection equipment, cooling towers for water cooled power plant, etc., including the generating units


Power purchase agreement


Part per million


Production Tax Credit


Public Utilities Commission of Hawaii


Public Utilities Commission of Nevada


U.S. Public Utility Holding Company Act of 1935

PUHCA 2005

U.S. Public Utility Holding Company Act of 2005


U.S. Public Utility Regulatory Policies Act of 1978

Qualifying Facility(ies)

Certain small power production facilities are eligible to be “Qualifying Facilities” under PURPA, provided that they meet certain power and thermal energy production requirements and efficiency standards. Qualifying Facility status provides an exemption from PUHCA 2005 and grants certain other benefits to the Qualifying Facility


Renewable Energy Credit


Recovered Energy Generation


Renewable Energy Resource certificate


Renewable Portfolio Standards


Regional Transmission Organization


Software as a Service


Supervisory Control and Data Acquisition


Southern California Public Power Authority


U.S. Securities and Exchange Commission

Securities Act

U.S. Securities Act of 1933, as amended


Standard Offer Contract No. 4


Sarulla Operations Ltd.

solar PV

solar photovoltaic


Sarbanes-Oxley Act of 2002

Southern California Edison

Southern California Edison Company


Special purpose entity(ies)


Short Run Avoided Costs


Tel Aviv Stock Exchange

Tax Act

Tax Cuts and Jobs Act


Underground Injection Control

Union Bank

Union Bank, N.A.


United States of America

U.S. Treasury

U.S. Department of the Treasury


U.S. Geothermal Inc.


Value Added Tax


Viridity Energy, Inc.


Viridity Energy Solutions Inc., our wholly owned subsidiary


Waste Heat Oil Heaters



Cautionary Note Regarding Forward-Looking Statements


This annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this annual report, the words “may”, “will”, “could”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “projects”, “potential”, or “contemplate” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this annual report are primarily located in the material set forth under the headings Item 1 — “Business” contained in Part I of this annual report, Item 1A — “Risk Factors” contained in Part I of this annual report, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this annual report, and “Notes to Financial Statements” contained in Item 8 — “Financial Statements and Supplementary Data” contained in Part II of this annual report, but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this annual report completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control.


Specific factors that might cause actual results to differ from our expectations include, but are not limited to:



significant considerations, risks and uncertainties discussed in this annual report;


geothermal resource risk (such as the heat content, useful life and geological formation of the reservoir);


operating risks, including equipment failures and the amounts and timing of revenues and expenses;


financial market conditions and the results of financing efforts;


weather and other natural phenomena including earthquakes, volcanic eruption, drought and other natural disasters;


political, legal, regulatory, governmental, administrative and economic conditions and developments in the United States, and other countries in which we operate and, in particular, possible import tariffs, possible late payments, the impact of recent and future federal, state and local regulatory proceedings and changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, public policies and government incentives that support renewable energy and enhance the economic feasibility of our projects at the federal and state level in the United States, and elsewhere, and carbon-related legislation;




risks and uncertainty with respect to our internal control over financial reporting, including identification of a material weakness which, if not timely remediated, may adversely affect the accuracy and reliability of our financial statements;


the impact of fluctuations in oil and natural gas prices under certain of our PPAs;


the competition with other renewable sources or a combination of renewable sources on the energy price component under future PPAs;


risks and uncertainties with respect to our ability to implement strategic goals or initiatives in segments of the clean energy industry or new or additional geographic focus areas;


risk and uncertainties associated with our operating storage facilities and with future development of storage and geothermal projects which operate as "merchant" facilities without long-term sales agreements, including the variability of revenues and profitability of such projects;


environmental constraints on operations and environmental liabilities arising out of past or present operations, including the risk that we may not have, and in the future may be unable to procure, any necessary permits or other environmental authorizations;


construction or other project delays or cancellations;


the enforceability of long-term PPAs for our power plants;


contract counterparty risk, including late payments or no payments;


changes in environmental and other laws and regulations to which our company is subject, as well as changes in the application of existing laws and regulations;


current and future litigation;


our ability to successfully identify, integrate and complete acquisitions;


our ability to access the public markets for debt or equity capital quickly;


competition from other geothermal energy projects and new geothermal energy projects developed in the future, and from alternative electricity producing technologies;


market or business conditions and fluctuations in demand for energy or capacity in the markets in which we operate;


when, if and to what extent opportunities under our commercial cooperation agreement with ORIX Corporation may in fact materialize;




the direct or indirect impact on our Company’s business of various forms of hostilities including the threat or occurrence of war, terrorist incidents or cyber-attacks or responses to such threatened or actual incidents or attacks, including the effect on the availability of and premiums on insurance;


our new strategic plan to expand our geographic markets, customer base and product and service offerings may not be implemented as currently planned or may not achieve our goals as and when implemented;


development and construction of solar PV and energy storage projects, if any, may not materialize as planned;


the effect of and changes in current and future land use and zoning regulations, residential, commercial and industrial development and urbanization in the areas in which we operate; and


the impact of the corona virus outbreak emanating from China and its impact on our ability to operate and supply raw materials and products and on our ability to travel globally to serve our customer and construct our own power plants. 


Company Contact and Sources of Information


Our website is Information contained on our website is not part of this Report. Information that we furnish or file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are available for download, free of charge, through our website. Our SEC filings, including exhibits filed therewith, are also available directly on the SEC’s website at


You may request a copy of our SEC filings at no cost to you, by writing to the Company address appearing on the cover page of this annual report or by calling us at (775) 356-9029.









We are a leading vertically integrated company that is primarily engaged in the geothermal, and recovered energy power businesses. We are also expanding into the solar Photovoltaic (PV) and energy storage and management services business.


We design, develop, build, sell, own, and operate clean, environmentally friendly geothermal and recovered energy-based power plants, usually using equipment that we design and manufacture. Our objective is to become a leading global provider of renewable energy and we have adopted a strategic plan to focus on several key initiatives to expand our business.


We currently conduct our business activities in three business segments:



Electricity Segment. In the Electricity segment, which contributed 72.4% of our total revenues in 2019, we develop, build, own and operate geothermal, solar PV and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world and sell the electricity they generate. In 2019, we derived 61.8% of our Electricity segment revenues from our operations in the U.S. and 38.2% from the rest of the world. 



Product Segment. In the Product segment, which contributed 25.6% of our total revenues, we design, manufacture and sell equipment for geothermal and recovered energy-based electricity generation and remote power units and provide services relating to the engineering, procurement and construction of geothermal and recovered energy-based power plants. In 2019, we derived 16.0% of our Product segment revenues from our operations in the United States and 84.0% from the rest of the world. 



Energy Storage and Management Services Segment. In the new Energy Storage and Management Services  segment, which contributed 2.0% of our total revenues, we provide energy storage, demand response and energy management related services as well as services relating to the engineering, procurement, construction, operation and maintenance of energy storage units mainly through our Viridity business. In 2019, we derived 92.5% of our Energy Storage and Management Services segment from our operations in the United States. 


The charts below show the relative contributions of each of our segments to our consolidated revenues and the geographical breakdown of our segment revenues for the fiscal year ended December 31, 2019. 


The following chart sets forth a breakdown of our revenues for each of the years ended December 31, 2018 and 2019:




The following chart sets forth the geographical breakdown of revenues attributable to our Electricity, Product and Energy Storage and Management Services segments for each of the years ended December 31, 2018 and 2019:




Technology and products we use in our operations include geothermal, recovered energy, solar PV and energy storage:


Our owned geothermal power plants include both power plants that we have built and power plants that we have acquired. The substantial majority of the power plants that we currently own or operate produce electricity from geothermal energy sources. Geothermal energy is a clean, renewable and generally sustainable form of energy derived from the natural heat of the earth. Unlike electricity produced by burning fossil fuels, electricity produced from geothermal energy sources is produced without emissions of certain pollutants such as nitrogen oxide, and with far lower emissions of other pollutants such as carbon dioxide. As a result, electricity produced from geothermal energy sources contributes significantly less to global warming and local and regional incidences of acid rain than energy produced by burning fossil fuels. In addition, compared to power plants that utilize other renewable energy sources, such as wind or solar, geothermal power plants are generally available all year-long and all day-long and can therefore provide base-load electricity services. Geothermal power plants can also be custom built to provide a range of electricity services such as baseload, voltage regulation, reserve and flexible capacity. Geothermal energy is also an attractive alternative to other sources of energy, support of a diversification strategy to avoid dependence on any one energy source or politically sensitive supply sources. We recently launched our first  geothermal and solar PV hybrid project, in which the electricity generated from a solar PV power plant is used to offset the equipment’s energy use at the geothermal facility, thus increasing the renewable energy delivered by the project to the grid.


In addition to our geothermal energy business, we manufacture and sell products that produce electricity from recovered energy or so-called “waste heat”. We also construct, own, and operate recovered energy-based power plants. We have built all of the recovered energy-based plants that we operate. Recovered energy comes from residual heat that is generated as a by-product of gas turbine-driven compressor stations, solar thermal units and a variety of industrial processes, such as cement manufacturing. Such residual heat, which would otherwise be wasted, may be captured in the recovery process and used by recovered energy power plants to generate electricity without burning additional fuel and without additional emissions.


In 2017, we entered the energy storage, demand response and energy management markets. We plan to accelerate long-term growth, expand our market presence in a growing market and further develop our energy storage and management services, including the VPower™ software platform.



