NOTE

— COMMITMENTS AND CONTINGENCIES

Geothermal resources

The Company, through its project subsidiaries in the U.S., 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

$19.4

million,

$17.1

million, and

$15.4

million for the years ended

December 31, 2017,

2016,

and

2015,

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

$277.7

million at

December 31, 2017.

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, 2017,

total obligations related to such supplier agreements were approximately

$113.4

million (out of which approximately

$54.2

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

2018.

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, 2017

2016,

and

2015.

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, 2017

and

2016,

amounted to

$1.9

million and

$1.8

million, respectively, of which approximately

$0.9

million and

$0.8

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

Lease commitments

December 31,

201

2016

and

2015,

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

) amounted to

$0.5

million,

$0.4

million and

$0.4

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

$7.6

million, representing vehicles that were received during

2015,

2016

and

2017.

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 Puna Geothermal Venture 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 23, 2017,

the plaintiffs filed a motion requesting that the Intermediate Court of Appeals address appellate jurisdiction, which was denied by the court on

April 20, 2017

as premature. The Company believes that it has valid defenses under law, and intends to defend itself vigorously.

●

July 8, 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 6, 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 6, 2017

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

appeal by the plaintiffs is expected and the company considers this case to be effectively closed.

●

March 29, 2016,

a former local sales representative in Chile, Aquavant, S.A., filed a claim against Ormat

’s subsidiaries in the

27th

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

$4.8

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 motions submitted by the defendants and the plaintiffs to various courts, including the Court of Appeals, the case was removed from the original court and then refiled before the

11th

Civil Court of Santiago.

February 2018

preliminary defenses, filed by the Company, were denied by the lower court and are pending on appeal. The Company timely filed its answer to the claim on the merits, and the plaintiff filed its response (replication)

. The Company believes that it has valid defenses under law and intends to defend itself vigorously

●

August 5, 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. On

December 12, 2016,

the federal district court granted plaintiffs’ motion for joinder of HELCO as a co-defendant, and the case, which had previously been removed to the U.S. District Court for the District of Hawaii, was remanded back to the Third Circuit Court. The amended complaint alleged 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.

June 14, 2017,

the Third Circuit Court denied HELCO’s motion to dismiss the complaint against HELCO. Discovery is underway. The Company believes that it has valid defenses under law, and intends to defend itself vigorously.

●

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.

The plaintiffs and the deceased's employer

’s insurer reached an out of court settlement that was approved by the US District Court, Southern District of California, and executed on

May 25, 2017.

The case has been dismissed, without liability to the Company.

●

February 18, 2018,

Western Watersheds Project filed a notice of appeal and petition for standing with respect to the

January 16, 2018

BLM decision approving Addendum

to Operation Plan & Utilization Plan for the McGinness Hills Geothermal Project. The appeal alleges that the

January 2018

BLM decision authorizing construction and operation of Phase

of McGinness Hills causes harm to WWP and its members by allowing degradation of the wildlife habitat of the Greater sage-grouse in that area. The Company has filed a motion to intervene as an interested party in support of the BLM.

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.