ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

accounting principle. SFAS No. 154 also requires that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 (January 1, 2006 for the Company). The adoption by the Company of SFAS No. 154, effective January 1, 2006, did not have any impact on its results of operations and financial position.

EITF Issue No. 04-5 – Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights

In June 2005, the FASB issued Emerging Issues Task Force (‘‘EITF’’) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF Issue No. 04-5 provides guidance in determining whether a general partner controls a limited partnership and therefore should consolidate the limited partnership. EITF Issue No. 04-5 states that the general partner in a limited partnership is presumed to control that limited partnership and that the presumption may be overcome if the limited partners have either: (i) the substantive ability to dissolve or liquidate the limited partnership or otherwise remove the general partner without cause, or (ii) substantive participating rights. The effective date for applying the guidance in EITF Issue No. 04-5 was: (i) June 29, 2005 for all new limited partnerships and existing limited partnerships for which the partnership agreement was modified after that date, and (ii) no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005 (January 1, 2006 for the Company), for all other limited partnerships. The adoption by the Company of EITF Issue No. 04-5, effective January 1, 2006, did not have any impact on the Company’s consolidated financial statements.

SFAS No. 155 – Accounting for Certain Hybrid Financial Instruments

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 replaces SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. It clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133. SFAS No. 155 also establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. It also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 shall be effective for all financial instruments acquired or issued after the beginning of an entity's first year that begins after September 2006 (January 1, 2007 for the Company). The Company does not expect SFAS No. 155 to have a material impact on its results of operations and financial position in future periods.

NOTE 3 – EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common stock shareholders by the weighted average number of shares of common stock outstanding for the period. The Company does not have any equity instruments that are dilutive, except for employee stock options which were granted on November 10, 2004 and on November 9, 2005 and whose dilutive effect on the earnings per share for the three-month periods ended March 31, 2006 and 2005 is immaterial. The stock options granted to employees of the Company in Ormat Industries Ltd. (the ‘‘Parent’’) stock are not dilutive to the Company’s earnings per share.

10

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 – INVENTORIES

Inventories consist of the following:

				March 31, 2006				December 31, 2005
				(in thousands)
Raw materials and purchased parts for assembly				$	1,631			$	1,521
Self-manufactured assembly parts and finished products					4,560				3,703
Total				$	6,191			$	5,224

NOTE 5 – ACQUISITION AND UNCONSOLIDATED INVESTMENTS

Unconsolidated investments in power plant projects consist of the following:

				March 31, 2006				December 31, 2005
				(in thousands)
Orzunil:
Investment				$	—			$	3,807
Advances					—				3,712
					—				7,519
Mammoth					34,631				34,240
OLCL					5,610				5,476
Total				$	40,241			$	47,235

The unconsolidated power plants are making, from time to time, distributions to their owners. Such distributions are deducted from the investments in such power plants.

The Zunil Project

Prior to March 13, 2006, The Company had a 21.0% ownership interest in Orzunil I de Electricidad, Limitada (‘‘Orzunil’’), a limited responsibility company incorporated in Guatemala and established for the purpose of generation of power by means of a geothermal power plant in the Province of Quetzaltenango in Guatemala. The Company operates and maintains the geothermal power plant and the power purchaser supplies geothermal fluid to the power plant.

On March 13, 2006, the Company acquired a 50.8% ownership interest in Orzunil, and increased its then existing 21.0% ownership interest to 71.8%. The purchase price was $15.4 million, including acquisition costs of approximately $0.6 million.

The Company’s 21% ownership interest in Orzunil prior to the abovementioned acquisition was accounted for under the equity method of accounting as the Company had the ability to exercise significant influence, but not control, over Orzunil. As a result of the acquisition of the additional 50.8% interest in Orzunil, the financial statements of Orzunil have been consolidated effective March 13, 2006. The unrelated entities' 28.2% interest in Orzunil has been reflected as "Minority interest in net assets of subsidiaries" in the Company's consolidated balance sheet.