Our Power Generation Business (Electricity Segment)


Each of our current geothermal power plants sells substantially all of its output pursuant to long-term, fixed price PPAs to various counterparties denominated in US dollars or Euros. These contracts had a total weighted average remaining term, based on contributions to segment revenue, of approximately 17 years at December 31, 2019. In addition, the counterparties to our PPAs in the United States had a credit rating of between Aa2 to Baa2. The purchasers of electricity from our foreign power plants are mainly state-owned entities in countries with below investment grade rating.


Power Plants in Operation


We own and operate 25 geothermal, REG and solar sites globally with an aggregate generating capacity of 914 MW. Geothermal comprises 93% of our generating capacity. In 2019, our geothermal and REG power plants generated at a capacity factor of 87% and 74%, respectively, which is higher than typical capacity factors for wind and solar producers that are usually at 20% to 30%.


The table below summarizes certain key non-financial information relating to our power plants and complexes as of February 25, 2020. The generating capacity of certain of our power plants and complexes listed below has been updated from our 2018 disclosure to reflect changes in the resource temperature and other factors that impact resource capabilities:








(MW) (2)

PPA Tenor

Capacity Factor



Ormesa Complex






Heber Complex




Mammoth Complex



13 72%





West Nevada

Steamboat Complex






Brady Complex




East Nevada







Jersey Valley




McGinness Hills



19 93%

Don A. Campbell




Tungsten Mountain(4)




North West Region

Neal Hot Springs






Raft River



13 92%

San Emidio












Amatitlan (Guatemala)






Zunil (Guatemala)




Olkaria III Complex (Kenya)



15 88%

Bouillante (Guadeloupe Island, France)




Platanares (Honduras)




Total Consolidated Geothermal
























Total REG








Tungsten Mountain




Total solar




Unconsolidated Geothermal


Sarulla Complex




Total Unconsolidated Geothermal












We indirectly own and operate all of our power plants, although financial institutions hold equity interests in three of our subsidiaries: (i) Opal Geo subsidiaries, which own the McGinness Hills Phases 1 and 2 geothermal power plants, the Tuscarora and Jersey Valley power plants and the second phase of the Don A. Campbell power plant, all located in Nevada; (ii) ORNI 41, which owns the McGinness Hills Phase 3 located in Nevada; and (iii) ORNI 47, which owns the Tungsten Mountain geothermal power plant located in Nevada. In the table above, we list these power plants as being 100% owned because all of the generating capacity is owned by these subsidiaries and we control the operation of the power plants. The nature of the equity interests held by the financial institution is described below in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Opal Transaction”, "McGinness Hills 3 Tax Monetization Transaction" and "Tungsten Mountain Tax Monetization Transaction.


Notwithstanding our 63.75% equity interest in the Bouillante power plant, 60% equity interest in the Neal Hot Spring power plant and 63.25% direct equity interest in the Puna plant, the first phase of Don A. Campbell, OREG 1, OREG 2 and OREG 3 power plants as well as the indirect interest in the second phase of the Don A. Campbell complex owned by our subsidiary, ORPD, we list 100% of the generating capacity of the Bouillante power plant, the Neal Hot Springs power plant and the power plants in the ORPD portfolio in the table above because we control their operations. We list our 12.75% share of the generating capacity of the Sarulla complex as we own a 12.75% minority interest. Revenues from the Sarulla complex are not consolidated and are presented under “Equity in earnings (losses) of investees, net” in our financial statements.




References to generating capacity generally refer to gross generating capacity less auxiliary power. We determine the generating capacity of these power plants by taking into account resource and power plant capabilities. In any given year, the actual power generation of a particular power plant may differ from that power plant’s generating capacity due to variations in ambient temperature, the availability of the geothermal resource, and operational issues affecting performance during that year.




We own 63.75%, CDC owns 21.25% and Sageos own 15.0% of the Bouillante power plant.




Tungsten Mountain is a Hybrid Geothermal and solar power plant that uses the solar energy for geothermal power plant auxiliary power. The solar power plant generates 7 MW and is presented separately in the table above.




The OREG 4 power plant is not operating at full capacity due to low run time of the compressor station that serves as the power plant’s heat source. This has resulted in lower power generation. 




We own 60% and Enbridge owns 40% of the Neal Hot Springs power plant.




The Puna geothermal power plant has been shut down since May 3, 2018 when the Kilauea volcano located in close proximity to it erupted following a significant increase in seismic activity in the area. We continue efforts to resume its operation and we signed an amended PPA to extend its duration and expand its contract capacity as described below in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings "Recent Development". In addition, we  




The total availability of the geothermal power plants excludes the Puna power plant that is not in operation as discussed above.




Tungsten Mountain includes the 7AC MW Tungsten solar power plant that commenced commercial operation in July 2019.




In Zunil power plant  revenues used to be calculated based on 24 MW generating capacity and was unrelated to the performance of the reservoir. In 2019 and onward, revenues are calculated based on the actual generation of the power plant, therefore the generating capacity was updated to reflect the current generating capacity. 



New Power Plants


We are currently in various stages of construction of new power plants and expansion of existing power plants. Our construction and expansion plan include between 90 MW and 95 MW in generating capacity from geothermal and solar PV power plants in the United States. In addition, we have several geothermal and solar PV projects in the United States, Kenya and Guadeloupe that are either under initial stages of construction or under different stages of development with an aggregate capacity of between 71 MW and 76 MW.


We have substantial land positions across 31 prospects in the United States, and 10 prospects in Ethiopia, Guatemala, Honduras, Indonesia and New Zealand that we expect will support future geothermal development and on which we have started or plan to start exploration activity. These land positions are comprised of various leases, exploration concessions for geothermal resources and an option to enter into leases.



Our Product Business (Product Segment)


We design, manufacture and sell products for electricity generation and provide the related services described below. We primarily manufacture products to fill customer orders, but in some situations, we manufacture products as inventory for future projects that we will own and for future third party projects.


Power Units for Geothermal Power Plants


We design, manufacture and sell power units for geothermal electricity generation, which we refer to as OECs. In geothermal power plants using OECs, geothermal fluid (either hot water, also called brine, or steam or both) is extracted from the underground reservoir and flows from the wellhead to a vaporizer that heats a secondary working fluid, which is vaporized and used to drive the turbine. The secondary fluid is then condensed in a condenser, which may be cooled directly by air through an air cooling system or by water from a cooling tower and sent back to the vaporizer. The cooled geothermal fluid is then reinjected back into the reservoir. Our customers include contractors, geothermal power plant developers, owners and operators.


Power Units for Recovered Energy-Based Power Generation


We design, manufacture and sell power units used to generate electricity from recovered energy, or so-called “waste heat”. This heat is generated as a residual by-product of gas turbine-driven compressor stations, solar thermal units and a variety of industrial processes, such as cement manufacturing, and is not otherwise used for any purpose. Our existing and target customers include interstate natural gas pipeline owners and operators, gas processing plant owners and operators, cement plant owners and operators, and other companies engaged in other energy-intensive industrial processes.


EPC of Power Plants


We serve as an EPC contractor for geothermal and recovered energy power plants on a turnkey basis, using power units we design and manufacture. Our customers are geothermal power plant owners as well as our target customers for the sale of our recovered energy-based power units as described above. Unlike many other companies that provide EPC services, we believe that our competitive advantage is in using equipment that we manufacture allowing us better quality and control over the timing and delivery of required equipment and its related costs.



Remote Power Units and Other Generators


We design, manufacture and sell fossil fuel powered turbo-generators with capacities ranging from 200 watts to 5,000 watts, which operate unattended in extreme hot or cold climate conditions. Our customers include contractors who install gas pipelines in remote areas and offshore platform operators and contractors. In addition, we design, manufacture, and sell generators, including heavy duty direct-current generators, for various other uses.


Our Energy Storage and Management Services Segment


Our storage business currently manages, through the Viridity platform, curtailable customer loads across multiple sites under contracts with leading U.S. retail energy providers and directly with large C&I customers, including management of a portfolio of non-utility storage assets located in the northeastern United States . We serve our own energy storage assets and distributed customers through a NOC, which is operated 24/7 using our VPowerTM software platform and a SCADA platform. VPowerTM services are provided to customers using a SaaS model under which we receive license fees and/or a portion of the revenue and savings that are achieved for our customers.


We expect that the ecosystem we created, combining our Viridity's capabilities and legacy Ormat capabilities, including among other things, our global presence, experience in technology and system integration, development and EPC of power generation projects, flexible business models, and our reputation and experience in the geothermal and recovered energy sectors, will enable us to expand in the growing energy storage sector.


Our Viridity business obtained and maintains authorization from FERC to make wholesale purchase and sales of energy, capacity, and ancillary services at market-based rates, and we have confirmed membership status with eligibility to serve designated contractual functions within each of the following ISOs and RTOs: PJM, NYISO, ERCOT, MISO and ISONE.  In the future, we may need to obtain and maintain similar membership and eligibility status with other ISO and RTO markets in which our Viridity business will operate, such as CAISO.


In 2019, we successfully brought on line two new Ormat/Viridity-owned BESS projects: 20MW/20 MWh in Alpha, NJ and 2 MW / 5 MWh in Hinesburg, Vermont. The Hinesburg project operates under an energy storage services agreement with the Vermont Electric Co-operative, under which we provide 1 MW of peak load reduction services several times a year. During the rest of the time, the Hinesburg project provides ancillary services to ISONE, thereby generating additional revenues.


We are currently in the commissioning stage of a project in Georgetown, Texas and developing a new project in California and a pilot system in Israel. We have a substantial pipeline for future development in the United States that and we expect to commission between 150 MW and  200 MW between 2020 and 2022. We plan to continue leveraging our worldwide experience in project development and finance, as well as our relationships with utilities and other market participants, to develop additional such BESS projects.




