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Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q 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 quarterly 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 quarterly report on Form 10-Q, 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 quarterly report are primarily located in the material set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Risk Factors", and "Notes to Condensed Consolidated Financial Statements", 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 quarterly report on Form 10-Q 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 the following, many of which are, and will be, amplified by the COVID-19 pandemic:

the impact and potential impact of the COVID-19 outbreak on our growth plans, financial position and results of operations;

significant considerations, risks and uncertainties discussed in this quarterly 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,tax, 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, Kenya, Turkey and elsewhere, and carbon-related legislation;

risks and uncertainty with respect to our internal control over financial reporting, including the 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 power purchase agreements ("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;

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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, which may affect the market prices for energy or capacity including those in the markets where 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 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 photovoltaic (Solar PV) and energy storage projects, if any, may not materialize as planned; and

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.

Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Other than as required by law, we undertake no obligation to update forward-looking statements even though our situation may change in the future. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included elsewhere in this report and the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report") and any updates contained herein as well as those set forth in our reports and other filings made with the Securities and Exchange Commission (the "SEC").

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We are a leading vertically integrated company that is primarily engaged in the geothermal, and recovered energy power businesses. We leveraged our core capabilities and global presence to expand our activity 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 73.6% of our total revenues in the three months ended June 30, 2020, 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 the three months ended June 30, 2020, we derived 63.4% of our Electricity segment revenues from our operations in the United States and 36.6% from the rest of the world.

Product Segment. In the Product segment, which contributed 25.0% of our total revenues in the three months ended June 30, 2020, 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, construction, of geothermal, and recovered energy-based power plants. In the three months ended June 30, 2020, we derived 2.9% of our Product segment revenues from our operations in the United States and 97.1% from the rest of the world.

Energy Storage and Management Services Segment. In the Energy Storage and Management Services segment, which contributed 1.4% of our total revenues in the three months ended June 30, 2020, 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 through the business of our Viridity Energy Solutions Inc. ("Viridity"), which we acquired in 2017. In the three months ended June 30, 2020, we derived 100% of our Energy Storage and Management Services segment revenues from our operations in the United States.

Our operations are conducted in the U.S. and the rest of the world. Our current generating portfolio includes geothermal power plants in the U.S., Kenya, Guatemala, Honduras, Guadeloupe and Indonesia, as well as recovered energy generation and Solar PV power plants and storage activity in the U.S.

COVID 19 Update

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Governments around the world have ordered companies to limit or suspend non-essential operations and imposed operational and travel restrictions resulting in a decline in global economic activity and an increase in market volatility.

The Company has implemented significant measures both to comply with government requirements and to preserve the health and safety of its employees. These measures include working remotely where possible and operating separate shifts in its power plants, manufacturing facilities and other locations while trying to continue operations in close to full capacity in all locations. During the quarter and subsequently, the Company's power plants, manufacturing facility and storage facilities have been operating at close to full capacity and there has been no material impact on our operations as a result of these measures.

In addition, we did not experience any material impact on our results of operations during the first half of 2020, but certain events and developments we have experienced may have an impact in the second half of 2020 and beyond that varies among our business segments.

In our Electricity segment almost all of our revenues in the six months ended June 30, 2020 was generated under long term contracts and the majority have a fixed energy rate. As a result, despite logistical and other challenges, we experienced only a limited impact of COVID-19 on our Electricity segment. Nevertheless, on April 17, 2020, we received from Kenya Power & Lighting Co. Ltd. ("KPLC") a notice declaring a force majeure event in Kenya due to the impact of COVID-19 and purporting to reduce the Olkaria complex's contracted capacity from 150 MW to 133.9 MW. As a result of the force majeure provisions in the Power Purchase Agreement related to this facility, the notice had an immaterial impact on our expected revenue, as agreed also by KPLC. In addition, we experienced a higher rate of curtailments by KPLC in the Olkaria complex. The impact of the curtailments is limited as the structure of the PPA secures the vast majority of our revenues with fixed capacity payments unrelated to the electricity actually consumed (in 2019 and six months ended June 30, 2020, capacity payments represented 70% and 75% of our revenues, respectively). On April 30, 2020, we also received from ENEE a notice declaring a force majeure event in Honduras due to the impact of COVID-19. We have not identified any impact on our consolidated financial statements as a result of this notice. In addition, our future growth in the Electricity segment might be adversely impacted by a lack of funding for projects, a decrease in demand for electricity, delays in permitting and the implications of global and local restrictions on our ability to procure raw material and ship our products.