11

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The abovementioned acquisition has been accounted for under the purchase method of accounting and the acquired assets and intangibles are being depreciated over their estimated useful lives of 13.5 years. The purchase price has been allocated based on management’s preliminary estimates as follows:

				(in thousands)
Cash and cash equivalents				$	8
Restricted cash					3,408
Accounts receivable and other current assets assumed					976
Property, plant and equipment					47,804
Accounts payable and other short-term liabilities assumed					(1,241	)
Long-term loans assumed (including current portion)					(23,607	)
Minority interest					(4,734	)
					22,614
Less: the Company's investment prior to acquisition					(7,244	)
Total purchase price allocation				$	15,370

Due to a recent hurricane, access roads and piping from the wells to the power plant in the Zunil Project were damaged and as a result, the Project was not in operation from October 14, 2005 to March 10, 2006. Orzunil has filed an insurance claim in respect of the damage, which is currently under discussion with the insurance company. Orzunil has already received an advance payment against the claim. The Company believes that the final resolution of the claim will not have a material impact on its results of operations.

On April 27, 2006, the Company signed an agreement to purchase from an unrelated third party, CDC Group plc, a 14.1% partnership interest in Orzunil, which when completed will increase its existing 71.8% ownership interest in Orzunil to 85.9%. The purchase price is $3,250,000. The closing of the acquisition, which is expected to take place by the end of the second quarter of 2006, is subject to the approval of Orzunil members including the International Finance Corporation (‘‘IFC’’), which is also one of the project’s senior lenders.

The Mammoth Project

The Company has a 50% interest in the Mammoth Project, which is comprised of three geothermal power plants, located near the city of Mammoth, California. The purchase price was less than the underlying net equity of Mammoth by approximately $9.3 million. As such, the basis difference will be amortized over the remaining useful life of the property, plant and equipment and the power purchase agreements, which range from 12 to 17 years. The Company operates and maintains the geothermal power plants under an operating and maintenance (‘‘O&M’’) agreement. The Company’s 50% ownership interest in Mammoth is accounted for under the equity method of accounting as the Company has the ability to exercise significant influence, but not control, over Mammoth.

12

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The condensed financial position and results of operations of Mammoth are summarized below:

				March 31, 2006				December 31, 2005
				(in thousands)
Condensed balance sheets:
Current assets				$	8,514			$	7,430
Non-current assets					82,828				82,550
Current liabilities					1,909				1,114
Non-current liabilities					3,728				3,708
Partners' capital					85,705				85,158

				Three Months Ended March 31,
				2006				2005
				(in thousands)
Condensed statements of operations:
Revenues				$	3,685			$	3,967
Gross margin					605				1,212
Net income					548				1,164
Company's equity in income of Mammoth:
50% of Mammoth net income				$	274			$	582
Plus amortization of basis difference					148				148
					422				730
Less income taxes					(160	)			(277	)
Total				$	262			$	453

The Leyte Project

The Company holds an 80% interest in Ormat Leyte Co. Ltd. (‘‘OLCL’’). OLCL is a limited partnership established for the purpose of developing, financing, operating, and maintaining a geothermal power plant in Leyte Provina, the Philippines. Upon the adoption of FIN No. 46R on March 31, 2004, the Company concluded that OLCL should not be consolidated. As a result of such conclusion, the Company's 80% ownership interest in OLCL is accounted for under the equity method of accounting.

The condensed financial position and results of operations of OLCL are summarized below:

				March 31, 2006				December 31, 2005
				(in thousands)
Condensed balance sheets:
Current assets				$	7,760			$	7,972
Non-current assets					9,779				11,267
Current liabilities					6,241				6,083
Non-current liabilities					2,540				3,810
Stockholders' equity					8,758				9,346

13

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

				Three Months Ended March 31,
				2006				2005
				(in thousands)
Condensed statements of operations:
Revenues				$	3,373			$	3,137
Gross margin					1,677				1,468
Net income					859				762
Company's equity in income of OLCL:
80% of OLCL net income				$	687			$	610
Plus amortization of deferred revenue on intercompany profit ($1.6 million unamortized balance at March 31, 2006)					604				263
Total				$	1,291			$	873