Ormat Technologies, Inc. was formed as a Delaware corporation in 1994 by our former parent company Ormat Industries. Ormat Industries was one of the first companies to focus on the development of equipment for the production of clean, renewable and generally sustainable forms of energy. On February 12, 2015, we successfully completed the acquisition of Ormat Industries in an all-stock merger, eliminating its majority ownership and control of Ormat Technologies.


Business Strategy


Our strategy is focused on further developing a geographically balanced portfolio of geothermal, solar (PV) and recovered energy assets and continuing our leading position in the geothermal energy market with the objective of becoming a leading global provider of renewable energy.  Our strategy focuses on three main elements:



our core geothermal business in the United States as well as globally;



establishing a strong market position in the energy storage market; and 



exploring opportunities in new areas by looking for synergistic growth opportunities utilizing our core competence, market reputation as a successful company and new market opportunities focused upon environmental solutions.   


We intend to implement this strategy through:



Using Our Operational Capabilities to Increase Output from our Existing Geothermal Power Plants increasing output from our existing geothermal power plants by adding additional generating capacity, upgrading plant technology, and improving geothermal reservoir operations, including improving methods of heat source supply and delivery.



Creating Cost Savings through Increased Operating Efficiency — increasing efficiencies in our operating power plants and manufacturing facility including procurement by adding new technologies, restructuring of management control, automating part of our manufacturing work and centralizing our operating power plants.



Diversifying our Customer Base evaluating a number of strategies for expanding our customer base to the CCA and C&I markets.  In the near term, however, we expect that substantial majority of our revenues will continue to be generated from our traditional electrical utility customer base for the Electricity segment.



Maintaining a Prudent and Flexible Capital Structure — we have various financing structures in place, including non-recourse project financings, the sale of differential membership interests and equity interests in certain subsidiaries, as well as revolving credit facilities and term loans. We believe our cash flow profile, the long-term nature of our contracts, and our ability to raise capital provide greater flexibility for optimizing our capital structure.




Improving our Technological Capabilities  investing in research and development of renewable energy technologies and leveraging our technological expertise to continuously improve power plant components, reduce operations and maintenance costs, develop competitive and environmentally friendly products for electricity generation and target new service opportunities. In addition, we are expanding our core geothermal competencies to provide high efficiency solutions for high enthalpy applications by utilizing our binary enhanced cycle and technology. 



Development and Construction of New Geothermal Power Plants — continuously seeking out commercially exploitable geothermal resources, developing and constructing new geothermal power plants by either entering into long-term PPAs providing stable cash flows or selling in the "merchant" market in jurisdictions where the regulatory, tax and business environments encourage or provide incentives for such development;



Expanding our Geographical Reach increasing our business development activities in an effort to grow our business in the global markets in all business segments. While we continue to evaluate global opportunities, we currently see  the U.S., Kenya, Indonesia, and Ethiopia as attractive markets for our Electricity segment and New Zealand, Philippines, Turkey, Chile, Indonesia and China as attractive markets for our Product segment.  We are actively looking at ways to expand our presence in those countries. 



Acquisition of New Assets — expanding and accelerating growth through acquisition activities globally, aiming to acquire additional geothermal assets with long term PPAs or without a PPA as well as operating and development assets that can support our storage business. 



Manufacturing and Providing Products and EPC Services Related to Renewable Energy designing, manufacturing and contracting power plants for our own use and selling to third parties power units and other generation equipment for geothermal and recovered energy-based electricity generation;



Expanding into New Technologies - leveraging our technological capabilities over a variety of renewable energy platforms, including solar power generation and energy storage. We may acquire companies with integration and technological capabilities that we do not currently have, or develop new technology ourselves, where we can effectively leverage our expertise to implement this part of our strategic plan.


The map below shows our worldwide portfolio of operating geothermal, solar PV and recovered energy power plants as of February 25, 2020.


* In the Sarulla complex, we include our 12.75% share only.



The map below shows our portfolio of operating storage facilities as of February 25, 2020.



Industry Background


Geothermal Energy


There are several different sources or methods of obtaining geothermal energy, which are described below.


Hydrothermal geothermal-electricity generation — Hydrothermal geothermal energy is derived from naturally occurring hydrothermal reservoirs that are formed when water comes sufficiently close to hot rock to heat the water to temperatures of 300 degrees Fahrenheit or more. The heated water then ascends toward the surface of the earth where, if geological conditions are suitable for its commercial extraction, it can be extracted by drilling geothermal wells. Geothermal production wells are normally located within several miles of the power plant, as it is not economically viable to transport geothermal fluids over longer distances due to heat and pressure loss. The geothermal reservoir is a renewable source of energy if: (i) natural ground water sources and reinjection of extracted geothermal fluids are adequate over the long-term to replenish the geothermal reservoir following the withdrawal of geothermal fluids and (ii) the well field is properly operated. Geothermal energy power plants typically have higher capital costs (primarily because of the costs attributable to well field development) but tend to have significantly lower variable operating costs (principally consisting of maintenance expenditures) than fossil fuel-fired power plants that require ongoing fuel expenses.



EGS — An EGS is a subsurface system that may be artificially created to extract heat from hot rock where the permeability and aquifers required for a hydrothermal system are insufficient or non-existent. A geothermal power plant that uses EGS techniques recovers the thermal energy from the subsurface rocks by creating or accessing a system of open fractures in the rock through which water can be injected, heated through contact with the hot rock, returned to the surface in production wells and transferred to a power unit.


Co-produced geothermal from oil and gas fields, geo-pressurized resources — Another source of geothermal energy is hot water produced as a by-product of oil and gas extraction. When oil and gas wells are deep, the extracted fluids are often at high temperatures and if the water volume associated with the extracted fluids is significant, the hot water can be used for power generation in equipment similar to a geothermal power plant.


Geothermal Power Plant Technologies


Geothermal power plants generally employ either binary systems or conventional flash design systems, as briefly described below. In our geothermal power plants, we also employ our proprietary technology of combined geothermal cycle systems.


Binary System


In a geothermal power plant using a binary system, geothermal fluid (either hot water (also called brine) or steam or both) is extracted from the underground reservoir and flows from the wellhead through a gathering system of insulated steel pipelines to a vaporizer that heats a secondary working fluid. This is typically an organic fluid, such as pentane or butane, which is vaporized and is used to drive the turbine. The organic fluid is then condensed in a condenser, which may be cooled directly by air or by water from a cooling tower and sent back to the vaporizer through a pump. The cooled geothermal fluid is then reinjected back into the reservoir. The operation of our air-cooled binary geothermal power plant is depicted in the diagram below.




Flash Design System


In a geothermal power plant using flash design, geothermal fluid is extracted from the underground reservoir and flows from the wellhead through a gathering system of insulated steel pipelines to flash tanks and/or separators. There, the steam is separated from the brine and is sent to a demister, where any remaining water droplets are removed. This produces a stream of dry saturated steam, which drives a steam turbine generator to produce electricity. In some cases, the brine at the outlet of the separator is flashed a second time (dual flash), providing additional steam at lower pressure used in the low-pressure section of the steam turbine to produce additional electricity. Steam exhausted from the steam turbine is condensed in a surface or direct contact condenser cooled by cold water from a cooling tower. The non-condensable gases (such as carbon dioxide) are removed by means of a vacuum system in order to maintain the performance of the steam condenser. The resulting condensate is used to provide make-up water for the cooling tower. The hot brine remaining after separation of steam is injected (either directly or after passing through a binary plant to produce additional power from the residual heat remaining in the brine) back into the geothermal resource through a series of injection wells. The flash technology is depicted in the diagram below.




In some instances, the wells directly produce dry steam and the steam is fed directly to the steam turbine with the rest of the system similar to the flash technology described above.


Our Proprietary Technology


Our proprietary technology may be used either in power plants operating according to the ORC alone or in combination with various other commonly used thermodynamic technologies that convert heat to mechanical power, such as gas and steam turbines. It can be used with a variety of thermal energy sources, such as geothermal, recovered energy, biomass, solar energy and fossil fuels. Specifically, our technology involves original designs of turbines, pumps, and heat exchangers, as well as formulation of organic motive fluids (all of which are non-ozone-depleting substances). By using advanced computational fluid dynamics techniques and other computer aided design software as well as our test facilities, we continuously seek to improve power plant components, reduce operations and maintenance costs, and increase the range of our equipment and applications. We are always examining ways to increase the output of our plants by utilizing evaporative cooling, cold reinjection, configuration optimization, and topping turbines. In the geothermal as well as the recovered energy (waste heat) areas, we are examining two-level and three-level energy systems and other thermodynamic cycle alternations along with new motive fluids.



We also developed, patented and constructed GCCU power plants in which the steam first produces power in a backpressure steam turbine and is subsequently condensed in a vaporizer of a binary plant, which produces additional power. Our Geothermal Combined Cycle technology is depicted in the diagram below.



In the conversion of geothermal energy into electricity, our technology has a number of advantages over conventional geothermal steam turbine plants. A conventional geothermal steam turbine plant consumes significant quantities of water, causing depletion of the aquifer and requiring cooling water treatment with chemicals and consequently a need for the disposal of such chemicals. A conventional geothermal steam turbine plant also creates a significant visual impact in the form of an emitted plume from the cooling towers, especially during cold weather. By contrast, our binary and combined cycle geothermal power plants have a low profile with minimal visual impact and do not emit a plume when they use air-cooled condensers. Our binary and combined cycle geothermal power plants reinject all of the geothermal fluids utilized in the respective processes into the geothermal reservoir. Consequently, such processes generally have no emissions.