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Our Product segment revenues are generated from sales of products and services pursuant to contracts, under which we have a right to payment for any product that was produced for the customer. Recognition of revenue under these contracts is impacted by delays in the progress of the third-party projects into which our products and services are incorporated. We had a product backlog of $65.5 million as of August 3, 2020, which includes revenues for the period between July 1, 2020 and August 3, 2020 compared to $201 million as of August 7, 2019. We believe that the decline in backlog resulted mainly due to the impact of COVID-19 and the unwillingness of potential customers to enter into new commitments at this time. We currently expect to recognize more than 80% of our backlog by the end of 2020. Nevertheless, we expect that 2020 product revenues will be significantly adversely impacted for the reasons set out above, restrictions on travel and because our customers deferring their decision to purchase, which all have impacted our sales and marketing efforts.

Our Energy Storage and Management Services segment generate revenues mainly from the sale of the electricity ancillary services back to the energy markets based on the prevailing market price for the electricity or for the energy or ancillary services. There has been a decline in ancillary services prices that was driven primarily by the impact of COVID 19. This decline impacted negatively our energy storage facilities' revenues. If the decline in ancillary prices continues, we may experience a further decline in our energy storage revenues.

In addition, we experience delays in the permitting for new projects in all segments that may also cause a delay in those projects.

Given uncertainties regarding future global economic activity and the continued and potential future impact of COVID-19, we have undertaken a number of steps in managing our global supply chain risks as well as enhancing the Company's liquidity position. In the first quarter of 2020, we took prompt steps to manage our expenses including responsible cost cutting measures and significantly reduced hiring. In addition, in order to support our capital expenditure and growth plans, in the second quarter and July 2020, we raised more than $400 million through long term loans.

Despite our efforts to provide insight into the performance of our business and the trends affecting it, as of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. We may become subject to any of the following impacts:

limitations on the ability of our suppliers to obtain raw materials that are required for the manufacturing of the products we either sell to third parties or build for ourselves or to meet delivery requirements and commitments that may result in penalty payments;

impact on our efforts to sign new contracts for our Product segment due to operational and travel restrictions and availability of our customers and their willingness to enter into new agreements;

limitations on the ability of our customers to pay us on a timely basis;

lack or limited availability of capital or postponement of capital allocation for future growth;

additional declarations of COVID-19 as force majeure by our customers and suppliers;

a reduction in the demand for electricity and for our products;

change in regulations, taxes and levies that may affect our operations and cost structure;

risk of infection among employees that may impact the day-to-day operations;

delays in obtaining the required permits that may impact our ability to implement our growth plan;

limited ability to oversees remote operation due to travel restrictions.

Other Recent Developments

The most significant developments in our Company and business since January 1, 2020 are described below.

As of August 2020, recommission efforts at Puna continue. Permits that are required for the construction and operation of the substation were received. Hawaii Electric Light Company ("HELCO") received the Public Utility Commission ("PUC") approval and started to construct the transmission network. On the field side, the Company connected one new production well to the power plant and is expected to enable partial production by the beginning of the fourth quarter. The Company continues its field recovery work, which includes drilling of new wells and expects gradual increase of generation to 29 MW by the end of the year, assuming the transmission network upgrade is completed and field recovery is successfully achieved.

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In July 2020, we completed the acquisition of the Pomona energy storage asset in California from Alta Gas for a total net consideration of $43.9 million. The Pomona energy storage facility has been in commercial operation since December 31, 2016 under a 10-year energy storage resource adequacy agreement with Southern California Edison Company. It also participates in the energy and ancillary services markets run by the California Independent System Operator. The facility is our first battery storage asset in operation in California, increasing our existing operating portfolio to 73MW/136MWh and adding to our battery storage assets in New Jersey, New England and Texas.

In July 2020, we issued approximately $290.0 million of bonds (the "Bonds") that were issued in New Israeli Shekels and were converted to U.S. Dollars using a cross-currency swap transaction (the "Swap") at an effective fixed interest rate of 4.34%. The $290 million of bonds will mature in June 2031 and bear, prior to the Swap, a fixed interest rate of 3.35% per annum, payable semi-annually starting December 2020. The Bonds will be repaid in 10 equal installments starting June 2022, unless prepaid earlier by Ormat pursuant to the terms and conditions of the trust instrument that will govern the Bonds. The Bonds received a rating of ilAA- from Maloot S&P in Israel with a stable outlook. In April and May 2020 we also raised approximately $130 million of new corporate debt from existing lenders.

In June we completed the enhancement of our Steamboat Hills complex and increased its generating capacity by 19MW to a total of 84MW. Enhancement work included the replacement of all old generating unit equipment with new, state-of-the-art equipment and resource modifications. The new equipment will increase the productivity and efficiency of the power plant and is expected to reduce maintenance costs per kWh. The Steamboat Hills power plant continues to sell its electricity under the current 25-year long term portfolio power purchase agreement with Southern California Public Power Authority ("SCPPA"), with 100% of the capacity going to the Los Angeles Department of Water and Power.