NOTE 6 – LONG-TERM DEBT

Long-term debt consists of notes payable under the following agreements:

				March 31, 2006				December 31, 2005
				(in thousands)
Limited and non-recourse agreements:
Non-recourse agreement:
Senior loans:
International Finance Corporation Loan A				$	7,730			$	—
International Finance Corporation Loan B					5,600				—
Commonwealth Development Corporation Loan					9,879				—
Junior subordinated loans					398				—
Limited recourse agreement:
Credit facility agreement					13,419				14,140
					37,026				14,140
Less current portion					(8,054	)			(2,888	)
Total				$	28,972			$	11,252
Full recourse agreements with a bank				$	3,000			$	3,000
Less current portion					(1,000	)			(1,000	)
Total				$	2,000			$	2,000
Senior Secured Notes (non recourse):
Ormat Funding Corp. (‘‘OFC’’)				$	183,399			$	183,399
OrCal Geothermal Inc. (‘‘OrCal’’)					165,000				165,000
					348,399				348,399
Less current portion					(23,754	)			(23,754	)
Total				$	324,645			$	324,645

14

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Senior Loans

International Finance Corporation (‘‘IFC’’) Loan A

Orzunil, a 71.8% owned subsidiary of the Company, has a senior loan agreement with IFC, which is a minority shareholder of Orzunil. The loan matures on November 15, 2011, and shall be repaid in 47 quarterly installments ranging from $192,000 to $430,000. The loan has a fixed annual interest rate of 11.775%.

International Finance Corporation (‘‘IFC’’) Loan B

Orzunil has another senior loan agreement with IFC. The loan matures on May 15, 2008, and shall be repaid in 32 quarterly installments ranging from $436,000 to $690,000. The loan has a fixed annual interest rate of 11.73%.

Commonwealth Development Corporation (‘‘CDC’’) Loan

Orzunil has a senior loan agreement with CDC, which is also a minority shareholder of Orzunil. The loan matures on August 15, 2010, and shall be repaid in 42 quarterly installments ranging from $348,000 to $675,000. The loan has a fixed annual interest rate of 10.3%.

There are various restrictive covenants under the Senior Loans, which include limitations on distribution to its shareholders.

Junior Subordinated Loans

Orzunil has a junior subordinated loans with its shareholders. The loans are uncollateralized and non-interest bearing and shall be repaid once subordinated loans granted to Orzunil by the Company are repaid.

OFC Senior Secured Notes

On February 13, 2004, OFC, a wholly owned subsidiary, issued $190.0 million, 8¼% senior secured notes (the ‘‘OFC Senior Secured Notes’’) in an offering subject to Rule 144A and Regulation S of the Securities Act of 1933, as amended, and received net cash proceeds of approximately $179.7 million, after deduction of issuance costs of approximately $10.3 million which have been included in deferred financing costs in the balance sheets. The OFC Senior Secured Notes have a final maturity date of December 30, 2020. Principal and interest on the OFC Senior Secured Notes are payable in semi-annual payments that commenced on June 30, 2004. The OFC Senior Secured Notes are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OFC, and secured (with certain exceptions) by all real property, contractual rights, revenues and bank accounts, intercompany notes and certain insurance policies of OFC and its subsidiaries. There are various restrictive covenants under the OFC Senior Secured Notes, which include limitations on additional indebtedness and payment of dividends. Management believes that as of March 31, 2006, the Company was in compliance with the covenants contained in the indenture governing the OFC Senior Secured Notes.

OFC may redeem the OFC Senior Secured Notes, in whole or in part, at any time at a redemption price equal to the principal amount of the OFC Senior Secured Notes to be redeemed plus accrued interest, premium and liquidated damages, if any, plus a ‘‘make-whole’’ premium. Upon certain events, as defined in the indenture governing the OFC Senior Secured Notes, OFC may be required to redeem a portion of the OFC Senior Secured Notes at a redemption price ranging from 100% to 101% of the principal amount of the OFC Senior Secured Notes being redeemed plus accrued interest, premium and liquidated damages, if any.