Other advantages of our technology include simplicity of operation and maintenance and higher yearly availability. For instance, the OEC employs a low speed and high efficiency organic vapor turbine directly coupled to the generator, eliminating the need for reduction gear. In addition, with our binary design, there is no contact between the turbine blade and geothermal fluids, which can often be very erosive and corrosive. Instead, the geothermal fluids pass through a heat exchanger, which is less susceptible to erosion and can adapt much better to corrosive fluids. In addition, with the organic vapor condensed above atmospheric pressure, no vacuum system is required.


We use the same elements of our technology in our recovered energy products. The heat source may be exhaust gases from a Brayton cycle gas turbine, low-pressure steam, or medium temperature liquid found in the process industries such as oil refining and cement manufacturing. In most cases, we attach an additional heat exchanger in which we circulate thermal oil or water to transfer the heat into the OEC’s own vaporizer in order to provide greater operational flexibility and control. Once this stage of each recovery is completed, the rest of the operation is identical to that of the OECs used in our geothermal power plants and enjoys the same advantages of using the ORC. In addition, our technology allows for better load following than conventional steam turbines, requires no water treatment (since it is air cooled and organic fluid motivated), and does not require the continuous presence of a licensed steam boiler operator on site.



Our REG technology is depicted in the diagram below.




As of February 25, 2020, we have 63 issued U.S. patents and four pending U.S. patents applications. These patents and patent applications cover our products (mainly power units based on the ORC) and systems (mainly geothermal power plants and industrial waste heat recovery plants for electricity production). The product-related patents cover components that include turbines, heat exchangers, air coolers, seals and controls as well as control of operation of geothermal production well pumps. The system-related patents cover not only particular components but as well as the overall energy conversion system from the “fuel supply” (e.g., geothermal fluid, waste heat, biomass or solar) to electricity production.


The system-related patents also cover subjects such as waste heat recovery related to gas pipeline compressors and industrial waste heat, solar power systems, disposal of non-condensable gases present in geothermal fluids, reinjection of other geothermal fluids ensuring geothermal resource sustainability, power plants for very high-pressure geothermal resources, two-phase fluids, low temperature geothermal brine as well as processes related to EGS. 55 of our patents cover combined cycle geothermal power plants, in which the steam first produces power in a backpressure steam turbine and is subsequently condensed in a vaporizer of a binary plant, which produces additional power. The remaining terms of our issued patents range from one year to 16 years. The loss of any single patent would not have a material effect on our business or results of operations.


Research and Development


We conduct research and development activities intended to improve plant performance, reduce costs, and increase the breadth of our product offerings. The primary focus of our research and development efforts is targeting power plant conceptual thermodynamic cycle and major equipment including continued performance, cost and land usage improvements to our condensing equipment, and development of new higher efficiency and higher power output turbines. New realms for innovation include implementation of predictive maintenance software and automation of power plants performance analysis. Based on vast experience and strong engineering and manufacturing assets, products for new markets are in early development stages within the R&D effort.


Our Viridity business continues to develop new optimization algorithms to optimize the life of a battery energy storage system (BESS), to optimize our and our customers’ economic return and to forecast the trends surrounding our customers’ electricity consumption and the electric grid including times of peak demands and the usage of ancillary services.


We have also focused our development efforts on the engineering and design of improved energy storage systems. These development efforts include, among others, building of an energy storage lab for testing of various batteries, inverters and the integration of both. Further efforts include the development of the control hardware and software for energy storage systems to follow electric grid and market signals and to optimize their delivery of energy into the markets .



We have developed, and continue to develop, system integration capabilities that match the appropriate system and system sizing with the appropriate battery chemistry, electrical and physical components to accommodate our needs or needs of the customers that will own such energy storage systems in light of the markets in which they will operate. We are searching for alternative chemistries, products and combinations of hybrid solutions to best address our energy storage product customers’ needs.


Additionally, we are continuing to evaluate investment opportunities in new companies with technology and/or product offerings for renewable energy and energy storage solutions.


Market Opportunities


Geothermal Market Opportunities


Renewable energy in general provides a sustainable alternative to the existing solutions to two major global issues: climate change and diminishing fossil fuel reserves. Renewable energy is sustainable, clean and decarbonizes the grid. These environmental benefits have led major countries to focus their efforts on the development of renewable energy sources in general and geothermal specifically.


Based on an announcement by the IGA in January 2020, geothermal power is generated in 29 countries with a total installed power generation capacity of 15,400 MW at the end of 2019. The leading countries are the U.S., Indonesia, Philippines, Turkey, Mexico and New Zealand. The IGA expects that 4,500 MW will be added by 2025.


Having realized the importance of renewable energy including geothermal alternatives, various governments have been preparing regulatory frameworks and policies, and providing incentives to develop the sector.


United States


Interest in geothermal energy in the United States remains strong for numerous reasons, including legislative support, RPS goals (as described below), coal, natural gas and nuclear power plant retirements, and an increasing awareness of the positive value of geothermal characteristics when compared to intermittent renewable technologies.


Today, electricity generation from geothermal resources is concentrated mainly in California, Nevada, Hawaii, Idaho, Oregon, and Utah, and we believe there are opportunities for expansion in other states such as New Mexico due to the potential of its geothermal resources.


Geothermal energy provides numerous benefits to the U.S. grid and economy. Geothermal development and operation bring economic benefits in the form of taxes and long term high-paying jobs, and it currently has one of the lowest LCOE of all power sources in the United States, according to the U.S. Energy Information Administration's report published in February 2019. Additionally, improvements in geothermal production make it possible to provide ancillary and on-demand services. This helps load serving entities avoid additional costs from purchasing and then balancing intermittent resources with storage or new transmission.



State level legislation


Many state governments have enacted an RPS program under which utilities are required to include renewable energy sources as part of their energy generation. Under an RPS, participating states have set targets for the production of their energy from renewable sources by specified dates. Renewable energy generation under RPS programs are tracked through the production of Renewable Energy Credits (RECs). Load serving entities track the RECs to ensure they are meeting the mandate prescribed by the RPS.



Currently in the United States, 42 states plus the District of Colombia and four territories have enacted an RPS, renewable portfolio goals, or similar laws (such as clean energy standards or goals) requiring or encouraging load serving entities in such states to generate or buy a certain percentage of their electricity from renewable energy or recovered heat sources. The vast majority of Ormat’s geothermal projects can be found in California, Nevada, and Hawaii which have some of the most stringent RPS programs in the country.


We see the impact of RPS and climate legislation as the most significant driver for us to expand existing power plants and to build new renewable projects.


Below are RPS targets in the states in which we are operating:



RPS Target






RPS targets set for future years: 44% – 2024, 52% – 2027, and 60% – 2030. 100% zero carbon by 2045.





RPS target of 50% by 2030 and 100% zero carbon by 2050.

The state has a credit multiplier for photovoltaic and on peak energy savings.





RPS targets set for future years: 30% by 2020, 40% by 2030, and 70% by 2040





Increased RPS of 50% by 2040 applies to IOUs who have a share of more than 3% of the state’s load; for utilities with a load-share of 1.5% – 3%, requirement is 10% in 2025, and for utilities with a load share of less than 1.5%, it is 5% in 2025


States also provide incentives to geothermal energy producers. Nevada provides a property tax abatement of up to 55% for real and tangible personal property used to generate electricity from geothermal sources. The abatement may extend up to twenty years if certain job creation requirements are met. The California Energy Commission provides favorable grants and loans to promote the development of new or existing geothermal resources and technologies within the state. In Idaho, geothermal energy producers are exempt from property tax and, in lieu, pay a tax of 3% of gross energy earnings.





We believe the global markets continue to present growth and expansion opportunities in both established and emerging markets.


Operations outside of the United States may be subject to and/or benefit from increasing efforts by governments and businesses around the world to fight climate change and move towards a low carbon, resilient and sustainable future. According to a recent report by the International Renewable Energy Agency entitled Toward 100% Renewable Energy, in 2019, a total of 61 countries had set a 100% renewable energy target in at least one end-use sector, up from 60 countries in 2018.


We believe that several global initiatives will create business opportunities and support global growth of the renewable sector such as the historic agreement at the COP21 UN Climate Change Conference held in Paris, which, for the first time, created a commitment by 127 parties to setting nationally determined climate targets and reporting on their progress. Following this agreement, the EIB and other multilateral institutions have committed to provide $100 billion of new financing for climate action projects over the next five years to assist countries in reaching their targets. However, on June 1, 2017, President Donald J. Trump announced that the United States will withdraw from this agreement.


In addition, in 2015, a group of 20 countries, including the United States, United Kingdom, France, China and India, pledged to double their respective budgets for renewable energy technology over five years as part of a separate initiative called Mission Innovation.  At the same time, the Breakthrough Energy Coalition was launched by a group of 28 private investors with the objective of bringing companies with the potential to deliver affordable, reliable and carbon free power from the research lab to the market.


We believe that as a general matter these developments and governmental plans will create growth and expansion opportunities for us internationally.