In April 2020, we announced the commercial operation of the Rabbit Hill Battery Energy Storage System ("BESS") facility, providing required ancillary services and energy optimization to the wholesale markets managed by the Electricity Reliability Council of Texas ("ERCOT"). The facility is located in the City of Georgetown, Texas, and it is sized to provide approximately 10 MW of fast responding capacity to the ERCOT market. Ormat's wholly owned subsidiary Viridity Energy Solutions Inc. designed, built, owns and operates the lithium-Ion-based BESS, using batteries from a tier 1 supplier.

In February 2020, we announced a transition of our senior management. Mr. Isaac Angel has decided to retire from his position as Chief Executive Officer, effective July 1, 2020, after six years of successful service to the Company, its employees and its shareholders. Mr. Angel became a member of Ormat's Board of Directors and its chairman and will continue to be employed by the Company through December 31, 2020 in order to assist with the management transition. Ormat's Board of Directors has appointed Mr. Blachar, the Company's President and Chief Financial Officer, to succeed Mr. Angel. Mr. Doron Blachar assumed the role of Chief Executive Officer on July 1, 2020 upon Mr. Angel's retirement. Mr. Blachar was succeeded in his role as Chief Financial Officer by Mr. Assaf Ginzburg, effective May 10, 2020.

In January 2020, we signed two similar PPAs with Silicon Valley Clean Energy ("SVCE") and Monterey Bay Community Power ("MBCP"). Under the PPAs, SVCE and MBCP will each purchase 7 MW (for a total of 14 MW) of power generated by the expected 30 MW Casa Diablo-IV ("CD4") geothermal project located in Mammoth Lakes, California that is under construction. The PPAs are for a term of 10 years and have a fixed MWh price, which includes energy, capacity, environmental attributes, and all other ancillary benefits. The remaining 16 MW of generating capacity will be sold under an additional PPA with SCPPA, which was signed in early 2019. The CD4 power plant is expected to be on-line at the end of 2021, and will be the first geothermal power plant built within the California Independent System Operator ("CAISO") balancing authority in the last 30 years and will be the first in Ormat's portfolio that will sell its output to a Community Choice Aggregator.

Trends and Uncertainties

Different trends, factors and uncertainties may impact our operations and financial condition, including many that we do not or cannot foresee. However, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by trends, factors and uncertainties discussed in our 2019 Annual Report under "Part II - Item 7 - Management Discussion and Analysis of Financial Condition and Results of Operation" in addition to the information set forth in this report. These trends, factors and uncertainties are from time to time also subject to market cycles.

As COVID-19 threatens demand, oil prices have declined and could have consequences on the global transition to renewable energy and on governmental support for renewables. We believe that the direct impact of declining oil prices on us is not material. In addition, volatile natural gas prices may have an impact on ancillary services prices related to our Energy Storage and Management Services revenues.

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For the six months ended June 30, 2020, 98.6% of our Electricity segment revenues were from PPAs with fixed energy rates, which are not affected by fluctuations in energy commodity prices. We have variable price PPAs in California and Hawaii, which provide for payments based on the local utilities' avoided cost, which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others, as follows:

the energy rates under the PPAs in California for each of Heber 2 power plant in the Heber Complex and the G2 power plant in the Mammoth Complex, a total of between 30 megawatts (MW) and 40 MW, change primarily based on fluctuations in natural gas prices; and

the prices paid for the electricity pursuant to the 25 MW PPA for the Puna Complex in Hawaii change primarily as a result of variations in the price of oil as well as other commodities. We recently signed a new PPA related to Puna with fixed prices that will govern a future plant.

To comply with obligations under their respective PPAs, certain of our project subsidiaries are structured as special purpose, bankruptcy remote entities and their assets and liabilities are ring-fenced. Such assets are not generally available to pay our debt, other than debt at the respective project subsidiary level. However, these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us, subject in some cases to restrictions in debt instruments, as described below.

Electricity segment revenues are also subject to seasonal variations and are affected by higher-than-average ambient temperatures, as described below under "Seasonality".

Revenues attributable to our Product segment are based on the sale of equipment, engineering procurement and construction ("EPC") contracts and the provision of various services to our customers. Product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project.

Revenues attributable to our Energy Storage and Management Services segment are derived primarily from Battery Storage as a Service ("BSAAS") systems, demand response and energy management services and may fluctuate from period to period. Pricing of such services and products are dependent on market supply and demand trends, market volatility, the need and price for ancillary services and other factors that may change over time.

The following table sets forth a breakdown of our revenues for the periods indicated:

                                            Revenue (Dollars in thousands)                             Increase (decrease)
                                       Three Months                 Six Months                Three Months              Six Months
                                      Ended June 30,              Ended June 30,             Ended June 30,           Ended June 30,
                                    2020          2019          2020          2019                2020                     2020
        Electricity               $ 128,685     $ 129,079     $ 271,541     $ 271,987     $   (394 )      -0.3 %   $    (446 )      -0.2 %
        Product                      43,701        52,030        91,112       104,158       (8,329 )     -16.0       (13,046 )     -12.5
        . . .

Aug 06, 2020


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