15

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A registration statement on Form S-4 relating to the OFC Senior Secured Notes was filed with and declared effective by the SEC on February 9, 2005. Pursuant to the registration statement, OFC made an offer to the holders of the OFC Senior Secured Notes to exchange them for publicly registered exchange notes with substantially identical terms until March 11, 2005. On March 16, 2005 the exchange offer was completed.

On April 26, 2006, OFC successfully consummated a consent solicitation relating to the OFC Senior Secured Notes that was launched on April 17, 2006. On that same date, OFC executed a supplement to the Indenture governing the OFC Senior Secured Notes to amend and/ or waive certain provisions in the Indenture dealing with public reporting and information requirements of OFC. On May 1, 2006, OFC filed with the SEC Form 15 notification of the suspension of its obligation to file reports with the SEC under the Securities Act of 1934.

Debt service reserve

As required under the terms of the OFC Senior Secured Notes, OFC maintains an account, which may be funded by cash or backed by letters of credit, in an amount sufficient to pay scheduled debt service amounts, including principal and interest, due under the terms of the OFC Senior Secured Notes in the following six months. This restricted cash account is classified as current on the balance sheet. As of March 31, 2006 and December 31 2005, the balance of such account was $0.8 million and $12.3 million, respectively, in cash. In addition as of March 31, 2006, part of the restricted cash account was funded by a letter of credit in the amount of approximately $11.5 million (see Note 10).

OrCal Senior Secured Notes

On December 8, 2005, OrCal, a wholly owned subsidiary, issued $165.0 million, 6.21% Senior Secured Notes (the ‘‘OrCal Senior Secured Notes’’) in an offering subject to Rule 144A and Regulation S of the Securities Act of 1933, as amended and received net cash proceeds of approximately $161.1 million, after deduction of issuance costs of approximately $3.9 million which have been included in deferred financing costs in the balance sheets. The OrCal Senior Secured Notes have been rated BBB− by Fitch. The OrCal Senior Secured Notes have a final maturity date of December 30, 2020. Principal and interest on the OrCal Senior Secured Notes are payable in semi-annual payments which will commence on June 30, 2006. The OrCal Senior Secured Notes are collateralized by substantially all of the assets of OrCal, including OrCal and its subsidiaries’ capital stock, all real property, contractual rights, revenues and bank accounts, intercompany notes, certain insurance policies and are fully and unconditionally guaranteed by all of the wholly owned subsidiaries of OrCal. There are various restrictive covenants under the OrCal Senior Secured Notes, which include limitations on additional indebtedness and payment of dividends.

OrCal may redeem the OrCal Senior Secured Notes, in whole or in part, at any time at a redemption price equal to the principal amount of the OrCal Senior Secured Notes to be redeemed plus accrued interest, and a ‘‘make-whole’’ premium. Upon certain events, as defined in the indenture governing the OrCal Senior Secured Notes, OrCal may be required to redeem a portion of the OrCal Senior Secured Notes at a redemption price of 100% of the principal amount of the OrCal Senior Secured Notes being redeemed plus accrued interest. Management believes that as of March 31, 2006, the Company was in compliance with the covenants contained in the indentures governing the OrCal Senior Secured Notes.

Debt service reserve

As required under the terms of the OrCal Senior Secured Notes, OrCal maintains an account, with a required minimum balance, which may be funded by cash or backed by letters of credit in an amount sufficient to pay scheduled debt service amounts, including principal and interest, due under

16

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

the terms of the OrCal Senior Secured Notes in the following six months. This restricted cash account is classified as current on the balance sheet. As of March 30, 2006 and December 31, 2005, the balance of such account was $13.7 million and $9.5 million, respectively, in cash.