Outside of the United States, the majority of power generating capacity has historically been owned and controlled by governments. Since the early 1990s, however, many foreign governments have privatized their power generation industries through sales to third parties encouraging new capacity development and/or refurbishment of existing assets by independent power developers. These foreign governments have taken a variety of approaches to encourage the development of competitive power markets, including awarding long-term contracts for energy and capacity to independent power generators and creating competitive wholesale markets for selling and trading energy, capacity, and related products. Some foreign regions and countries have also adopted active government programs designed to encourage clean renewable energy power generation such as the following countries in which we operate, sell products and/or are conducting business development activities:




Europe has the fourth largest geothermal power capacity, the majority of which stems from Italy and Turkey. A significant part of our European operations is in Turkey. We are looking for opportunities to expand in Europe, particularly in Germany.




Until recently, Turkey was the fastest growing geothermal market worldwide with the theoretical potential for 31 GW of geothermal capacity and with a proven geothermal capacity of 4.5 GW, according to the Turkish Mineral Technical Exploration Agency. Due to the economic situation in Turkey, there has been a slowdown.


Since 2004, we have established strong business relationships in the Turkish market and provided our range of solutions including our binary systems, to over 40 geothermal power plants with a total capacity of approximately 900 MW, of which six power plants are currently under construction.


In Turkey, the “National Renewable Energy Action Plan” proposes to increase the country's renewable energy generation capacity to 61 GW by 2023, including 1.5 GW of electricity generation from geothermal resources. This plan is supported by the European Bank for Reconstruction and Development. The plan aims to increase Turkish energy security by diversifying its energy supply, making greater use of domestic resources, protecting the environment by relying on clean, renewable and low carbon technologies and fostering energy market efficiency through private sector investment and integration.


The current regulation in Turkey, which is expected to expire on December 2020, support an incentivized FIT of 10.5 US cents per kWh and additional 1.8 US cents per kWh for local manufactured items. This regulation is expected to be changed, but  it is not clear yet what will be the actual FIT and other factors related to the incentive plan. It is estimated that the FIT will be lower from the existing one and the structure of the incentivized local manufactured items will also change, to increase the locally made parts. Until this is cleared, and a new regulation will be in place with a new timetable, we estimate that the slowdown in development of new sites will continue.



Latin America


Several Latin American countries have renewable energy programs and pursue the development of the geothermal market. We currently operate in some countries in Latin America and are looking for opportunities in others.




In Guatemala, where our Zunil and Amatitlan power plants are located, the government approved and adopted the Energy Policy 2013-2027 that secure, among other things, a supply of electricity at competitive prices by diversifying the energy mix with an 80% renewable energy share target for 2027.




In Honduras, where we operate our Platanares power plant, the government set a target to reach at least 80% renewable energy production by 2034.




In Mexico, where we see long-term potential, the Mexican Congress passed, in December 2013, a constitutional reform in an attempt to increase the participation of private investors in the generation and commercialization of electric energy. We have not yet seen yet a notable progress in the development of new geothermal projects.





Many island nations in general and specifically the Caribbean nations, depend almost entirely on petroleum to meet their electricity needs. Caribbean nations have quite significant renewable energy potential, yet most have relatively small demand.  Other than in Guadeloupe, where the geothermal power plant that we acquired has been operating since 1985, there are no other operating geothermal projects in the Caribbean region. Although few, we believe there are geothermal opportunities for us in the Caribbean islands of St. Kitts, Nevis, St. Lucia, Dominica, and Montserrat.


New Zealand


In New Zealand, where we have been actively providing geothermal power plant solutions since 1988, the government’s policies to fight climate change include a net zero GHG emissions reduction target by 2050 and a renewable electricity generation target of 90% of New Zealand’s total electricity generation by 2035. We continue selling power plant equipment to our New Zealand customers, secured two projects in the last two years and intensified our cooperation with other potential customers for adding more geothermal power generation capacity within the coming years.






In Indonesia, where we hold a 12.75% equity interest in the Sarulla complex, we are currently conducting exploration activity in the Ijen geothermal power plan in East Java, in which we own a 49% equity interest and whose first phase we plan to commission in either 2022 or 2023. The government intends to increase the share of renewable energy sources in the energy mix, aiming to meet a target of 23% of domestic energy demand by 2025, and announced its intention to reduce the country’s carbon dioxide emissions by 26% by 2020. Under the current local regulation, the tariff policy for geothermal PPAs is mainly determined based on the location of the relevant power plant.


We consider Indonesia an important geothermal market, where potential for future development is significant along with an active geothermal industry that is supported by regulatory incentives and commitment from the local government.


In addition to project development, we are also pursuing various supply opportunities in Indonesia, and in other countries in Southeast Asia, including several optimization projects.




In China, where we supplied our equipment to one of our clients’ geothermal projects, the National Energy Administration adopted the 13th Renewable Energy Development Five Year Plan that establishes targets for renewable energy deployment until 2020. Key objectives under the plan include, among others, to increase the share of non-fossil fuel energy in total primary energy consumption to 15% by 2020 and to 20% by 2030, and to increase installed renewable power capacity to 680 GW by 2020.




The installed capacity of Japan places ninth in the world, the potential output of 23,470 MW is third in the world after United States and Indonesia. In 2018, the Japanese government established as its goal a target of 22% to 24% renewable energy of the Japanese energy installed base by 2030. This outlook expects new geothermal plant installation in the range of 380 MW to 850 MW - 1,000 MW. State-owned resources agency JOGMEC will conduct test bores as part of the financially risky early phase of development on behalf of potential developers starting in the fiscal year from April 2020.



East Africa


In East Africa the geothermal potential along the Rift Valley is estimated at several thousand MW. The different countries along the Rift Valley are at different stages of development of their respective geothermal potential.





In Kenya, there are already several geothermal power plants, including the only geothermal IPP in Africa, our 150 MW Olkaria III complex. The Kenyan government has identified the country's untapped geothermal potential as the most suitable indigenous source of electricity, and it aspires to reach 5 GW of geothermal power generation by 2030.


The Kenyan government is aiming to reach 22.7GW of power generating capacity by 2033, under the Least-Cost Power Development Plan 2013-33 with a target of 42% of such capacity generated from renewable energy sources (including large hydro but excluding solar).


We consider Kenya an important location for our future growth and we are pursuing geothermal and solar opportunities in the country.


Other Countries


The governments of Djibouti, Eritrea, Ethiopia, Tanzania, Uganda, Rwanda and Zambia are exploring ways to develop geothermal resources in their countries, mostly through the help of international development organizations such as the World Bank.


Ethiopia electrification targets for 2025 require additional investment in generation capacities. Such growth in demand was expected to be principally met with the Grand Ethiopian Renaissance Dam (GERD). However, IPP’s are encouraged to participate directly into the renewable development in order to meet expected local growth. Moreover, the current government sees electricity export to neighboring countries as a strategic asset. The country recently completed an interconnection with Kenya and plan to further increase connections to Djibouti, Sudan, South Sudan, Rwanda, Burundi. These exports will improve foreign exchange reserves in Ethiopia . We hold rights for four geothermal concessions in Ethiopia, for which we have completed initial exploration studies.


In January 2014, energy ministers and delegates from 19 countries committed to the creation of the Africa Clean Energy Corridor Initiative (Corridor), at a meeting in Abu Dhabi convened by the International Renewable Energy Agency. The Corridor will boost the deployment of renewable energy and aim to help meet Africa’s rising energy demand with clean, indigenous, cost-effective power from sources including hydro, geothermal, biomass, wind and solar.


Other Opportunities


Recovered Energy Generation


In addition to our geothermal power generation activities, we are pursuing recovered energy-based power generation opportunities in the United States and worldwide. We believe recovered energy-based power generation will ultimately benefit from the efforts to reduce GHG emissions. We have built 23 power plants in North America which generate electricity utilizing “waste heat” from gas turbine-driven compressor stations along interstate natural gas pipelines, from midstream and gas processing facilities, and from other applications.


Several states, and to some extent, the federal government, have recognized the environmental benefits of recovered energy-based power generation. For example, 18 states currently allow electric utilities to include recovered energy-based power generation in calculating such utilities' compliance with their mandatory or voluntary RPS and/or Energy Efficient Resources Standards. In addition, California modified the Self Generation Incentive Program to allow recovered energy-based power generation to qualify for a per watt incentive.


Recovery of waste heat is also considered “environmentally friendly” in western Canadian provinces. In 2016, the Canadian government ratified its commitments in the Paris Agreement, which features a commitment to reduce emissions by 30% from 2005 levels by 2030. Pursuant to the Greenhouse Gas Pollution Pricing Act, Canadian provinces must have an emission reduction plan in place or be subject to a federal carbon tax in 2018.



The government of Alberta has introduced the Technology Innovation and Emissions Reduction (TIER) regulation, a plan for reducing emissions, replacing the Carbon Competitiveness Incentive Regulation on January 1, 2020. The TIER regulation applies to Alberta’s large industrial facilities that emitted 100,000 tonnes CO2 or more per year of greenhouse gases in 2016, or a subsequent year.  Facilities will be subject to a reduction requirement starting at a benchmark of 90% of their prior emissions, then increasing 1% per year after the first year of compliance starting in 2020.


On a federal level, in October 2016, the Government of Canada published the Pan-Canadian Approach to Pricing Carbon Pollution, setting a federal benchmark to ensure that carbon pricing applies to a broad set of emission sources throughout Canada in 2018 with increasing stringency over time.  This approach would be flexible and recognize that provinces and territories have implemented or are developing their own carbon pollution pricing systems. The Environment and Climate Change Canada has developed a proposal for regulations pursuant to the Greenhouse Gas Pollution Pricing Act in force June 2018 to implement a carbon pricing system that will apply to facilities carrying out certain industrial activities.


