ADDRESS OF THE COB

HS Orka had an exceptional year in 2017. Production of electricity increased and decline in production at Reykjanes in 2016 was mostly recovered. Our debt was refinanced and new projects were financed, through a financing arrangement with Arion banki. It is a milestone achievement, to arrange financing with an Icelandic bank. Our balance sheet remains strong, with equity ratio of 73% at year end. Our management team performed very well and several growth projects were advanced during the year. One of the outstanding achievements was the successful completion of drilling of the deep well IDDP-2, drilled below the Reykjanes field.

At Reykjanes, a surprising decline in the geothermal resource followed a maintenance shutdown in mid-2016. We realized that this was due to the quenching of some of the steam cap by fluids that rose during the shutdown and our increased re-injection of fluids into the reservoir. We have taken steps to reduce the re-injection and re-build the steam cap and production has improved significantly in recent months, and aim to reach full capacity during 2018. At the Svartsengi field, on the other hand, production has been extremely successful and electricity production has been increased even further, through connection of a new well. Production of hot water and other value streams has been very good.

We met our budget for operating results of the year despite difficult conditions at Reykjanes in the first three quarters of the year. Revenue from power sales to the aluminum industry rose due to increased aluminum prices. Retail sales of electricity are growing significantly and new important customers have chosen us to provide their power. A serious growth is in power sales to data centers.

Although HS Orka is currently retaining most of its operating cash flow for debt service and potential expansions, a flow-through dividend of ISK 420 million was distributed to shareholders in 2017 representing dividends received from the Blue Lagoon resort, which is 30% owned by HS Orka. The Blue Lagoon continued to outperform expectations in 2017 due to increased visitor attendance and operational excellence. The Blue Lagoon will soon complete construction of a new spa facility and a luxury hotel, to be in operation this spring.

Our first hydropower project is now in the early construction phase. The 10 MW Brúarvirkjun project is aimed to be commissioned by year end 2019.

In August 2016 we started drilling the IDDP-2 well at Reykjanes, in partnership with The Iceland Deep Drilling Project (IDDP). Our main partner in the drilling operation was Norwegian Statoil and drilling was carried out by Iceland Drilling Company. The well was completed in January 2017 at a depth of 4.650 m. First results are extremely exciting, indicating a productive field underneath the current production field at Reykjanes. Temperatures have been measured well above 400°. This successful well is likely to have very significant positive impact on HS Orka after it is further tested this and next year, and indeed on the entire geothermal industry.

The Resource Park continues to grow. A new fish farm near Svartsengi, owned and operated by Matorka, started operation in 2017. While HS Orka employs around 60 people, the whole of the resource park employs over 1.000 people. And we have completed construction of our gas abatement facility in Svartsengi, cleaning H₂S and CO₂ from the emitting steam. This is an important environmental and financial step, as the CO₂ will later be sold as a new product from the Svartsengi plant. It is our goal to continue the Resource park concept to bring benefits to many parties by using our resources in the best possible way, to optimize the outcome for society and the environment. We are very proud to be using nature’s geothermal asset, our outstanding employees’ expertise and our capital resources to provide clean energy to all of our customers.

In February 2018 Innergex Renewable Energy Inc. acquired all shares of Alterra Power Corporation. Innergex is a Montreal based clean energy company, operating hydro, wind and solar projects in N-America as well as in France and now through us also geothermal in Iceland. We feel that this change will be very positive for HS Orka, as the majority shareholder is now larger and stronger than before. Innergex is listed on the Toronto Stock Exchange (TSX:INE, see also Innergex.com).

I wish to thank all of HS Orka’s employees, managers and directors for their strong and unselfish efforts made on behalf of the company, often under challenging circumstances. I also wish to thank HS Orka’s shareholders, Alterra Power Corp., Jarðvarmi and Fork, who continue to work well together, with good cooperation and goodwill in addressing the affairs of the company. And special thanks to the Alterra members of management who have served as directors for HS Orka and are now leaving the organization. It is my hope that 2018 will be another year of steady and positive results for the company.