NOTE 7 – REFINANCING OF THE PUNA PROJECT

On May 19, 2005, the Company’s wholly owned subsidiary in Hawaii, Puna Geothermal Ventures (‘‘PGV’’) completed a refinancing of the cost of the June 2004 acquisition of the Puna geothermal power plant located on the Big Island of Hawaii (the ‘‘Puna Project’’). A secondary stage of the lease transaction which refinanced two new geothermal wells that PGV drilled in the second half of 2005 (for production and injection) was completed on December 30, 2005. The refinancing was concluded with financing parties by means of the lease-leaseback transactions described below.

Pursuant to a 31-year head lease (the ‘‘Head Lease’’), PGV leased its geothermal power plant to an unrelated company in return for prepaid lease payments in the total amount of $83.0 million (the ‘‘Deferred Lease Income’’). The total costs of the leased assets as of March 31, 2006 and December 31, 2005, amounted to $57.9 and $58.3 million, net of accumulated depreciation of $4.3 and $3.7 million, respectively. The unrelated company (the ‘‘Lessor’’) simultaneously leased-back the Puna Project to PGV under a 23-year lease (the ‘‘Project Lease’’). PGV’s rent obligations under the Project Lease will be paid solely from revenues generated by the Puna Project under a power purchase agreement that PGV has with Hawaii Electric Light Company (‘‘HELCO’’). The Head Lease and the Project Lease are non-recourse lease obligations to the Company. PGV’s rights in the geothermal resource and the related power purchase agreement have not been leased to the Lessor as part of the Head Lease but are part of the Lessor’s security package.

Neither the Head Lease nor the Project Lease meet one or more of the criteria set forth in paragraph 7 of SFAS No. 13, Accounting for Leases, for classification as capital leases and, therefore, are accounted for as operating leases. The Deferred Lease Income will be amortized, using the straight-line method, over the 31-year term of the Head Lease. Deferred transaction costs amounting to $4.3 million will be amortized, using the straight-line method, over the 23-year term of the Project Lease.

Depository accounts

As required under the terms of the lease agreements, there are certain reserve funds that need to be managed by the indenture trustee in accordance with certain balance requirements and which are included in the balance sheets as of March 31, 2006 and December 31, 2005 in restricted cash accounts and are classified as current as they are used to pay current payments.

Revenue account

PGV deposits all revenues received into the revenue account. Such amounts are used to pay operating expenses and fund the depository accounts as described below, but the funds are only available to PGV upon submission of draw requests by PGV to the bank. As such amounts are fully restricted to use by PGV, they have been classified as current restricted assets as the amounts are used to pay current operating expenses. As of March 31, 2006 and December 31, 2005, the balance of such account was $3.3 and $3.5 million, respectively.

Lease rent reserve accounts

PGV maintains accounts to fund the full amount of the next rent payment according to the payment schedule. As of March 31, 2006 and December 31, 2005, the balance of such accounts was $6.2 and $2.3 million, respectively.

17

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Well maintenance reserve account

PGV maintains a reserve account to fund well field works including the drilling of new wells. The reserve should be met on a monthly basis, in amounts equal to 1/12 of a scheduled annual contribution. As of March 31, 2006 and December 31, 2005, the balance of such account was $0.6 and $0.5 million, respectively.

Capital expenditure account

PGV maintains an account to fund its capital expenditures. Deposits to this account are at PGV’s sole discretion, but no distributions are allowed to Ormat Nevada Inc., a wholly owned subsidiary of the Company, if the balance is less than $0.5 million. As of March 31, 2006 and December 31, 2005, the balance in this account was $0.5 million and $0, respectively.

Distribution account

PGV maintains an account to deposit its remaining cash, after making all of the necessary payments and transfers as provided for in the lease agreements, in order to make distributions to Ormat Nevada Inc. The distributions are allowed only if PGV maintains various restrictive covenants under the lease agreements, which include limitations on additional indebtedness. As of March 31, 2006 and December 31, 2005, the balance of such account was $3.8 and $6.8 million, respectively. This amount can be distributed to Ormat Nevada Inc. currently and has been classified as current restricted assets.

