NOTE

— COMMITMENTS AND CONTINGENCIES

Geothermal resources

The Company, through its project subsidiaries in the United States, controls certain rights to geothermal fluids through certain leases with the Bureau of Land Management (“BLM”) or through private leases. Royalties on the utilization of the geothermal resources are computed and paid to the

lessors as defined in the respective agreements. Royalty expense under the geothermal resource agreements were

$17.1

million,

$15.4

million, and

$16.3

million for the years ended

December

31,

2016,

2015,

and

2014,

respectively.

Letters of credit

In the ordinary course of business with

customers, vendors, and lenders, the Company is contingently liable for performance under letters of credit totaling

$341.6

million at

December

31,

2016.

Management does not expect any material losses to result from these letters of credit because performance is not expected to be required, and, therefore, is of the opinion that the fair value of these instruments is

zero.

Purchase commitments

The Company purchases raw materials for inventories, construction-in-process and services from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure goods and services based upon specifications defined by the Company, or that establish parameters defining the Company

’s requirements.

December

31,

2016,

total obligations related to such supplier agreements were approximately

$108.1

million (out of which approximately

$51.0

million relate to construction-in-process). All such obligations are payable in

2017.

Grants and royalties

The Company, through Ormat Systems, had historically, through

December

31,

2003,

requested and received grants for research and development from the Office of the Chief Scientist of the Israeli Government. Ormat Systems is required to pay royalties to the Israeli Government at a rate of

3.5%

5.0%

of the revenues derived from products and services developed using these grants.

royalties were paid for the years ended

December

31,

2016

2015,

and

2014.

The Company is not liable for royalties if the Company does not sell such products and services. Such royalties are capped at the amount of the grants received plus interest at LIBOR. The cap at

December

31,

2016

and

2015,

amounted to

$1.8

million and

$1.7

million, respectively, of which approximately

$0.8

million and

$0.8

million, respectively, represents interest based on the LIBOR rate, as defined above.

Lease commitments

December

31,

201

2015

and

2014,

total lease expenses for leasing of land, building and equipment outside of the Puna lease (separately described in Note

13)

amounted to

$0.4

million,

$0.4

million and

$0.3

million respectively. The related future minimum lease payments are immaterial for each year.

2015,

he Company entered into a lease transaction for a fleet of vehicles. The lease transaction was classified as a capital lease and the leased vehicles were classified under Property, Plant and Equipment in total amount of

$6.9

million, representing vehicles that were received during

2015

and

2016.

The terms of the lease are monthly payments in equal installments over

years. The related future minimum lease payments are immaterial for each year.

Contingencies

●

Jon Olson and Hilary Wilt, together with Puna Pono Alliance filed a complaint on

February

17,

2015

in the Third Circuit Court for the State of Hawaii, requesting declaratory and injunctive relief requiring that PGV comply with an ordinance that the plaintiffs allege will prohibit PGV from engaging in night drilling operations at its KS-

well site. On

May

17,

2015,

the original complaint was amended to add the county of Hawaii and the State of Hawaii Department of Land and Natural Resources as defendants to the case. On

October

10,

2016,

the court issued its decision in response to each of the plaintiffs

’ and defendants’ motions for summary judgment, denying plaintiffs’ motion and granting defendant PGV's and the County of Hawaii’s cross motions for summary judgment, effectively rendering the plaintiffs’ action moot. On

January

17,

2017,

the plaintiffs filed a notice of appeal of the

October

10,

2016

decision. Procedural issues as to the ability of the plaintiffs to appeal the decision at this time, including the jurisdiction of the appellate court to near the appeal, are also before the court.

●

July

2014,

Global Community Monitor, LiUNA, and

two

residents of Bishop, California filed a complaint in the U.S. District Court for the Eastern District of California, alleging that Mammoth Pacific, L.P., the Company and Ormat Nevada are operating

three

geothermal generating plants in Mammoth Lakes, California (MP-

MP-II and PLES-I) in violation of the federal Clean Air Act and Great Basin Unified Air Pollution Control District rules. On

June

26,

2015,

in response to a motion by the defendants, the court dismissed all but

one

of the plaintiffs

’ causes of action. On

January

2017,

the court issued its order regarding several pending motions, including plaintiffs’ motion for partial summary judgment, defendants' motion for summary judgment, defendants' motion to exclude and defendants' motion for leave to file a sur-reply. The impact of the court’s

January

order is to deny the plaintiffs’ sole remaining cause of action.

●

April

2012,

the International Brotherhood of Electrical Workers Local

1260

(“Union”) filed a petition with the NLRB seeking to organize the operations and maintenance employees at the Puna project.

A global settlement was reached in principle in

February

2016,

which includes a Union disclaimer of interest, the withdrawal of letters from the Union to the NRLB and signed individual settlement agreements, all of which are immaterial. All issues are now settled and closed.