This comprehensive climate policy, once fully implemented, will encourage the development of renewable energy technologies, including waste heat recovery, throughout Canada. We believe that Europe and other markets worldwide may offer similar opportunities in recovered energy-based power generation.


In summary, the market for the recovery of waste heat converted into electricity exists either when already available electricity is expensive or where the regulatory environment facilitates construction and marketing of power generated from recovered waste heat. However, such projects tend to be smaller than 9 MW and we expect any growth to be relatively slow and geographically scattered.


Energy Storage


Globally, there is an increase in the use of renewable energy, mainly due to the continued decline in solar PV prices. In the United States and Europe, this increase is placing strains on the electric grid because adding wind and particularly solar PV power creates situations where a significant amount of power plant capacity must be available to ramp up and down to accommodate wind and mostly solar PV daily output cycles and variations due to atmospheric conditions. Furthermore, the output from wind and solar PV power plants can change significantly over short periods of time due to environmental conditions like cloud movement and fog burn off and cause instability on the electric grid.


As a result, energy management, and especially energy storage is becoming a key component of the future grid. In parallel, we also see movement of C&I and communities toward direct purchases of electricity and an increased focus on reliability of electricity supply.


Energy storage systems utilize surplus, available electricity that enables utilities to optimize the operation of the grid, run generators closer to full capacity for longer periods, and operate the grid more efficiently and effectively. As penetration of wind and solar resources increases, so does the need for services that energy storage systems can provide to “balance the grid”, such as local capacity, frequency regulation, ramping, reactive power, black start and movement of energy from times of excess supply to times of high demand. Common applications for energy storage systems include ancillary services, wind/solar smoothing, peaker replacement, and transmission & distribution deferral.


The global energy storage market continues to evolve, with specific applications and geographies leading the market. According to Wood Mackenzie's (formerly GTM Research) Energy Storage Monitor for Q3 2019, approximately 1.1 GWh of new energy storage projects were installed in the United States in 2019 and this number is expected to triple  in 2020 to approximately 3.3 GWh.


Significant growth in BESS deployment is already taking place and is expected to continue for both grid-connected (also referred to as “in front of the meter”) applications, as well as for “behind the meter” applications, where end-users benefit from savings through demand charge reductions and create revenues through active market participation, and via demand response programs. Many power systems are also undergoing significant changes such as grid aging, grid congestion, retirement of aging generators, implementation of greenhouse gas emission reduction rules and increasing penetration of variable renewable energy resources.


Grid-Connected BESS


We own and operate several grid-connected BESS facilities, where revenues come from selling energy, capacity and/or ancillary services in merchant markets like PJM Interconnect and ISO New England. We are pursuing the development of additional grid-connected BESS projects in multiple regions, with expected revenues coming from providing energy, capacity and/or ancillary services on a merchant basis, and/or through bilateral contracts with load serving entities, e.g. investor owned utilities, publicly owned utilities and community choice aggregators.





The electricity industry continues to shift from a purely centralized topology where electricity flows only in one direction from centralized power plants to consumers, into a more distributed architecture, that includes distributed energy resources and consumers selling excess electricity generated on-site to the grid. Many C&I companies are motivated to purchase renewable energy to meet sustainability goals and reduce costs. We see the C&I segment as a natural expansion of our customer base, though our focus is on utility-scale front-of-the-meter applications, where we expect to see higher growth.



solar PV


The solar PV market continues to grow, driven by constant decline in equipment prices and an increasing desire to replace conventional generation with renewable resources, commonly supported by favorable regulatory policies.  We are monitoring market drivers with the potential to develop solar PV power plants in locations where we can offer competitively priced power generation. Our current focus is in adding solar PV systems in some of our operating geothermal power plants to reduce internal consumption loads, developing standalone solar PV projects in targeted regions where economics are favorable as well as developing combined solar PV and BESS projects. In 2019 we successfully placed in service a solar PV augmentation system at our Tungsten Mountain geothermal power plant in Churchill County, Nevada. We are also constructing the 20 MW(AC) Wister solar PV project in Imperial County, California, for which a power purchase agreement with San Diego Gas & Electric is in effect  and we  target commercial operation in 2021. Additional potential projects are undergoing feasibility analysis, and some are in earlier phases of development.


Operations of our Electricity Segment


How We Own Our Power Plants


We customarily establish a separate subsidiary to own interests in each of our power plants. This ensures that the power plant, and the revenues generated by it, will be the only source for repaying indebtedness, if any, incurred to finance the construction or the acquisition (or to refinance the construction or acquisition) of the relevant power plant. If we do not own all of the interest in a power plant, we enter into a shareholders’ agreement or a partnership agreement that governs the management of the specific subsidiary and our relationship with our partner in connection with the specific power plant. Our ability to transfer or sell our interests in certain power plants may be restricted by certain purchase options or rights of first refusal in favor of our power plant partners or the power plant’s power purchasers and/or certain change of control and assignment restrictions in the underlying power plant and financing documents. All of our domestic geothermal and REG power plants are Qualifying Facilities under the PURPA and are eligible for regulatory exemptions from most provisions of the FPA and certain state laws and regulations.


How We Explore and Evaluate Geothermal Resources


Since 2006, we have expanded our exploration activities, initially in the United States and in the last few years with an increasing focus internationally. It generally takes two to three years from the time we start active exploration of a particular geothermal resource to the time we have an operating production well, assuming we conclude the resource is commercially viable and determine to pursue its development. Exploration activities generally involve the phases described below.


Initial Evaluation


We identify and evaluate potential geothermal resources by sampling and studying new areas combined with information available from public and private sources. We generally adhere to the following process, although our process can vary from site to site depending on geological circumstances and prior evaluation:



We evaluate historic, geologic and geothermal information available from public and private databases, including geothermal, mining, petroleum and academic sources.



We visit sites, sampling fluids for chemistry if necessary, to evaluate geologic conditions.




We evaluate available data, and rank prospects in a database according to estimated size and perceived risk. For example, pre-drilled sites with extensive data are considered lower risk than “green field” sites. Both prospect types are considered critical for our continued growth.



We generally create a digital, spatial geographic information systems (GIS) database and 3D geologic model containing all pertinent information, including thermal water temperature gradients derived from historic drilling, geologic mapping information (e.g., formations, structure, alteration, and topography), and any available archival information about the geophysical properties of the potential resource.



We assess other relevant information, such as infrastructure (e.g., roads and electric transmission lines), natural features (e.g., springs and lakes), and man-made features (e.g., old mines and wells).



Our initial evaluation is usually conducted by our own staff, although we might engage outside service providers for some tasks from time to time. The costs associated with an initial evaluation vary from site to site, based on various factors, including the acreage involved and the costs, if any, of obtaining information from private databases or other sources. On average, our expenses for an initial evaluation range from approximately $10,000 to $50,000 including travel, chemical analyses, and data acquisition.


If we conclude, based on the information considered in the initial evaluation, that the geothermal resource could support a commercially viable power plant, taking into account various factors described below, we proceed to land rights acquisition.


Land Acquisition


We acquire land rights to any geothermal resources our initial evaluation indicates could potentially support a commercially viable power plant. For domestic power plants, we either lease or own the sites on which our power plants are located. For our foreign power plants, our lease rights for the power plant site are generally contained in the terms of a concession agreement or other contract with the host government or an agency thereof. In certain cases, we also enter into one or more geothermal resource leases (or subleases) or a concession or an option agreement or other agreement granting us the exclusive right to extract geothermal resources from specified areas of land, with the owners (or sublessors) of such land. In some cases, we first obtain the exploration license and once certain investment requirements are met, we can obtain the geothermal exploitation rights. This usually gives us the right to explore, develop, operate, and maintain the geothermal field, including, among other things, the right to drill wells (and if there are existing wells in the area, to alter them) and build pipelines for transmitting geothermal fluid. In certain cases, the holder of rights in the geothermal resource is a governmental entity and in other cases a private entity. Usually the duration of the lease (or sublease) and concession agreement corresponds to the duration of the relevant PPA, if any. In certain other cases, we own the land where the geothermal resource is located, in which case there are no restrictions on its utilization. The BLM and the Minerals Management Service regulate leasehold interests in federal land in the United States. These agencies have rules governing the geothermal leasing process as discussed below under “Description of Our Leases and Lands”.


For most of our current exploration sites in the United States, we acquire rights to use the geothermal resource through land leases with the BLM, with various states, or through private leases. Under these leases, we typically pay an up-front non-refundable bonus payment, which is a component of the competitive lease process. In addition, we undertake to pay nominal, fixed annual rent payments for the period from the commencement of the lease through the completion of construction. Upon the commencement of power generation, we begin to pay to the lessors long-term royalty payments based on the use of the geothermal resources as defined in the respective agreements. These payments are contingent on the power plant’s revenues. A summary of our typical lease terms is provided below under “Description of our Leases and Lands”. The up-front bonus and royalty payments vary from site to site and are based on, among other things, current market conditions.




We conduct geological, geochemical, and/or geophysical surveys on the site we acquire. Following the acquisition of land rights for a potential geothermal resource, we conduct additional surface water analysis, soil surveys, and geologic mapping to determine proximity to possible heat flow anomalies and up-flow/permeable zones. We augment our digital database with the results of those analysis and create conceptual and digital geologic models to describe geothermal system controls. We then initiate a suite of geophysical surveys (e.g., gravity, magnetics, resistivity, magnetotellurics, reflection seismic, LiDAR, and spectral surveys) to assess surface and sub-surface structure (e.g., faults and fractures) and improve the geologic model of fluid-flow conduits and permeability controls. All pertinent geological and geophysical data are used to create three-dimensional geologic models to identify drill locations. These surveys are conducted incrementally considering relative impact and cost, and the geologic model is updated continuously.