In anticipation of the above refinancing, on February 25, 2005, the Company entered into a treasury rate lock agreement with a financial institution, at a locked-in treasury rate of 4.31%, with a notional amount of $52.0 million, which terminated on March 31, 2005. The rate lock was based on a 10-year treasury security that matures on February 15, 2015. On March 31, 2005, the Company received from the counterparty to the rate lock agreement an amount of $658,000. This amount net of related taxes of $250,000 is recorded as ‘‘Gain in respect of derivative instruments designated for cash flow hedge, net of related taxes’’ under ‘‘Other comprehensive income (loss)’’ and is amortized over the 23-year term of the Project Lease.

On April 20, 2005, the Company entered into a new treasury rate lock agreement with the same financial institution, at a locked-in treasury rate of 4.22%, with a notional amount of $52.0 million and originally scheduled to terminate on May 2, 2005. The new rate lock agreement’s termination date was extended until May 18, 2005 at a new locked-in treasury rate of 4.25%. The rate lock was based on a 10-year treasury security that matures on February 15, 2015. There was no consideration paid by either party as a result of the extension. On May 18, 2005, the Company paid the counterparty to the new rate lock agreement the amount of $762,000. This amount net of related taxes of $290,000 is recorded as ‘‘Loss in respect of derivative instruments designated for cash flow hedge, net of related taxes’’ under ‘‘Other comprehensive income (loss)’’ and is amortized over the 23-year term of the Project Lease.

NOTE 8 – STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted SFAS No. 123R, using the modified prospective application transition method, which establishes accounting for share-based payment transactions in which a company obtains employee services in exchange for: (i) equity instruments of the company, or (ii) liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments SFAS No. 123R eliminates the ability to account for employee share-based payment transactions using APB No. 25 and related interpretations and requires that such transactions be accounted for using the grant date fair value based method. SFAS

18

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

No. 123R applies to all awards granted or modified after January 1, 2006 (the ‘‘effective date’’). In addition, compensation cost for the unvested portion of previously granted awards that remain outstanding on the effective date shall be recognized on or after such date, as the related services are rendered, based on the awards’ grant date fair value as previously calculated for the pro forma disclosure under SFAS No. 123, Accounting for Stock-Based Compensation. The Company previously applied APB No. 25 and related interpretations and provided pro forma disclosure of SFAS No. 123.

Prior to the adoption of SFAS No. 123R

Prior to the adoption of SFAS 123R, the Company provided the disclosure required under SFAS 123, as amended by SFAS No. 148, Accounting for Stock-based Compensation — Transition and Disclosure.

Pro forma net income and earnings per share for the three months ended March 31, 2005 was as follows:

				Three months ended March 31, 2005
				(In thousands, except per share amounts)
Net income, as reported				$	3,908
Add: Total stock-based employee compensation expense included in reported net income, net of tax					25
Deduct: Total stock-based employee compensation expense in respect of the Company's stock options determined under fair value based method, net of tax					(12	)
Deduct: Total stock-based employee compensation expense in respect of the Parent's stock options determined under fair value based method, net of tax					(80	)
Pro forma net income				$	3,841
Basic and diluted earnings per share:
As reported				$	0.12
Pro forma				$	0.12

Impact of the adoption of SFAS No. 123R

As stated above, the Company elected to adopt the modified prospective application method provided by SFAS No. 123R. Accordingly, during the three months ended March 31, 2006, the Company recorded stock-based compensation costs totaling the amount that would have been recognized had the fair value method been applied since the effective date. Previously reported amounts have not been restated.

As required by SFAS No. 123R, management has made an estimate of expected forfeiture and is recognizing compensation costs only for those equity awards expected to vest. The cumulative effect of initially adopting SFAS No. 123R is not material.