●

January

2014,

Ormat learned that

two

former employees filed a “qui tam” complaint seeking damages, penalties and other relief of approximately

$375

million, alleging that the Company and certain of its subsidiaries (collectively, the “Ormat Parties”) submitted fraudulent applications and certifications to obtain grants for the Puna and North Brawley projects. The U.S. Department of Justice declined to intervene. On

October

25,

2016,

the parties entered into a final settlement agreement

providing for the dismissal of the claim without any admission of wrongdoing by the Ormat Parties and payment of

$11

million (inclusive of fees and costs). The settlement amount of

$11

million was included in general and administrative expenses in the consolidated statements of operations and comprehensive income for the year ended

December

31,

2016.

●

March

29,

2016,

a former local sales representative in Chile, Aquavant, S.A., filed a claim on the basis of unjust enrichment against Ormat

’s subsidiaries in the

27th

Civil Court of Santiago, Chile. The claim requests that the court order Ormat to pay Aquavant

$4.6

million in connection with its activities in Chile, including the EPC contract for the Cerro Pabellon project and various geothermal concessions, plus

3.75%

of Ormat geothermal products sales in Chile over the next

years. Pursuant to various petitions submitted by defendants, including a motion describing preliminary, procedural defenses, on

August

18,

2016,

and then on

October

10,

2016,

the

27th

Civil Court issued a number of decisions, which include removal of the case to the

11th

Civil Court of Santiago, thereby delaying a determination on the larger issues of jurisdiction and competency of the Chilean courts as a substantive (and not procedural) defense. The Company believes that it has valid defenses under law, and intends to defend itself vigorously.

●

August

2016,

George Douvris, Stephanie Douvris, Michael Hale, Cheryl Cacocci, Hillary E. Wilt and Christina Bryan, acting for themselves and on behalf of all other similarly situated residents of the lower Puna District, filed a complaint in the Third Circuit Court for the State of Hawaii seeking certification of a class action for preliminary and permanent injunctive relief, consequential and punitive damages, attorney’s fees and statutory interest against PGV and other presently unknown defendants. The complaint purports that injuries and other damages in an undisclosed amount were caused to the plaintiffs as a result of an alleged toxic release by PGV in the wake of Hurricane Iselle in

August

2014.

August

25,

2016,

the Company filed to remove the case to the U.S. District Court for the District of Hawaii. On

December

12,

2016,

the District Court granted plaintiffs’ motion for joinder of HELCO as an additional defendant, to amend the complaint, and to remand the case back to the Third Circuit Court. The Company believes that it has valid defenses under law, and intends to defend itself vigorously.

●

May

21,

2014,

Elko County, Nevada appealed to the Supreme Court of Nevada the Nevada Governor's Office of Energy

’s award of an energy tax abatement to ORNI

LLC for our Tuscarora power plant. Lander County, Nevada similarly appealed the Office of Energy’s Award of an energy tax abatement to ORNI

LLC for

one

of our McGinness power plant. Both of the appeals request that the Court overturn the Office of Energy’s decision and deny, retroactively and going forward, the tax abatement benefits for the full

year period, valued at approximately

$18.6

million for

one

of our McGinness power plant and approximately

$6.2

million for our Tuscarora power plant, of which only a small portion was utilized as of

September

30,

2016.

Following full briefing on both plaintiffs’ and defendants’ motions for summary judgment, on

December

21,

2016,

the Supreme Court of Nevada issued its Order of Affirmance of the judgement of the District Court denying the petitions for judicial review of both Lander County and Elko County, and affirming ORNI

and ORNI

42's

rights to obtain the partial property tax abatements for their respective facilities.

●

June

20,

2016,

Nadia Garcia, individually and as successor in interest to Thomas Garcia Valenzuela, and as guardian ad litem to Emerie Garcia, Khamilla Garcia and Reyene Adam, filed a complaint against Ormat Technologies, Ormat Nevada and Ormesa LLC in the Superior Court of Imperial County seeking unspecified monetary damages. The complaint alleges that the Ormat defendants caused the wrongful death, personal injury and other harm to Thomas Garcia when he was employed by Martin Hydroblasting Services, Inc. and suffered injuries leading to his death while performing work at the Ormesa plant site on or around

March

31,

2016.

Early discovery and conferences are underway. The insurer of the deceased’s employer, and Ormat’s insurer, have accepted

tender

of this claim and are providing Ormat with a defense in the lawsuit, subject to reservation of rights to deny coverage under the policy and under the law.

In addition, from time to time, the Company is named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of our business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to such lawsuits, claims and proceedings, the Company accrues reserves when a loss is probable and the amount of such loss can be reasonably estimated. It is the opinion of the Company

’s management that the outcome of these proceedings, individually and collectively, will not be material to the Company’s consolidated financial statements as a whole.