We make a further determination of the commercial viability of the geothermal resource based on the results of this process, particularly the results of the geochemical surveys estimating temperature and the overall geologic model, including potential resource size. If the results from the geochemical surveys are poor (i.e., low derived resource temperatures or poor permeability) or the geologic model indicates small or deep resource, we re-evaluate the commercial viability of the geothermal resource and may not proceed to exploratory drilling. We generally only move forward with those sites that we believe have a high probability of successful development.


Exploratory Drilling


We drill one or more exploratory wells on the high priority, relatively low risk sites to confirm and/or define the geothermal resource. If we proceed to exploratory drilling, we generally use outside contractors to create access roads to drilling sites and related activities. We have continued efforts to reduce exploration costs and therefore, after obtaining drilling permits, we generally drill temperature gradient holes and/or core holes that are lower cost than slim holes (used in the past) using either our own drilling equipment, whenever possible, or outside contractors. If the obtained data supports a conclusion that the geothermal resource can support a commercially viable power plant, it will be used as an observation well to monitor and define the geothermal resource. If the core hole indicates low temperatures or does not support the geologic model of anticipated permeability, it may be plugged, and the area reclaimed. In undrilled sites, we typically step up from shallow (500-1000 feet) to deeper (2000-4000 feet) wells as confidence improves. Following proven temperature in core wells, we typically move to slim and/or full- size wells to quantify permeability.


Each year we determine and approve an exploration budget for the entire exploration activity in such year. We prioritize budget allocation between the various geothermal sites based on commercial and geological factors. The costs we incur for exploratory drilling vary from site to site based on various factors, including the accessibility of the drill site, the geology of the site, and the depth of the resource. However, on average, exploration costs, prior to drilling of a full-size well are approximately $1.0 million to $3.0 million for each site, not including land acquisition. We only reach such spending levels for sites that proved to be successful in the early stages of exploration.


At various points during our exploration activities, we re-assess whether the geothermal resource involved will support a commercially viable power plant based on information available at that time. Among other things, we consider the following factors:



New data and interpretations obtained concerning the geothermal resource as our exploration activities proceed, and particularly the expected MW capacity power plant the resource can be expected to support. The MW capacity can be estimated using analogous systems and/or quantitative heat in place estimates until results from drilling and flow tests quantify temperature, permeability, and resulting resource size.



Current and expected market conditions and rates for contracted and merchant electric power in the market(s) to be serviced.



Availability of transmission capacity.



Anticipated costs associated with further exploration activities and the relative risk of failure.



Anticipated costs for design and construction of a power plant at the site.



Anticipated costs for operation of a power plant at the site, particularly taking into account the ability to share certain types of costs (such as control rooms) with one or more other power plants that are, or are expected to be, operating near the site.



If we conclude that the geothermal resource involved will support a commercially viable power plant, we proceed to constructing a power plant at the site.



How We Construct Our Power Plants.


The principal phases involved in constructing one of our geothermal power plants are as follows:



Drilling production and injection wells.



Designing the well field, power plant, equipment, controls, and transmission facilities.



Obtaining any required permits, electrical interconnection and transmission agreements.



Manufacturing (or in the case of equipment we do not manufacture ourselves, purchasing) the equipment required for the power plant.



Assembling and constructing the well field, power plant, transmission facilities, and related facilities.



In recent years, it has taken us two to three years from the time we drill a production well until the power plant becomes operational.


Drilling Production and Injection Wells


We consider completing the drilling of the first production well to be the beginning of our construction phase for a power plant. However, this is not always sufficient for a full release for construction. The number of production wells varies from plant to plant depending on, among other things, the geothermal resource, the projected capacity of the power plant, the power generation equipment to be used and the way geothermal fluids will be re-injected through injection wells to maintain the geothermal resource and surface conditions. We generally drill the wells ourselves although in some cases we use outside contractors.


The cost for each production and injection well varies depending on, among other things, the depth and size of the well and market conditions affecting the supply and demand for drilling equipment, labor and operators. In the last five years, our typical cost for each production and injection well is approximately $3.3 million with a range of $1.0 million to $8.5 million.




We usually use our own employees to design the well field and the power plant, including equipment that we manufacture and that will be needed for the power plant. In some cases, depending on complexity and location, we use third parties to help us with the design. The designs vary based on various factors, including local laws, required permits, the geothermal resource, the expected capacity of the power plant and the way geothermal fluids will be re-injected to maintain the geothermal resource and surface conditions.




We use our own employees and from time to time, depending on complexity and location, outside consultants to obtain any required permits and licenses for our power plants that are not already covered by the terms of our site leases. The permits and licenses required vary from site to site and are described below under “Environmental Permits”.




Generally, we manufacture most of the power generating unit equipment we use at our power plants. Multiple sources of supply are generally available for all other equipment we do not manufacture.




We use our own employees to manage the construction work. For site grading, civil, mechanical, and electrical work we use subcontractors.



During fiscal year 2019, in the Electricity segment, we focused on the commencement of operations at Tungsten solar in Nevada and we began with construction of Heber Complex enhancement as well as with enhancement work in some of our operating power plants. During fiscal year 2018, we focused on the commencement of operations at McGinness Hills phase 3 in Nevada and at the Olkaria III plant expansion in Kenya and we began with construction of Steamboat Hills enhancement and Tungsten solar in Nevada as well as with enhancement work in some of our operating power plants. During fiscal year 2017, we focused on the commencement of operations at Platanares power plant in Honduras and Tungsten Mountain in Nevada. We began with construction of the Olkaria III plant expansion in Kenya and enhancement work in some of our operating power plants.


When deciding whether to continue holding lease rights and/or to pursue exploration activity, we diligently prioritize our prospective investments, taking into account resource and probability assessments in order to make informed decisions about whether a particular project will support commercial operation. As a result, during fiscal year 2019 we decided to discontinue our holding in two sites: at Glamis, California and at Lake View, Oregon. We did not have any costs that were capitalized in relation to these sites. During fiscal year 2018 we decided to discontinue our holding in one prospective site: Ruby Valley in Nevada. During fiscal year 2017 we discontinued exploration activities at four prospective sites: the Ungaran region in Indonesia, Glass Buttes - Midnight Point in Oregon and Tuscarora - phase 2 and Don A. Campbell - phase 3, in Nevada.


After conducting exploratory studies at those sites, we concluded that the respective geothermal resources would not support commercial operations. Costs associated with exploration activities at these sites were expensed accordingly (see “Write-off of Unsuccessful Exploration Activities” under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).


We added to our exploration inventory five prospective sites in 2019, six prospective sites in 2018 and two prospective sites in the year ended 2017 .


How We Operate and Maintain Our Power Plants


Our operations and maintenance practices are designed to minimize operating costs without compromising safety or environmental standards while maximizing plant flexibility and maintaining high reliability. Our operations and maintenance practices for geothermal power plants seek to preserve the sustainable characteristics of the geothermal resources we use to produce electricity and maintain steady-state operations within the constraints of those resources reflected in our relevant geologic and hydrologic studies. Our approach to plant management emphasizes the operational autonomy of our individual plant or complex managers and staff to identify and resolve operations and maintenance issues at their respective power plants; however, each power plant or complex draws upon our available collective resources and experience, and that of our subsidiaries. We have organized our operations such that inventories, maintenance, backup, and other operational functions are pooled within each power plant complex and provided by one operation and maintenance provider. This approach enables us to realize cost savings and enhances our ability to meet our power plant availability goals.


Safety is a key area of concern to us. We believe that the most efficient and profitable performance of our power plants can only be accomplished within a safe working environment for our employees. Our compensation and incentive program include safety as a factor in evaluating our employees, and we have a well-developed reporting system to track safety and environmental incidents, if any, at our power plants.


How We Sell Electricity


In the United States, the purchasers of power from our power plants are typically investor-owned electric utility companies or electric cooperatives including public owned utilities and recently we signed a PPA with CCAs. Outside of the United States, our purchasers are either state-owned utilities or privately-owned-entities and we typically operate our facilities under rights granted to us by a governmental agency pursuant to a concession agreement. In each case, we enter into long-term contracts (typically, PPAs) for the sale of electricity or the conversion of geothermal resources into electricity. Although previously our power plants’ revenues under a PPA generally consisted of two payments, energy payments and capacity payments, our recent PPAs provide for energy payments only. Energy payments are normally based on a power plant’s electrical output actually delivered to the purchaser measured in kWh, with payment rates either fixed or indexed to the power purchaser’s “avoided” power costs (i.e., the costs the power purchaser would have incurred itself had it produced the power it is purchasing from third parties) or rates that escalate at a predetermined percentage each year. Capacity payments are normally calculated based on the generating capacity or the declared capacity of a power plant available for delivery to the purchaser, regardless of the amount of electrical output actually produced or delivered. In addition, we have six domestic power plants located in California, Nevada and Hawaii that are eligible for capacity bonus payments under the respective PPAs upon reaching certain levels of generation, or subject to a capacity payment reduction if certain levels of generation are not reached.



How We Finance Our Power Plants


Historically we have funded our power plants with different sources of liquidity such as a non-recourse or limited recourse debt, lease financing, tax monetization transactions, internally generated cash, which includes funds from operation, as well as proceeds from loans under corporate credit facilities and the sale of equity interests and other securities. Such leveraged financing permits the development of power plants with a limited amount of equity contributions, but also increases the risk that a reduction in revenues could adversely affect a particular power plant’s ability to meet its debt obligations. Leveraged financing also means that distributions of dividends or other distributions by our power plant subsidiaries to us are contingent on compliance with financial and other covenants contained in the applicable financing documents.