As of January 1, 2006, the Company had an unrecorded deferred stock-based compensation balance related to stock options of $813,000 before estimated forfeiture. In the Company’s pro forma disclosure prior to adoption of SFAS No. 123R, the Company accounted for forfeiture upon occurrence. SFAS 123R requires forfeiture to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeiture differ from those estimates. Accordingly, as of January 1, 2006, the Company estimates that the unrecorded stock-based compensation balance related to stock options was adjusted to $772,000 after estimated forfeitures of 5%.

During the three months ended March 31, 2006, the Company did not grant any stock options.

19

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

During the three months ended March 31, 2006, the Company recorded stock-based compensation related to stock options as follows:

				Three Months Ended March 31, 2006
				(dollars in thousands, except per share amounts)
Cost of Revenues				$	70
Selling and marketing expenses					70
General and administrative expenses					71
Total stock-based compensation expense				$	211
Effect on basic and diluted earnings per share				$	0.01

As of March 31, 2006, the unrecorded deferred stock-based compensation balance related to stock options was $561,000 and will be recognized over an estimated weighted average amortization period of 1.8 years.

Valuation Assumptions

The Company calculated the fair value of each option on the date of grant using the Black-Scholes option pricing model using the following assumptions:

				Year Ended December 31,
				2005				2004				2003
For stock options issued by the Company:
Risk-free interest rates					4.5	%			3.6	%			—
Expected lives (in years)					5				5				—
Dividend yield					1	%			4	%			—
Expected volatility					32	%			40	%			—
For stock options issued by the Parent:
Risk-free interest rates					—				4.7	%			4.7	%
Expected lives (in years)					—				5				5
Dividend yield					—				0	%			0	%
Expected volatility					—				28	%			31	%

Stock Option Plans

The 2004 Incentive Compensation Plan

On October 21, 2004, the Company’s Board of Directors adopted the 2004 Incentive Compensation Plan (‘‘2004 Incentive Plan’’), which provides for the grant of the following types of awards: incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights, stock units, performance awards, phantom stock, incentive bonuses and other possible related dividend equivalents to employees of the Company, directors and independent contractors. Under the 2004 Incentive Plan, a total of 1,250,000 shares of the Company’s common stock have been reserved for issuance, all of which may be issued as options or as other forms of awards. Options granted to employees under the 2004 Incentive Plan cliff vest and are exercisable from the grant date as follows:

20

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

25% after 24 months, 25% after 36 months, and the remaining 50% after 48 months. Options granted to non-employee directors under the 2004 Incentive Plan cliff vest and are exercisable one year after the grant day. Vested options may be exercised for up to ten years from the date of grant. On November 9, 2005, the Company filed a registration statement on Form S-8 with the SEC with respect to the shares of common stock underlying such grants.

The following table summarizes the status of the 2004 Incentive Plan as of and for the periods presented below (shares in thousands):

				Three Months Ended March 31, 2006
				Shares				Weighted Average Exercise Price
Outstanding at beginning of period					236			$	15.54
Granted, at fair value*					—				—
Exercised					—				—
Forfeited					(7	)			15.00
Outstanding at end of period					229				15.56
Options exercisable at end of period					15				15.00
Weighted-average fair value of options granted during the period								$	—
* Including options granted to directors								$	—

As of March 31, 2006, 1,021,350 shares of the Company’s common stock are available for future grants.

In April 2006, the Company granted incentive stock options to purchase 299,500 shares of the Company’s common stock to employees at an exercise price of $34.13 per share, under the 2004 Incentive Plan.

The following table summarizes information about stock options outstanding at March 31, 2006 (shares in thousands):

Exercise Price				Number of Shares Outstanding				Weighted Average Remaining Contractual Life in Years				Number of Shares Exercisable				Weighted Average Remaining Contractual Life in Years
$	15.00				204				8.6				15				8.6
	20.10				25				8.6				—				—
					229				8.6				15				8.6

21

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes information about the status of the Company’s nonvested shares as of March 31, 2006, and changes during the three-month period then ended (shares in thousands):

				Number of Shares				Weighted Average Grant Date Fair Value
Nonvested outstanding at January 1, 2006					221			$	0.96
Granted					—				—
Vested					—				—
Forfeited					(7	)			0.96
Nonvested outstanding at March 31, 2006					214			$	0.96

As of March 31, 2006, there was $186 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2004 Incentive Plan. That cost is expected to be recognized over a weighted average period of 1.6 years.

The Parent’s Stock Option Plans

Ormat Industries Ltd. (the ‘‘Parent’’) has four stock option plans: the 2001 Employee Stock Option Plan, the 2002 Employee Stock Option Plan, the 2003 Employee Stock Option Plan, and the 2004 Employee Stock Option Plan (collectively ‘‘the Parent’s Plans’’). Options under the 2004 Employee Stock Option Plan were granted in April 2004. Under the Parent’s Plans, employees of the Company were granted options to purchase the Parent’s ordinary shares, which are registered and traded on the Tel-Aviv Stock Exchange. Options under the Parent’s Plans cliff vest and are exercisable from the grant date as follows: 25% after 24 months, 25% after 36 months, and the remaining 50% after 48 months. Vested options may be exercised for up to five years from the date of grant. The maximum aggregate number of shares that may be optioned and sold under the Parent’s Plans is determined each year by the Parent’s board of directors of the Parent, and is equal to the number of options granted during each plan year. None of the options are exercisable or convertible into shares of the Company.

As of March 31, 2006, no shares of the Parent’s ordinary shares are available for future grants.

22

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the status of the Parent’s Plans as of and for the periods presented below (shares in thousands):

				Three Months Ended March 31, 2006
				Shares				Weighted Average Exercise Price
Outstanding at beginning of period					1,747			$	2.32
Granted, below fair value					—				—
Exercised					(113	)			1.87
Expired					(32	)			2.26
Forfeited					(25	)			3.14
Outstanding at end of period					1,577				2.45
Options exercisable at end of period					632				1.55
Weighted-average fair value of options granted during the period								$	—

The following table summarizes information about stock options outstanding at March 31, 2006 (shares in thousands):

Exercise Price				Number of Shares Outstanding				Weighted Average Remaining Contractual Life in Years				Number of Shares Exercisable				Weighted Average Remaining Contractual Life in Years
$	1.41				366				1.0				366				1.0
	1.75				608				2.0				266				2.0
	3.78				603				3.1				—				—
					1,577				2.1				632				1.4

The following table summarizes information about the status of the Parent’s nonvested shares as of March 31, 2006, and changes during the three-month period then ended (shares in thousands):

				Number of Shares				Weighted Average Grant Date Fair Value
Nonvested outstanding at January 1, 2006					1,451			$	2.54
Granted					—				—
Vested					(481	)			1.53
Forfeited					(25	)			3.14
Nonvested outstanding at March 31, 2006					946			$	3.04

As of March 31, 2006, there was $376,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Parent’s Plans. That cost is expected to be recognized over a weighted average period of 1.88 years. The total fair value of shares vested under the Parent’s Plan during the three months ended March 31, 2006, was $736,000.

NOTE 9 – BUSINESS SEGMENTS

The Company has two reporting segments that are aggregated based on similar products, market and operating factors: electricity and products segments. Such segments are managed and reported separately as each offers different products and serves different markets. The electricity segment is

23

---

Table of Contents

ORMAT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

engaged in the sale of electricity pursuant to power purchase agreements. The products segment is engaged in the manufacture, including design and development, of turbines and power units for the supply of electrical energy and in the associated construction of power plants utilizing the power units manufactured by the Company to supply energy from geothermal fields and other alternative energy sources. Transfer prices between the operating segments are determined based on current market values or cost plus markup of the seller's business segment.

Summarized financial information concerning the Company’s reportable segments is shown in the following tables:

				Electricity				Products				Consolidated
				(in thousands)
Three months ended March 31, 2006:
Net revenues from external customers				$	43,733			$	16,588			$	60,321
Intersegment revenues					—				16,025				16,025
Operating income					11,312				3,458				14,770
Segment assets at period end*					900,050