Non-recourse debt or lease financing refers to debt or lease arrangements involving debt repayments or lease payments that are made solely from the power plant’s revenues (rather than our revenues or revenues of any other power plant) and generally are secured by the power plant’s physical assets, major contracts and agreements, cash accounts and, in many cases, our ownership interest in our affiliate that owns that power plant. These forms of financing are referred to as “project financing”.


In the event of a foreclosure after a default, our affiliate that owns the power plant would only retain an interest in the power plant assets, if any, remaining after all debts and obligations have been paid in full. In addition, incurrence of debt by a power plant may reduce the liquidity of our equity interest in that power plant because the equity interest is typically subject both to a pledge in favor of the power plant’s lenders securing the power plant’s debt and to transfer and change of control restrictions set forth in the relevant financing agreements.


Limited recourse debt refers to project financing as described above with the addition of our agreement to undertake limited financial support for our affiliate that owns the power plant in the form of certain limited obligations and contingent liabilities. These obligations and contingent liabilities may take the form of guarantees of certain specified obligations, indemnities, capital infusions and agreements to pay certain debt service deficiencies. Creditors of a project financing of a particular power plant may have direct recourse to us to the extent of these limited recourse obligations.


We have used financing structures to monetize PTCs and depreciation, such as our recent tax equity partnership transaction involving McGinness Hills phase 3, Tungsten, and an operating lease arrangement for our Puna complex power plants that recently expired in 2019.


We have also used a sale of equity interests in three of our geothermal assets and nine of our REG facilities to fund corporate needs including funding for the construction of new projects. We may use some of the same financing structures in the future.



How We Mitigate International Political Risk.


We generally purchase insurance policies to cover our equity exposure to certain political risks involved in operating in developing countries, as described below under “Insurance”. However, insurance may not cover all political risks or coverage amounts may not be sufficient.


Description of Our Leases and Lands


We have domestic leases on approximately 360,224 acres of federal, state, and private land in California, Hawaii, Nevada, New Mexico, Utah Idaho and Oregon. The approximate breakdown between federal, state and private leases and owned land is as follows:



80% of the acreage under our control is leased from the U.S. government, acting mainly through the BLM;



16% is leased or subleased from private landowners and/or leaseholders;



3% is owned by us; and



1% is leased from various states.


Each of the leases within each of the categories above has standard terms and requirements, as summarized below. Internationally, our land position includes approximately 60,903 acres.



BLM Geothermal Leases


Certain of our domestic project subsidiaries have entered into geothermal resources leases with the U.S. government, pursuant to which they have obtained the right to conduct their geothermal development and operations on federally-owned land. These leases are made pursuant to the Geothermal Steam Act and the lessor under such leases is the U.S. government, acting through the BLM.


BLM geothermal leases grant the geothermal lessee the right and privilege to drill for, extract, produce, remove, utilize, sell, and dispose of geothermal resources on certain lands, together with the right to build and maintain necessary improvements thereon. The actual ownership of the geothermal resources and other minerals beneath the land is retained in the federal mineral estate. The geothermal lease does not grant to the geothermal lessee the exclusive right to develop the lands, although the geothermal lessee does hold the exclusive right to develop geothermal resources within the lands. Since BLM leases do not grant to the geothermal lessee the exclusive right to use the surface of the land, BLM may grant rights to others for activities that do not unreasonably interfere with the geothermal lessee’s uses of the same land, including use, off-road vehicles, and/or wind or solar energy developments.


Typical BLM leases issued to geothermal lessees before August 8, 2005 have a primary term of ten years and will renew so long as geothermal resources are being produced or utilized in commercial quantities but cannot exceed a period of forty years after the end of the primary term. If at the end of the forty-year period geothermal steam is still being produced or utilized in commercial quantities and the lands are not needed for other purposes, the geothermal lessee will have a preferential right to renew the lease for a second forty-year term, under terms and conditions as the BLM deems appropriate.


BLM leases issued after August 8, 2005 have a primary term of ten years. If the geothermal lessee does not reach commercial production within the primary term, the BLM may grant two five-year extensions. If the lessee is drilling a well for the purposes of commercial production, the lease may be extended for five years and thereafter as long as steam is being produced and used in commercial quantities the lease may be extended for up to thirty-five years. If, at the end of the extended thirty-five-year term, geothermal steam is still being produced or utilized in commercial quantities and the lands are not needed for other purposes, the geothermal lessee will have a preferential right to renew the lease under terms and conditions as the BLM deems appropriate.


For BLM leases issued before August 8, 2005, the geothermal lessee is required to pay an annual rental fee (on a per acre basis), which escalates according to a schedule described therein, until production of geothermal steam in commercial quantities has commenced. After such production has commenced, the geothermal lessee is required to pay royalties (on a monthly basis) on the amount or value of (i) steam, (ii) by-products derived from production, and (iii) commercially de-mineralized water sold or utilized by the project (or reasonably susceptible to such sale or use).


For BLM leases issued after August 8, 2005, (i) a geothermal lessee who has obtained a lease through a non-competitive bidding process will pay an annual rental fee equal to $1.00 per acre for the first ten years and $5.00 per acre each year thereafter; and (ii) a geothermal lessee who has obtained a lease through a competitive process will pay a rental equal to $2.00 per acre for the first year, $3.00 per acre for the second through tenth year and $5.00 per acre each year thereafter. Rental fees paid before the first day of the year for which the rental is owed will be credited towards royalty payments for that year. For BLM leases issued, effective, or pending on August 5, 2005 or thereafter, royalty rates are fixed between 1.0-2.5% of the gross proceeds from the sale of electricity during the first ten years of production under the lease. The royalty rate set by the BLM for geothermal resources produced for the commercial generation of electricity but not sold in an arm’s length transaction is 1.75% for the first ten years of production and 3.5% thereafter. The royalty rate for geothermal resources sold by the geothermal lessee or an affiliate in an arm’s length transaction is 10.0% of the gross proceeds from the arm’s length sale.


In the event of a default under any BLM lease, or the failure to comply with any of the provisions of the Geothermal Steam Act or regulations issued under the Geothermal Steam Act or the terms or stipulations of the lease, the BLM may, 30 days after notice of default is provided to the relevant project, (i) suspend operations until the requested action is taken, or (ii) cancel the lease.



Private Geothermal Leases


Certain of our domestic project subsidiaries have entered into geothermal resources leases with private parties, pursuant to which they have obtained the right to conduct their geothermal development and operations on privately owned land. In many cases, the lessor under these private geothermal leases owns only the geothermal resource and not the surface of the land.


Typically, the leases grant our project subsidiaries the exclusive right and privilege to drill for, produce, extract, take and remove from the leased land water, brine, steam, steam power, minerals (other than oil), salts, chemicals, gases (other than gases associated with oil), and other products produced or extracted by such project subsidiary. The project subsidiaries are also granted certain non-exclusive rights pertaining to the construction and operation of plants, structures, and facilities on the leased land. Additionally, the project subsidiaries are granted the right to dispose geothermal fluid as well as the right to re-inject into the leased land water, brine, steam, and gases in a well or wells for the purpose of maintaining or restoring pressure in the productive zones beneath the leased land or other land in the vicinity. Because the private geothermal leases do not grant to the lessee the exclusive right to use the surface of the land, the lessor reserves the right to conduct other activities on the leased land in a manner that does not unreasonably interfere with the geothermal lessee’s uses of the same land, which other activities may include agricultural use (farming or grazing), recreational use and hunting, and/or wind or solar energy developments.


The leases provide for a term consisting of a primary term in the range of five to 30 years, depending on the lease, and so long thereafter as lease products are being produced or the project subsidiary is engaged in drilling, extraction, processing, or reworking operations on the leased land.


As consideration under most of our project subsidiaries’ private leases, the project subsidiary must pay to the lessor a certain specified percentage of the value “at the well” (which is not attributable to the enhanced value of electricity generation), gross proceeds, or gross revenues of all lease products produced, saved, and sold on a monthly basis. In certain of our project subsidiaries’ private leases, royalties payable to the lessor by the project subsidiary are based on the gross revenues received by the lessee from the sale or use of the geothermal substances, either from electricity production or the value of the geothermal resource “at the well”.


In addition, pursuant to the leases, the project subsidiary typically agrees to commence drilling, extraction or processing operations on the leased land within the primary term, and to conduct such operations with reasonable diligence until lease products have been found, extracted and processed in quantities deemed “paying quantities” by the project subsidiary, or until further operations would, in such project subsidiary’s judgment, be unprofitable or impracticable. The project subsidiary has the right at any time within the primary term to terminate the lease and surrender the relevant land. If the project subsidiary has not commenced any such operations on said land (or on the unit area, if the lease has been unitized), or terminated the lease within the primary term, the project subsidiary must pay to the lessor, in order to maintain its lease position, annually in advance, a rental fee until operations are commenced on the leased land.


If the project subsidiary fails to pay any installment of royalty or rental when due and if such default continues for a period of fifteen days specified in the lease, for example, after its receipt of written notice thereof from the lessor, then at the option of the lessor, the lease will terminate as to the portion or portions thereof as to which the project subsidiary is in default. If the project subsidiary defaults in the performance of any obligations under the lease, other than a payment default, and if, for a period of 90 days after written notice is given to it by the lessor of such default, the project subsidiary fails t